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NYT FRANKFURT, Germany Matthias Mueller was supposed to be part of the cleanup crew at Volkswagen. Named chief executive after its emissions deception, Mueller vowed to overhaul the carmaker’s culture by decentralising decisionmaking and encouraging employees to speak their minds. But three lawsuits now say Mueller was part of the problem. Complaints by Maryland, Massachusetts and New York filed Tuesday claim that Mueller was, at the very least, aware of the engineering problems that had prompted Volkswagen to take illegal shortcuts to pass emissions tests. The use of so-called defeat devices to fool regulators was part of “a cunningly cynical fraud,” said Eric T Schneiderman, the New York attorney general. “The defeat devices were part of a wilful and systemic scheme linked to the highest levels.” The accusations put the credibility of Mueller and the rest of the management team in the cross hairs. Almost all are longtime insiders who will have trouble arguing they never noticed a pattern of wrongdoing that spanned a decade and involved millions of cars. The financial toll from the deception is also rising, adding another layer of complexity to Mueller’s task. The company on Wednesday increased its estimate of the scandal-related costs, saying they would consume a big chunk of profit in the second quarter, cutting into its operating earnings by 2.2 billion euros, or about $2.4 billion. A little more than a month ago, Mueller said the German carmaker had set aside enough money, 16.2 billion euros, to cover the financial fallout from its deception. So far, there is little sign that the swelling tide of bad news will provoke a management shakeup. On the contrary, inquiries about high-level consequences were met with indignation at company headquarters in Wolfsburg, Germany. Volkswagen repeated on Wednesday that the accusations against Mueller were “groundless.” If anything, Mueller is likely to draw strength from a preliminary earnings report, also out on Wednesday, that showed improvement in the company’s core business and prompted shares to rise. Even though the company said it would book billions more to cover the cost of the scandal, investors had expected worse. In Germany, there was also little sense of outrage about the claims in the state lawsuits. Some people viewed them as just another way to bleed one of the country’s most important employers, with accusations made by officials whose authority means little to people here. “I don’t know whether it’s just people who want money from VW,” said Ulrich Hocker, president of a prominent shareholder advocacy group known by its German initials DSW. “I don’t think Volkswagen will let their man be shot down by one lawsuit.” But the company’s evident determination to hunker down in the face of accusations by Schneiderman, as well as his counterparts from Massachusetts and Maryland, could prove costly. Authorities at the US Justice Department, who are conducting a criminal investigation of Volkswagen, have signaled they are fed up with company executives who get away with serious malfeasance. Volkswagen could be slapped with higher fines if it is perceived as stonewalling, said Jeff Thinnes, a consultant who advises large companies on ethics and compliance issues. “Across the board in these Department of Justice investigations, one of the first things they look for is people being held accountable,” Thinnes said. Thinnes also questioned whether someone who has spent his whole career at the company, as Mueller has, is the right person to change the company’s culture. The latest accusations “should cause Volkswagen to reflect on whether they are taking the right actions as far as the senior management is concerned,” Thinnes said. For Mueller and the rest of Volkswagen, the future, in part, will depend on the fallout, financial and otherwise. Mueller is scrambling to contain the damage after admitting late last year to installing software to cheat emissions tests on 600,000 diesel cars in the United States and on 11 million worldwide. The deception spurred a raft of investigations and lawsuits across the globe. Volkswagen appeared to address a major piece of the financial uncertainty when it settled with US regulators and car owners last month for about $15 billion, a record. But the three states going after Volkswagen for fraud are seeking additional fines. And other investigations loom, like the criminal inquiry by the Justice Department into the carmaker and its executives. The carmaker’s underlying business is showing signs of stabilizing. Volkswagen, which unexpectedly updated its outlook, said it would report an operating profit of 7.5 billion euros ($8.3 billion) for the first six months of 2016. Buoyed by the strength, the carmaker’s shares gained as much as 6.2 percent in trading in Germany on Wednesday. But the legal mess is eating away at the profit. After accounting for the new scandal- related costs, those same earnings will come in at 5.3 billion euros. That is down from 6.8 billion euros for the same period a year earlier. Based on previous earnings reports, the announcement implied that operating profit for the second quarter, after subtracting costs of the scandal, would be about 2.2 billion euros. That compares with 3.5 billion euros in the second quarter of 2015, before the company admitted to the emissions deception. Volkswagen is scheduled to provide a detailed report on second-quarter earnings on July 28.
