Audi Chief Executive Arrested Over Diesel Scandal

Posted June 18, 2018 12:54 p.m. EDT

By any standard, Rupert Stadler, the chief executive of Volkswagen’s Audi luxury car division, is a survivor.

When evidence emerged that Audi had played a major role in developing illegal emissions software on Stadler’s watch, he and most other top executives kept their jobs. When an outside monitor faulted Volkswagen for failing to hold executives accountable, Stadler stayed in place. And when Munich prosecutors identified him last week as a suspect in their investigation and searched his home for evidence, Volkswagen said its management board had not even discussed his dismissal.

That run may well be ending, however. On Monday, German authorities arrested Stadler, 55, holding him indefinitely pending trial, an acute embarrassment for Volkswagen — and one that could finally prod the company to action.

Stadler’s arrest is the latest example of German officials widening their investigation into diesel cheating at Volkswagen. The company was found in 2015 to be using software to artificially lower a vehicle’s emissions levels when it was undergoing tests. Thus far, the inquiry into the scandal has largely been led by authorities in the United States, where the carmaker has had to pay tens of billions of dollars in fines and settlements, and where several executives have been arrested or sentenced to jail.

In Germany, the investigation had been slower in ramping up, until recently. Last week, Volkswagen agreed to pay a fine of 1 billion euros, or about $1.16 billion, for failing to properly supervise the staff members who came up with the illegal software. Then on Monday, Stadler was detained.

It is almost unheard-of for a German judge to jail a corporate executive of Stadler’s rank. The decision indicates the judge was convinced there was a risk that Stadler would flee or obstruct the investigation, which prosecutors have said involves about 70 suspects.

Even then, Volkswagen’s reaction has been hesitant. The company’s supervisory board, which oversees top management, met Monday and was expected to appoint an interim replacement for Stadler, leaving open the possibility that he would return at some point.

Volkswagen’s reluctance to take action against Stadler is perhaps the starkest example yet of the company’s approach to the emissions scandal more than 2 1/2 years after it erupted.

Time and again, the company has clung to top executives who, if not directly implicated, held positions of responsibility while an enormous emissions cheating scheme was taking place under their noses. In the case of Stadler, himself a member of Volkswagen’s management board, the carmaker said he was innocent until proven guilty, granting a top executive much more benefit of the doubt than ordinary employees would typically receive.

Carl Tobias, a professor at the University of Richmond School of Law in Virginia, said it was a mistake for Volkswagen to apply the standard used in a courtroom when determining whether someone was fit for top management.

“They are mistaken by using this as an excuse,” he said. “It seems like the board and the company should be taking into account the terrible publicity they continue to have. It seems very late to think about replacing him.”

In fact, Stadler has been rewarded. He was paid about 5 million euros in salary and bonuses for 2017, up from 3 million euros in 2016, according to Volkswagen’s annual report.

The company’s stance reflects the importance placed on loyalty at Volkswagen, as well as the insular mentality that prevails at corporate headquarters in Wolfsburg.

But it also means that the scandal continues to generate headlines and exert a corrosive effect on Volkswagen’s reputation, endangering the jobs of tens of thousands of employees who had nothing to do with the emissions cheating. The arrest of an executive still on the job is much bigger news than the arrest of a manager who has already been pushed out.

Volkswagen’s failure to hold executives accountable was one of the shortcomings identified by Larry Thompson, a former deputy attorney general who is monitoring Volkswagen’s compliance with the terms of a settlement of criminal charges in the United States. The company pleaded guilty early last year to charges that included conspiracy to violate the Clean Air Act and obstruction of justice.

In a report in April this year, Thompson also said that Volkswagen was not doing enough to create a more ethical corporate culture. Stadler is the highest-ranking Volkswagen executive still in his post to be identified as a suspect in the diesel emissions case, which is the subject of investigations in both Germany and the United States.

Martin Winterkorn, the former chief executive, resigned in September 2015, days after the Environmental Protection Agency accused Volkswagen of equipping diesel vehicles sold in the United States with software that delivered acceptable emissions only when the engine computer detected that the cars were being tested.

At other times, the cars emitted far more nitrogen oxide, a lung irritant that also causes smog, than permitted.

Winterkorn, who has been indicted by U.S. authorities, was the only member of the management board to suffer consequences related to the scandal — at least until Monday.

Volkswagen’s share price dropped 3.3 percent in afternoon trading in Europe to 153.3 euros, falling at one point to its lowest level since October.