January 11, 2017

Autoline Network

This week, FBI agents arrested VW executive Oliver Schmidt at Miami International Airport as he prepared to leave the country. It got us thinking about the last time the FBI arrested an auto executive so publicly in one of the strangest motoring stories of all time. It was the tale of John DeLorean.

Everyone knows about the gullwing DeLorean that went on to star in the Back to the Future films, but not everybody knows about the tragic tale of the company boss. The son of a factory worker rose to top of the boardroom at Pontiac, he dated Ursula Andress and Raquel Welch and then he jumped ship to start his own company in 1973.

Sammy Davis Jr and Johnny Carson invested in the fledgling company, the British government provided serious spending power in the form of loans and it looked like a nailed on hit. But poor sales, a global recession and poor planning meant that DeLorean went into receivership in 1982.


Then things got really crazy

John DeLorean couldn’t let go of the dream. That’s how he found himself in a series of Washington DC hotel rooms, discussing his part in a massive cocaine smuggling plot. It was an FBI sting, the whole thing was on film and DeLorean was arrested and charged with trafficking.

In 1984, DeLorean was cleared of all charges and the judge lambasted the FBI for a clear case of entrapment. The authorities weren’t finished with him, though, DeLorean faced further charges of income tax evasion and wire fraud. Again, he was never convicted, but by the time it all played out in 1998, DeLorean owed more than $100 million. He was ruined.

The stink simply never went away. DeLorean, once the golden child of the automotive world, was a complete pariah. He tried scheme after scheme to come back from purgatory, including selling high end watches that he simply never delivered. He even tried to bring the car company back before his death in 2005.

On the way up, DeLorean became an icon. As he fell back to Earth and beyond, he became a legend for all the wrong reasons. And the wider world never forgot. More than 20 years after the event, the fable of John DeLorean is still retold time and again. He has become a dinner table ghost story about greed, naked ambition and pride coming before a fall.

That does not bode well for 48-year-old Oliver Schmidt and VW…

Schmidt signed off on a massive fraud

If the FBI are waiting for you at the airport, you know it’s not good. Schmidt was also general manager in charge of VW’s environmental and engineering office in Michigan during one of the greatest, most concerted frauds in automotive history. That’s hardly ideal, either.

Put simply, the German marque cheated on emissions tests, with sophisticated software that allowed the car to know when it was on the rolling road and employ a totally different engine map. This meant VW could skip expensive urea-based filters, but more than 580,000 cars actually produced more than 40 times the emissions the manufacturer claimed in real word conditions.

The damage to the brand has been incalculable and now VW’s sister brand Audi faces similar, and entirely separate, allegations from the California regulators.

A bad time for a holiday?

So it was perhaps not the smartest move for Schmidt to take a vacation in Miami before the whole issue was settled. To be fair, though, the case is more or less settled and VW has agreed to pay $4.3 billion in criminal and civil fines and plead guilty to a number of offences. This is in addition to the $15 billion civil agreement with the environmental agencies and individual car owners affected by the scandal.

Investors also want $9 billion after claiming they were misled by the company, but this all seemed to be the final machinations of a complex and long-winded case that everybody wants to see the back of.

Schmidt was not on the wanted list in the US, either, until he was in the country, even though he was relocated back to Germany after the scandal broke for obvious reasons. So he may have felt entitled to a Miami vacation and it seems odd that the FBI went out on a limb to snatch him at the airport, charge him with conspiracy to defraud and put him in prison until he could see a judge.

He’s the second executive to be arrested, though, and VW has been accused by the US press of shielding a number of key executives that could face arrest if they set foot on US soil. So it’s an ever present danger and clearly poor judgement on his part.

Some big names skipped Detroit

The Detroit Motor Show was a tense affair and while Volkswagen AG board member Herbert Diess turned out to introduce the new Tiguan, he was forced to deflect questions about why other leading members of the board did not come to North America’s biggest motor show.

If the board of the second biggest car company cannot touch down on US soil then it simply isn’t good for anybody. It’s not even like these problems end at the North American border, too. An ongoing criminal investigation in Germany keeps expanding and there’s the faintest whisper of international arrest warrants.

Perhaps VW should have fired more of the executives that were tainted by the Dieselgate scandal. A number of executives, including CEO Dr Martin Wintekorn, did the honorable thing at last and fell on their swords after information came out that the whole affair had been kept quiet for way too long. But now a German criminal investigation has now set its sights on the likes of Hans-Dieter Potsch, a man who was promoted to the position of supervisory board chairman after the initial scandal broke.

Porsche head Matthias Muller took over at VW. So far he’s clean, but the finger of suspicion keeps pointing at some very serious players in the VW hierarchy.

Was the new broom already dirty?

Potsch and others like him were hailed as the new broom to sweep all this unpleasantness away and one by one they are being exposed. It feels like VW gave itself a cheery all clear after a serious health scare, only to collapse in public time and again.

VW might regret the fact that it didn’t simply clean house and bring in new blood that didn’t spend time within touching distance of this nightmarish scandal that refuses to go away. Its defence that this whole episode was the work of a few rogue engineers in Wolfsburg looks increasingly unbelievable, too, but it does bring us in a very big loop back to Oliver Schmidt. Perhaps he really should be concerned.

He was the man responsible for compliance with the emissions regulations, even though he could not have acted alone. In fact the FBI has named a number of other leading VW executives in the writ against Schmidt. VW Group of America CEO at the time of the scandal Michael Horn has left the company and dropped off the face of the map. That leaves Schmidt right in the crosshairs.

He’s one of the few that could theoretically have done this without the board’s knowledge, even if he didn’t, and he signed off on some exceptionally incriminating emails according to German newspaper Bild am Sonntag. He’s the obvious choice and he still chose to take the most poorly-timed trip to America in recent history. Conspiracy theorists could go nuts with this one.

A perfect scapegoat?

The German is undoubtedly facing up to the fact that he could become the poster child and sacrificial lamb, the final nail in the coffin of the Dieselgate scandal that has all but ruined VW’s reputation in the US.

Of course, there are lingering questions with a messy affair like this. First, if the US authorities had chosen to sweep any remaining problems under the carpet, why swoop on a VW executive on his way back from a short vacation? Why stoke this fire just as it’s going out?

It may simply be that the US wants to mete out a certain amount of justice to VW in a way that the people can understand. It might need a public execution, a metaphorical one of course, to make sense of all the fines and backroom deals that have come to epitomize this toxic mess of a scandal. It might simply need a human face and a massive prison sentence for the morning headlines.


Could the FBI turn Schmidt?

More worryingly for VW, some reports suggest that the FBI intends to cut Schmidt a deal and make him give evidence against the entire VW board. While Germany will not countenance extradition requests for some of its most powerful corporate leaders, the FBI could potentially then file red notices with Interpol and make international travel all but impossible for some of Germany’s Captains of Industry.

It will also be intriguing to see how Donald Trump, who is about to take office, would respond to a clear challenge from a global superpower who has basically committed gross fraud against the American people. VW has also, technically, committed an environmental atrocity. At the same time, Trump has a domestic car industry to support and the automotive industry could provide its own minor cold war.

This situation could still escalate beyond repair, or everybody could decide this is a fight they don’t want. If that’s the case, it could all be Oliver Schmidt’s fault and it ends there.

So the 48-year-old might just have changed the car industry forever with a poor choice of holiday hotspot. And he now faces an unenviable choice, if it’s his choice to make. He must either roll over on his bosses and give the FBI the information it wants, or carry the can for Dieselgate.

Whatever happens, Oliver Schmidt will go down in history for all the wrong reasons. Either way, we’re sure we’re going to retell this story time and again as we look back on one of the biggest automotive scandals of all time. It just remains to be seen if it’s Oliver Schmidt who is the next John DeLorean, or someone even higher…

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