Rupert Stadler, chief executive officer of Audi AG, looks on as he unveils the Audi AG A8 sedan automobile during a launch event in Barcelona, Spain. (Photographer: Pau Barrena/Bloomberg)  

VW Stakeholders Fail to Select New Audi Chief in 6-Hour Meeting

(Bloomberg) -- Volkswagen AG’s board was unable to agree on a new leader for its Audi unit after more than six hours of debate Monday, with some members balking at making a hasty choice after the unexpected arrest of the brand’s longtime chief.

Plans by VW stakeholders to quickly appoint Audi sales boss Bram Schot as the unit’s interim chief executive officer following the arrest of Rupert Stadler encountered resistance at a meeting of supervisory board members, and it’s unclear when the situation will be resolved, according to people familiar with the matter.

“The supervisory board members of VW and Audi haven’t reached a decision yet today and continue to explore the situation,” the automaker said in an emailed statement late Monday. A company spokesman declined to elaborate. Stadler’s arrest, over his role in the manufacturer’s diesel-emissions scandal, is the first among VW group’s management board members.

VW Stakeholders Fail to Select New Audi Chief in 6-Hour Meeting

Board members had planned a routine gathering at the headquarters in Wolfsburg, Germany, but they were caught by surprise by Stadler’s arrest, and the get-together quickly escalated into a crisis meeting, said the people, who asked not to be identified because the deliberations aren’t public. Audi is the VW group’s largest profit contributor and it can ill-afford a vacuum at the top. Stadler was arrested earlier Monday at his home in Ingolstadt, Germany.

With Schot, Audi’s head of sales and marketing since September, VW would be going with an executive so far untainted by the emissions scandal. The 56-year-old joined VW from Daimler AG in 2011, holding positions at the commercial-vehicles unit. But some opposition emerged to choosing Schot, and the parties -- including board members, labor representatives and government officials -- will review options on Tuesday, said the people.

Stadler’s arrest raises fresh questions about Volkswagen’s crisis management that’s alternated between stonewalling and cooperation, while protecting its most senior managers amid swirling allegations that some of the key leaders might have been informed earlier about the diesel-engine cheating than they acknowledged so far.

Munich prosecutors sought to take Stadler, 55, into custody because of the risk he may tamper with evidence, they said in a statement. Prosecutors acted after wiretapping his phone, Sueddeutsche Zeitung reported. Last week, authorities raided his house and named him a suspect in their probe of fraud and falsifying public documents in relation to selling diesel cars in Europe.

Stadler is willing to be questioned later this week and his lawyers won’t challenge his arrest for now, prosecutor Stephan Necknig said. Investigators had indications Stadler, who hasn’t been charged, may influence witnesses in the probe, he said. Pretrial detention can last as long as three months and can be extended while cooperative suspects usually leave custody much faster.

In Doubt

The arrest, which comes days after Volkswagen agreed to pay a 1 billion-euro ($1.2 billion) fine imposed by German prosecutors, spells more trouble at the top of one of Volkswagen’s critically-important divisions. Stadler oversees a unit that generates vital profits and provides technology including engines to a number of the group’s brands -- including Porsche.

Even if Stadler wasn’t directly involved in the diesel-engine manipulation, there has been an obvious lack of oversight at Audi that stretched over years, Juergen Pieper, a Frankfurt-based analyst at Metzler Bank, said by phone.

VW Stakeholders Fail to Select New Audi Chief in 6-Hour Meeting

Volkswagen declined 3.1 percent Monday to 156.06 euros, the lowest since February, extending losses this year to 6.2 percent.

Stadler has led Audi since 2007. VW’s controlling Porsche and Piech families had so far backed him despite a constant drumbeat of allegations ever since Audi got embroiled in the diesel scandal in November 2015. Initially rejecting U.S. regulators’ claims it used illegal engine software, the carmaker has struggled to put an end to a drip-feed of negative diesel-related headlines as German authorities stepped up scrutiny on its domestic market as well.

Ulrich Weiss, a former top engineer at Audi’s engine development operation, told a German labor court last year Stadler had been aware of the illegal software earlier than he admitted. Weiss and Audi have since settled the legal dispute over his firing.

Piech Assistant

Stadler joined Volkswagen’s Audi unit in 1990, where he assisted the unit’s then-CEO Ferdinand Piech, the famed and feared later Volkswagen chairman. At Audi, he also worked alongside then-head of development Martin Winterkorn, who resigned as VW CEO days after the cheating scandal first erupted. The U.S. Justice Department in May issued a warrant for Winterkorn’s arrest.

VW still faces legal proceedings in 55 countries and investigations into stock-market manipulation in its home market. The company has earmarked more than 27 billion euros for fines, buybacks and costs. Investors have accused the company of informing investors too late about the probe, a view the carmaker has contested.

Prosecutors in Munich, Stuttgart and Braunschweig are continuing their investigations of VW and its units. In April, Stuttgart authorities arrested a senior engine manager at Porsche, after conducting raids at 10 sites. Wolfgang Hatz, who ran motor development from 2007 to 2011, has been in custody since September. Giovanni Pamio, a former Audi engineer, was arrested last year and released four months later after extensive questioning. The Munich probe now involves 20 people linked to Audi.

Two VW employees are currently serving prison terms in the U.S. James Liang, a veteran company engineer who pleaded guilty to conspiracy, was sentenced to 40 months in custody. Oliver Schmidt, VW’s compliance liaison with American regulators, pleaded guilty in August to one count of conspiracy to defraud the U.S. He received a seven-year sentence.

“The ongoing public bickering continues to undermine shareholder, customer and employee confidence,” Evercore ISI analyst Arndt Ellinghorst wrote in a note. “Almost three years after the diesel scandal broke, it takes the police to take action against the Audi CEO.”

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