A Clear Warning
Mr. Gottweis's memo delivered a clear warning to the very highest level of management of the risk that Volkswagen had been caught using an illegal defeat device. Although Volks wagen does not dispute that Mr. Winterkorn received the Gottweis report, the company has argued that there was no proof that Mr. Winterkorn read the memo, which was included in a stack of other documents.
If Volkswagen had been honest with American officials at that point, the damage to the company's reputation and finance would very likely heve been serious but not devastating. Similar cases suggest that Volkswagen would have paid a fine in the hundreds of millions of dollars.
But Volkswagen did not exploit the chance to be transparent.
An internal Volkswagen presentation, prepared soon after executives learned of the West Virginia tests, discussed various strategies the company could adopt to allay suspicions. One option was for Volkswagen to simply refuse to acknowledge a problem. Another option was to offer to update the engine software. But the update would not bring emissions down to the required levels, the presentation said. In the worst case, Volkswagen could admit there was a problem and buy back diesel cars sold in the United States.
“It should first be decided whether we are honest,”Mr. Schmidt wrote a colleague, according to the criminal complaint against him. The comment was cited as evidence that Mr. Schmidt was aware Volkswagen had something to hide.
The West Virginia report did not accuse Volkswagen of wrongdoing. But Mr. Ayala of the California Air Resources Board, or CARB, was sufficiently bothered by the results to initiate a more intense inquiry, taking advantage of CARB's clout as a regulator. Ayala collected small fleet of Volkswagens to test, borrowing the cars from VW owners, who were paid a fee and received temporary replacement vehicles.
The tests performed by CARB's team confirmed that something was wrong but did not explain why. At that point, CARB officials say, they were not trying to expose wrongdoing. They were just trying to figure out what the problem was, so that it could be fixed.
It became a slow process.
CARB would present the results of its testing. Volkswagen, which has a technical facility in suburban Los Angeles, would perform its own tests. Then engineers from CARB and Volkswagen would meet to compare notes. The meetings were highly technical and lasted hours, sometimes all day.
‘A couple of more questions’
“For every answer we got, we generated a couple more questions,” Mr. Ayala said.
As the back-and-forth dragged on without a solution, Mr. Ayala grew impatient. Volkswagen representatives gave answers them regulators regarded as evasive, nonsensical or dismissive. CARB's testing was wrong, Volkswagen complained. The outside air pressure threw off the results. The routes followed were inconsistent.
Efforts to figure out what was amiss with the Volkswagens began consuming so much of CARB technicians' time, as well as space in the agency's test bays, that other essential work was crowded out. Mr. Ayala also grew concerned that some 70,000 Volkswagen diesels were on California roads, polluting more than allowed.
To try to resolve the engineering stalemate, officials from the both sides held a conference call on Oct. 1, 2014. The Volkswagen representatives included Mr. Schmidt Stuart Johnson, an American who was his second in command. The Volkswagen executives unveiled a plan for a recall to update the engine software for diesels starting with the 2009 model year.
The planned recall seemed as if it were a concession by Volkswagen, but had the effect of a delaying tactic. The company still did not provide an honest explanation for the excess emissions. Instead, Volkswagen told CARB officials, “The new software incorporates the latest engineering experiences to enhance the efficiency” of pollution control equipment.
Accepting Volkswagen's assurances that the recall would fix excess emissions, officials from CARB and the Environment Protection Agency allowed the 2015 diesels to go on sale.
Enhance the ‘Defeat Device’
Volkswagen eventually updated the software in 280,000 vehicles. Afterward, the cars polluted less than they had, but the upgrade did not remove the illegal software code or bring emissions to within legal limits. In fact, Volkswagen brazenly used the recall to enhance the ability of the software to recognize when a car was being tested.
In June 2015, CARB's tests showed that recall and software update had not solved the problem of excess pollution. Output of nitrogen oxides rose after about 23 minutes of driving, CARB said, one minute after the end of the standard test cycle.
CARB demanded that Volkswagen show it the software code that governed the emissions control system in the new 2016 models, which were already rolling off assembly lines. CARB also wanted to see the code in older models, so it could do a before-and-after comparison. If Volkswagen failed to comply with its request, CARB said, the agency would refuse to approve the 2016 models for sale in California.
In Wolfsburg, a Volkswagen committee concerned with safety and regulatory matters discussed the growing crisis in the United States at a meeting on July 21, 2015. The committee decided to create a task force to achieve “fast and effective de-escalation of the issue with officials,” an internal memo said. Volkswagen should approach the regulators “offensively.”
On July 27, 2015, engineers briefed Mr. Winterkorn, the Volkswagen chief executive, on the diesel problem. In court documents, Volkswagen lawyers maintain that Mr. Winterkorn at that time still did not understand the gravity of the problem.
