VW Supervisory Board Reconvenes to Pick New Leader for Audi Unit

(Bloomberg) -- Volkswagen AG supervisory board members reconvened Tuesday to pick a new leader for the Audi unit after the unexpected arrest of the brand’s longtime chief, with a plan to resolve the situation later in the day, two people familiar with the deliberations said.

Talks late Monday to appoint Audi sales boss Bram Schot as the unit’s interim chief executive officer following the arrest of Rupert Stadler failed to come to an agreement. The Audi board met at midmorning, after a VW steering committee meeting earlier. Stadler was arrested at his home in the early hours of Monday after police tapped his phone. Based on an intercepted conversation, prosecutors concluded he tried to influence witnesses, a person familiar with the situation said.

VW Supervisory Board Reconvenes to Pick New Leader for Audi Unit

“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 Supervisory Board Reconvenes to Pick New Leader for Audi Unit

Board members had planned a routine gathering at the headquarters in Wolfsburg, Germany, on Monday, 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.

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. 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. 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 Supervisory Board Reconvenes to Pick New Leader for Audi Unit

Volkswagen fell as much as 3 percent Tuesday to 151.40 euros , the worst performance on Germany’s DAX Index. Shares declined 2.3 percent at 12:26 p.m. in local trading, pushing losses this year to 8.4 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.

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.

“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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