Germany ramps up Dieselgate probe, searching Audi offices, Volkswagen HQ, law firm

March 20, 2017

The ongoing scandal known as Dieselgate appears be winding down in the U.S.--at least as far as the federal government is concerned. In Germany, however, things look to be getting worse, not better, for Europe's biggest automaker, and that could mean renewed troubles for Volkswagen on this side of the pond. 

Within the past week, Volkswagen has been hit by a total of ten surprise investigations. Officials searched company offices and even a law firm, looking for additional information that might show what and when Volkswagen knew about the emissions-test-cheating devices installed on its diesel vehicles. 

Raids 1-9

Nine of those probes came last Wednesday, as investigators barged into two of Audi's biggest manufacturing facilities in Ingolstadt and Neckarsulm. 

Unfortunately for Audi, the incidents occurred in the middle of a major press conference, during which Audi presented its 2016 earnings report. Awkward.

Simultaneous raids were conducted in Volkswagen's headquarters in Wolfsburg and at six other sites. The Wolfsburg investigation targeted 47 employees, including Volkswagen's CEO Matthias Muller and Audi chief Rupert Stadler. The workers' calendars and even the memory cards on their phones were inspected for evidence.

Interestingly, all ten probes centered on larger, 3.0-liter diesels that Audi made for the U.S. market, not on vehicles sold in Europe. Some 80,000 of those SUVs were sold under the Audi, Porsche, and VW badges between 2009 and 2015, and Volkswagen recently reached a settlement to fix and buy back those vehicles. 

However, investigators seem to suspect that the vehicles contain additional defeat mechanisms to help them cheat on emissions tests. What information they might have to suggest such things is unknown, though it's been well reported that Audi developed a prototype of a diesel defeat device in 1999

Raid 10

The tenth probe came the following day, as prosecutors in Munich ordered a search of the Jones Day law firm. That company was hired by Volkswagen to conduct an internal investigation and find out who was responsible for the Dieselgate scandal.

Ultimately, Jones Day determined that a handful of Volkswagen higher-ups were directly linked to the scandal. However, it determined that the company's board of directors was innocent.

What makes German officials think that there might be more to the story? Not being German officials, we can't say for sure. However, they may be suspicious because the full text of the Jones Day report was never released. It was only published in summary form for U.S. investigators. 

America's recent issuance of arrest warrants for six upper-level managers at Volkswagen might also suggest that the Volkswagen rabbit hole runs far deeper than expected. 

Volkswagen officials, by the way, are deeply unhappy about the raid and have publicly called it "unacceptable". 

Where does this all lead?

Until we have more information about the findings from these raids, it's hard to say how any of this might affect Volkswagen or its family of brands. Given that some 100 workers were assigned to last Wednesday's investigations, however, it's reasonable to think that German authorities strongly believe that there are more details to uncover.

If those details are concerned only with vehicles made for the American market, they could spark new charges in the U.S. for Volkswagen, along with new fines and new image problems.

If the details concern German vehicles, too, the situation could be much worse, as the company is already threatened by a number of consumer lawsuits in Germany. Though the country doesn't have class-action lawsuits like America does, new details could cause judges to look far more favorably on individual plaintiffs. 

The raids also come at a tough time for Volkswagen, cash-wise. On Friday, the company reported that February sales were down nearly a full percentage point compared to February 2016, due to smaller demand in China and Western Europe. So far in 2017, Volkswagen deliveries are 2.6 percent below the same period in 2016.  

Note: for purposes of clarity, "Volkswagen" has been used to refer to the Volkswagen Group parent company, while "VW" has been used to refer to the company's popular mass-market brand of automobiles.

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