Volkswagen Has Kept Promises to Reform, U.S. Overseer Says

Volkswagen completed the corporate equivalent of probation after a court-appointed monitor said Monday that the carmaker had fulfilled the conditions of a 2017 plea bargain stemming from its use of illegal software to evade emissions regulations.

The final report by Larry Thompson, a former United States prosecutor appointed to enforce Volkswagen’s promise to reform its corporate culture, noted that the German automaker had adopted measures like making it easier for employees to report wrongdoing. It is a major milestone for the company as it tries to recover from one of the biggest scandals in automotive history, one that has cost it well over $30 billion and severely damaged its reputation.

Volkswagen, the world’s largest carmaker, pleaded guilty in 2017 to conspiring to defraud the U.S. government and violate the Clean Air Act. The company had rigged its diesel-powered cars to meet air-quality standards while being tested, but they exceeded those standards in regular driving.

As part of the plea agreement with the Justice Department, Volkswagen agreed to cooperate with a court-appointed monitor whose job was to ensure that the company reformed its compliance systems and corporate culture so that similar wrongdoing would not happen again.

Mr. Thompson, the monitor, was deputy attorney general under President George W. Bush and later worked as general counsel for PepsiCo.

Mr. Thompson said Thursday that “the structures and processes are in place” to prevent future scandals of the same magnitude. “This is a starting point,” he said during a joint interview with Herbert Diess, the Volkswagen chief executive. “The company will need to be vigilant.”

The three-year project was costly and time consuming for Volkswagen, especially when the company is trying to make a transition to electric cars. The effort “was a very good investment,” Mr. Diess said.

“We had deficiencies,” he said. “The issues he pushed will make us a stronger company.”

Mr. Thompson said he could not guarantee that there would be no other scandals at Volkswagen. “Volkswagen is such a large and complex company,” he said. “What I can certify to is that if another problem comes up, it will be handled much differently than the diesel scandal.”

Volkswagen has admitted that, after research at West Virginia University raised questions about the company’s diesel cars, executives spent more than a year deliberately misleading regulators before finally confessing in September 2015.

By coincidence, the Department of Justice on Monday announced a settlement with Daimler on accusations the company had also manipulated engine software to deceive regulators about how much pollution Mercedes cars and trucks produced during normal driving.

The settlement, which Daimler disclosed last month, will set the German company back about $1.5 billion after paying civil penalties, repairs to about 250,000 affected vehicles and other measures to compensate for the environmental damage.

The civil penalty portion of the Daimler settlement amounts to $3,500 per car, about $1,000 more per car than Volkswagen had to pay in 2017 — evidence, U.S. officials said during a news conference, that the Trump administration is tougher on polluters than it gets credit for. However, Volkswagen was required to buy back diesel cars from their owners and take other corrective measures that raised the total cost to around $15 billion.

By court order, Mr. Thompson operated largely in secret, supervising dozens of lawyers and specialists based at Volkswagen’s headquarters in Wolfsburg, Germany, who oversaw attempts by the company to reform its sprawling organization. Volkswagen employs more than 670,000 people; it produced nearly 11 million vehicles last year.

Volkswagen’s unforgiving, win-at-all-costs culture was seen as the underlying cause of the emissions scandal. In 2006, when engineers developing a new diesel engine discovered that they could not meet United States emissions standards, they devised engine software designed to deceive regulators. To admit failure would probably have meant the end of their careers at Volkswagen.

Mr. Diess said that the emissions fraud occurred because of “a combination of too much pressure and lack of a speak-up culture.”

Among other changes, Volkswagen has created a whistle-blower system so that employees can report possible wrongdoing without fear of reprisal. Volkswagen also delegated more responsibility to lower-level managers in an effort to become less hierarchical.

Court documents indicate that some Volkswagen engineers were uneasy about the illegal software, but none approached authorities until shortly before the cheating came to light in September 2015.

During official emissions tests, the software activated pollution controls so that the car appeared to be clean. During everyday driving, those controls were scaled back to protect the engine. As a result, Volkswagen diesel passenger cars spewed more harmful nitrogen oxides than a long-haul truck.

Volkswagen strives to be more ethical, but the competitive pressures in the auto industry have only become more intense. Mr. Diess acknowledged that he had to be careful not to push subordinates so hard that they crossed ethical boundaries.

“This is a crucial point,” he said. “We have to be ambitious. We have to be competitive. We have to push for results. But we have to find a balance.”

He noted that Volkswagen delayed by several months the market debut of the ID.3, Volkswagen’s first car designed to run on batteries, which is seen as a make-or-break vehicle for the company. The first deliveries to customers began this month.

The engineers who devised the illegal software in 2006 were desperately trying to make a deadline for the launch of new diesel models.

Mr. Thompson’s final report frees Volkswagen managers in Wolfsburg from intense oversight as they try to survive a plunge in sales caused by the pandemic, and meet increasingly tough competition from Tesla, which is building a factory near Berlin.

The pandemic continues to cut deeply into sales in Latin America and some other markets, Mr. Diess said, though sales in China have largely recovered. There are still supply chain disruptions and other problems. “Things are working,” Mr. Diess said. “I wouldn’t call it normal.”

Over the past several years there were signs of friction at times between Mr. Thompson and the executives at Volkswagen, a German icon not used to being told what to do by American lawyers. Early in his tenure, Mr. Thompson pressured the company to dismiss managers who were under criminal investigation but continued to hold high-ranking positions. Volkswagen had argued that it could not fire the managers if they had not been convicted of crimes, but eventually relented.

There was also some tension over Volkswagen’s refusal to release some documents it said were relevant to pending lawsuits and therefore privileged. “We were able to work through that issue,” Mr. Thompson said.

The legal aftermath of the scandal continues to unfold. On Sept. 9, a court in Braunschweig, Germany, ruled that there was enough evidence to bring Martin Winterkorn, the former Volkswagen chief executive, to trial on charges related to the emissions cheating.

At the end of this month, a court in Munich will begin hearing evidence in the trial of Rupert Stadler, the former chief executive of Volkswagen’s Audi luxury car unit. Mr. Stadler is accused of continuing to sell cars with illegal software even after regulators in California and Washington uncovered the wrongdoing. He and several former Audi managers and engineers will be the first defendants to go on trial in Germany.

Mr. Winterkorn and Mr. Stadler deny wrongdoing.

Volkswagen continues to fight numerous legal battles stemming from the scandal. It has reached a settlement with most diesel owners in Germany, but some continue to pursue legal claims. The company also faces suits in Britain and other countries, as well as a civil complaint by the Securities and Exchange Commission in the United States.

The S.E.C. accused Volkswagen of concealing the risks it was taking when it sold corporate debt to American investors even as it was manufacturing cars with illegal software. In August, Volkswagen won a significant legal victory in that case when a federal judge in California ruled that a large share of the claims were covered by an earlier settlement with the Department of Justice.

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