Transport Select Committee
Oral evidence: Volkswagen Group emissions violations, HC 495
Monday 25 January 2016
Ordered by the House of Commons to be published on 25 January 2016.
Members present: Mrs Louise Ellman (Chair), Robert Flello, Mary Glindon, Stewart Malcolm McDonald, Mark Menzies, Huw Merriman, Will Quince, Iain Stewart, Graham Stringer, Martin Vickers
Examination of Witnesses
Witnesses: Paul Willis, Managing Director, Volkswagen UK, and Oliver Schmidt, Engineer, Volkswagen AG, gave evidence.
Q143 Chair: Good afternoon and welcome to the Transport Select Committee. Would you give us your name and position in the organisation, please?
Paul Willis: I am Paul Willis, managing director of Volkswagen UK.
Oliver Schmidt: I am Oliver Schmidt. I am an engineer by trade. I work with Volkswagen AG in Germany. My position is running the office for group powertrain development, but when the software issue with the diesels occurred I was asked to support diesel development in Wolfsburg and to be one of the main contacts for agencies worldwide.
Q144 Chair: Thank you very much. Mr Willis, thank you for returning to the Committee. We asked you a number of questions last time; some you were able to answer and some you were unable to answer. There have been a number of developments since that time. Mr Schmidt, we are very pleased that you are here as a technical expert. There were a number of questions put last time that Mr Willis was unable to answer because of lack of technical expertise. That is the reason you are here today, and we thank both of you very much for coming.
Mr Willis, you have previously outlined to the Committee Volkswagen’s planned roll-out of vehicle modifications in the UK. Have all the affected owners received letters informing them about what is happening?
Paul Willis: That is my understanding. We have sent out two sets of letters. We sent the first set of letters to customers in early October to say that their vehicles were affected. We sent a further letter before Christmas with more information and to tell them that we were developing the fixes. We gave them approximate timelines and said that we would come back to them at the appropriate moment. Also, as you remember, we put a VIN recall on the internet so that people could self-serve, and we have used other methods to communicate with customers via the internet. We have done everything, but we must continue communication with customers, because we know from our research that not everybody fully understands the issue. For example, of the 1.2 million customers who were affected we had communication with circa 40,000 people, which is less than 4%; 40,000 people either wrote to us to ask more questions or, indeed, they—
Q145 Chair: Mr Willis, we are aware of the extent of the problem. We are trying to find out exactly what is being done. What kind of feedback have you had from the letters that have gone out?
Paul Willis: We have had very variable feedback right across the spectrum. In the main, the feedback has been reasonably positive.
Q146 Chair: Tell me where it has not been positive.
Paul Willis: We have had some customers who do not accept what we say. We have some customers who have had several communications with us, and we are discussing and trying to deal with them as best we can.
Q147 Chair: What are the issues that they have brought up?
Paul Willis: The issues that people mainly bring up are the fact that they are asking about the car in real-world driving and they are asking about compensation.
Q148 Chair: What kind of help are you giving the dealerships, who must have been affected by what has happened?
Paul Willis: We are giving an enormous amount of help to dealerships. Obviously we have all the communications that I have spoken to you about. We have helplines. We are very open with our information. I met with every dealer council personally within two weeks of the crisis breaking, so I have been communicating with dealers. We have also supported dealers financially with stocking, because the circa 4,000 vehicles that we spoke about last time, which we have still not sold, are on our stocking plans. On certain brands we have given the dealers more money to help their sales, so I am very confident that we have been very fair with dealers.
Q149 Chair: Are the dealers satisfied with the action you are taking?
Paul Willis: In the main, the dealers are happy. I can report that we had some sales issues in October, which we expected. We had some order issues from customers in November, but our retail orders—
Q150 Chair: What were the order issues and sales issues?
Paul Willis: The sales issues were below where we expected, but the most important point is that, through our communication and through explaining to people, in December we had more retail orders than we had last year. In January we also had more retail orders than last year. My conclusion is that, overall, in the main, people understand what we are saying, but I cannot hide from the fact that there are some people who do not accept what we say, and we are in communication with them.
Q151 Chair: How are you dealing with the negative feedback that you have been getting?
Paul Willis: We are writing to people and talking to them as and when they discuss it with us.
Q152 Will Quince: You said 40,000 out of just over 1 million. That seems like a tiny percentage that you have written to. I understand that there must be people who have sold on their vehicles since, but is there no way you can work with the DVLA to ensure that more customers are made aware of the issue?
Paul Willis: Sorry; let me make myself very clear. We have communicated with 1.2 million people twice by letter. We have had communication back from 40,000 of that 1.2 million, which is a tiny amount. You are right. Forty thousand people, less than 4%, have come back to us with some questions. I have to say that most of those people said, “Okay, we understand. Tell us when the fix is coming.” A number of those people are still not happy with what we say. I have to be very open about that.
Q153 Will Quince: Did you have contact details for the 1.2 million or was that provided by the DVLA?
Paul Willis: Obviously from the very outset we have been in contact with the DVSA and the DVLA. They gave us all the information and we immediately wrote to them and communicated with them.
Q154 Chair: Mr Schmidt, what can you tell us about the software update? What difference has it made to NOx levels during emissions tests compared with vehicles that have not had it?
Oliver Schmidt: The amount of NOx levels stays the same. We were within the legal limits for NOx levels before, and afterwards the NOx levels were within the legal limits as well.
Q155 Chair: Are you telling me that the software update is not making any difference? Is that what you are saying?
Oliver Schmidt: The software update removes the software that recognised the drive trace, but during an emissions test it has no impact.
Q156 Chair: It has made no difference.
Oliver Schmidt: No.
Q157 Chair: Is that what you are saying?
Oliver Schmidt: Yes.
Q158 Chair: That sounds most remarkable.
Paul Willis: Mr Schmidt is absolutely right. In the test there is no difference in the NOx emissions; with little changes in technology he will tell you that in real-world driving there is a small improvement, but it is small.
Oliver Schmidt: I understood that you specifically asked about the test.
Q159 Chair: What kind of testing have you done with the software modifications?
Oliver Schmidt: With the software modification we test the software in the new European driving cycle, because that is the legal requirement. We test it in the new European driving cycle under warm conditions. We test it in the WLTC or the WLTP, which is the new upcoming emission test in a few years, and we test it in a special cycle developed by the German ADAC, which is comparable to your RAC in the UK; it is a roadside assistance and consumer protection agency. They developed a special German highway test. We test the vehicles in those four tests. As Mr Willis pointed out, because of advances in technology and engineering we see decreases in the values that are not in the European driving cycle. We see decreases because we can now utilise engineering knowledge that has been gained over the last 10 years.
Q160 Chair: Are you seriously saying to us, Mr Schmidt, that the software devices that have now been put in to test the engines are not showing any difference in NOx emissions?
Oliver Schmidt: No; as I said, they do not show any differences in the new European driving cycle, where we are below 100 mg per kilometre, which was the legal limit for Euro 5 vehicles. We see improvements in the other areas that vary from engine type to engine type, because of the advances we have gained in engineering over the last 10 years.
Q161 Chair: What type of real-world testing have you done?
Oliver Schmidt: Real-world driving testing was never part of Euro 5.
Q162 Chair: I am asking you what real-world driving testing you have done.
Oliver Schmidt: We have not performed any real-world driving testing with Euro 5 vehicles.
Q163 Chair: I thought you just said that you had done small amounts of real-world driving testing.
Oliver Schmidt: No. We got the drive traces for those tests and we programmed them into our rolling roads to have repeatability for the tests. If you perform a real-world driving test, the result varies from test to test because you always have different driving conditions; you have different ambient temperatures and the driver has a huge impact, so we programme those tests into our rolling roads and perform the tests in our labs.
Q164 Chair: How has the software device affected fuel consumption?
Oliver Schmidt: From all engineering measurements I have seen so far—we are talking miles per gallon—there is no decrease in miles per gallon.
Paul Willis: If I can be very specific—
Q165 Chair: Let me ask Mr Schmidt. You said “from all engineering measurements.” What does that mean? What kind of testing have you done to find out if it had an impact on fuel consumption?
Oliver Schmidt: Fuel economy for those vehicles is determined in the new European driving cycle. We have performed those tests and we have not seen an increase in CO2 or a decrease in mpg in those tests.
Paul Willis: May I just add something?
Q166 Chair: Let Mr Schmidt finish. What are you telling me? You have not done any real-world driving test. You have been doing something and you do not think it affects fuel usage in real-world driving, although you have not actually tested for that. Is that what you are saying?
Oliver Schmidt: The problem is that for Euro 5 vehicles there is no described method of real-world driving testing.
Q167 Chair: I didn’t ask you a question about that. That was not my question. My question is: how has this software alteration affected fuel usage?
Paul Willis: It has not.
Oliver Schmidt: It has not—
Chair: Can Mr Schmidt answer?
Oliver Schmidt: As I pointed out, we performed the tests I mentioned earlier. In those tests we have not seen an increase in CO2 values or a decrease in mpgs. We performed the four tests that I mentioned earlier and we have seen no differences there.
Q168 Chair: You are confident that the additional software will not affect fuel consumption for motorists.
Paul Willis: Yes—
Oliver Schmidt: It is not additional software. It is software. We remove what is currently in the ECU. We remove the switch logic that we recognise as the drive trace and then we have software. We do not add software; it is always one packet of software.
Q169 Chair: You have removed what have been defined as defeat devices.
Oliver Schmidt: Not in Europe.
Q170 Chair: You have not removed them.
Oliver Schmidt: No, this software is not defined as a defeat device in Europe.
Q171 Chair: You are incorrect. The German transport authority has been very clear in its ruling that what you were doing was not legal in Europe. Are you telling me that you have not removed that?
Oliver Schmidt: The legal assessment of the Volkswagen Group—
Q172 Chair: I am not talking about the assessment of the Volkswagen Group. Are you telling me that you have not removed the device that was described as a “defeat device” and seen as improper, if not illegal, by the German transport authority?
Oliver Schmidt: No.
Q173 Chair: Are you telling me that you have not removed it?
Oliver Schmidt: No. I am telling you that we have removed it, but I said that in the understanding of the Volkswagen Group it is not a defeat device.
Q174 Chair: I did not ask you that. I asked you what you were actually doing. You are not here to tell us what the Volkswagen Group say about a question I have not asked you. I am trying to establish exactly what has happened. Mr Willis, you wanted to answer?
Paul Willis: Thank you very much indeed. The process is that the cars are tested in a great level of detail, as Mr Schmidt told you. We then go to the KBA and have sign-off from the KBA. After what our company has been through it is very important to re-establish trust, and one of the ways we will re-establish trust is by having sign-off from the KBA, which is part of the process. If I can just report, the first vehicle—
Q175 Chair: Let me stop you there. Can you now take me through the process in Volkswagen for developing and approving the software? What was the process that was followed?
Paul Willis: Oliver can talk about the process and I will talk about the investigation.
Oliver Schmidt: What we established in Volkswagen as a result of this is that we now have a “four-eye” principle on software development. The base code is now checked by quality assurance, which was not done before. All software was just developed within engineering, but now, before the software is encrypted at the supplier, our quality assurance checks the software under the four-eye principle. That is what has been changed.
Q176 Chair: What happened before? Was there any quality assurance?
Oliver Schmidt: No, there was none.
Q177 Chair: There was nothing before.
Oliver Schmidt: No.
Q178 Chair: How has it developed? It just happened, did it?
Oliver Schmidt: It was developed within engineering and then put into production.
Q179 Chair: With no process of quality assurance.
Oliver Schmidt: Of course there was always a process of quality assurance, but there was no process where the quality assurance looked into the source code of the onboard computers.
Q180 Chair: What happens now?
Oliver Schmidt: The new step, which has now been implemented, is that quality assurance within Volkswagen looks into the source code of the ECU before it is encrypted.
Q181 Chair: Mr Willis, do you want to add to that?
Paul Willis: Yes. There was a very interesting description in the press release of 10 December, to which I can refer you, from our supervisory board chairman, Mr Pötsch, where he talked about some of the adjustments—the new way of doing these things. He said that development would be in strict “accordance with the 4-eyes principle” with better use of IT to check processes to ensure they are properly adhered to—in other words checking work flows— and they would ensure that “future emissions tests will be verified…independently” and “randomly selected real-life tests to assess emissions behaviour on the road will be introduced.” It is clear that those processes were not actually taking place previously in engineering, and that is what we apologise for. We really have to look at those processes, but we also have to find out from the Jones Day investigation precisely what happened and why. We are still waiting to receive the report from Jones Day.
Q182 Chair: Who actually signed off the software upgrade? Mr Schmidt, can you tell us that?
Oliver Schmidt: Do you mean in the past?
Chair: No, the software upgrade.
Oliver Schmidt: As Mr Willis pointed out, and as I mentioned earlier, it is now a four-eye principle between engineering and quality assurance.
Q183 Chair: Who signed it off? Who is responsible?
Oliver Schmidt: The head of engineering and the head of quality assurance.
Paul Willis: Two people. Four eyes means that nobody can do anything on their own. The engineers say, “Here is the software,” and they present it. Then they have to present it to someone else who is completely outside the department, in quality assurance, to check that it is absolutely in line with all regulations.
Q184 Robert Flello: In relation to the people who are now signing off on this software, how much code are they looking at? Are we talking about five or six lines of coding or 1,000 lines of coding?
Oliver Schmidt: In total, in an ECU, if you print the software in the affected engine, it is about 20,000 pages.
Q185 Robert Flello: Those two sets of eyes are looking through 20,000 pages, looking for something anomalous.
Oliver Schmidt: Yes. Of course, they were trained and were shown what was in the software before. They were trained about what to look for.
Paul Willis: Mr Flello, if you really want to find out the detail of who signs off what post the Jones Day report, I am more than happy to invite you, or members of this Committee, to look and check for yourselves to see how it is signed off. That invitation is open to you.
Q186 Robert Flello: That sounds marvellous, but I am more interested at the moment in the two sets of eyes. They are the head of engineering and the head of quality assurance.
Oliver Schmidt: It is not the head of engineering and the head of quality assurance; it is the people working for them. Mrs Ellman asked me who signs off in the end, and of course in the end the responsible board member signs off.
Q187 Robert Flello: The two responsible board members are signing off on a piece of work that their subordinates, in their teams, do on 20,000 or so lines of coding. How does that differ from before?
Oliver Schmidt: There was no four-eye principle before. The software was developed in engineering and put into the cars and into production. The only checks were driveability checks.
Q188 Robert Flello: Coming back to the four eyes; it is not four eyes but two teams of eyes that are looking through the code.
Oliver Schmidt: Yes.
Q189 Robert Flello: Nobody looked through the code before; you just took whatever the engineers came up with in 20,000 lines of code and that was fine. Nobody looked at it or studied it. You were just reliant on the engineers.
Oliver Schmidt: As Mr Willis pointed out, we will have to wait for the final Jones Day report, but to my knowledge so far that was the process before.
Q190 Huw Merriman: The defeat device, as many call it but you do not, enhanced the NOx results. You then take out the defeat device and due to new technology, from the last 10 years, you can then net off any of that NOx impact.
Oliver Schmidt: Correct.
Q191 Huw Merriman: If that is the case, and it has been there for 10 years, why did you need to put in the defeat device in the first place? The technology was already there.
Oliver Schmidt: Again, I have to refer to the Jones Day report.
Paul Willis: We do not know.
Oliver Schmidt: I do not know who put it in or why. During the time it was developed I was not in powertrain development. I was in group production. I cannot tell you who put it in or why. I have to refer you to the report, but what I can tell you is that there are versions of this engine on the street today that are not affected; they do not have the software in them and they meet emissions.
Q192 Huw Merriman: Are you saying it was all a red herring—a completely irrelevant and redundant bit of kit?
Oliver Schmidt: No, I did not say that. I said I cannot tell you who put it in, but there are vehicles on the street that meet the emissions without the software.
Paul Willis: You make a very good point though, and I want to re-emphasise that point. The emissions were affected in testing; in the real world and for real customers there is no effect.
Q193 Will Quince: I would like to pick up on that point. It just does not seem to make sense. There is a relatively easy fix, which Mr Schmidt tells us you have done via a software upgrade.
Paul Willis: Correct.
Will Quince: Coming back to Mr Merriman’s point, why do you believe that somebody—two rogue engineers or lots of engineers, who knows—would do this if it was such an easy fix?
Oliver Schmidt: I cannot tell you. I have no knowledge about who did it or why they did it. I have to refer back to the Jones Day report that is supposed to be published, at least in part, during our shareholders’ meeting in April. I hope we will then get those answers. I would love to get the answer myself.
Q194 Chair: Let us keep to the questions on testing. We will come to the report, because it is a very important area. What testing does Volkswagen carry out now to ensure conformity of production? You are supposed to be testing to ensure that correct standards are maintained. What is happening now?
Paul Willis: What is happening now is that one month after the discussion on NOx, and shortly after I had the pleasure of coming to see you for the first time, we had an announcement that there might be some problems with CO2. The reason is that some of the people in—
Q195 Chair: That is not my question. I am asking you about conformity of production. What are you doing in relation to that?
Paul Willis: That is what I am getting to. It is very simple now. We are working with all the different agencies. If any cars currently look as if they are slightly in the red area—which is, by the way, a normal process under conformity of production—some of them go through a testing regime right now with the relevant authorities; for example, we are waiting for the VCA to come back to us so that we can start discussions about what their points are. We say that on the CoP, it is this. They have gone in and witnessed it in Mladá Boleslav in the case of Skoda, and now the discussion starts.
Q196 Chair: But there are two separate things. As a company, you are responsible for establishing a conformity of production process to ensure that standards are maintained.
Paul Willis: Yes.
Chair: The type approval agencies, such as the VCA here in the UK, have their own responsibilities to see that you are doing it properly, but you have an initial responsibility. What is changing now in relation to how you do that?
Oliver Schmidt: The software in question was effective every time a car was put on the new European driving cycle. It could not have been detected under conformity of production, but, as announced on 10 December, we will now perform a certain number of conformity of production tests as real-world driving tests. This has not been done before, but it has been announced. Testing of the current product will now not only be done on the dyno but on a certain percentage on the street with a PEMS device.
Q197 Chair: Will you be publishing the results of those tests?
Oliver Schmidt: I am not aware whether we are going to publish those results, but every manufacturer is mandated or forced by the new European emission regulations to publish their real-world measurement results obtained during the monitoring phase and then later during the final phase on their website. Yes, we will be publishing, because it is the law. The first vehicles where we publish those numbers will start in calendar week 11.
Q198 Chair: Is that right, Mr Willis? Will the company be publishing the results of the real-world driving testing?
Paul Willis: If you are specifically referring to the conformity of production on CO2, we are in discussion with the authorities and of course we will publish them, yes.
Q199 Chair: It is not just CO2—real-world driving emissions.
Oliver Schmidt: Real-world NOx emissions, yes.
Q200 Chair: They will all be published.
Oliver Schmidt: Yes. It is mandated by law that you publish those values. It is part of the European regulation.
Q201 Robert Flello: I want to clarify one thing about the software. How regularly over the last 10 years has the software on the ECU been updated? Quite often when a car goes in for routine maintenance, an upgrade is popped on to the ECU or there is a reconfiguration. Roughly how many times over the last 10 years would that have happened?
Oliver Schmidt: Do you mean on one specific vehicle?
Robert Flello: Yes.
Oliver Schmidt: I do not have an answer here.
Q202 Robert Flello: Once? Ten times?
Oliver Schmidt: No, not 10 times; maybe two or three times. It depends on the type of vehicle and it always depends on whether you detect problems in the field through your CoP testing or through any customer complaints. Of course, once you detect such a problem you have to react and update your software.
Q203 Robert Flello: The software engineers who are working on upgrades or updates generally would not have noticed that there was a strange bit of code in the—
Oliver Schmidt: They were the same. There is one set of engineers who work on the software code for ECUs. It is not several sets of engineers.
Q204 Robert Flello: It is the same group of engineers who have been working on the code for the last 10 years.
Oliver Schmidt: Yes.
Q205 Graham Stringer: I am puzzled, Mr Willis. The first statement you made to the Committee on 12 October was an apology.
Paul Willis: Yes.
Q206 Graham Stringer: What were you apologising for?
Paul Willis: I was apologising because what we did was to put a car on a dynamo in a laboratory and the car recognised it was on the dyno, and as a result it changed the NOx characteristics. That was inappropriate, and the KBA said that was inappropriate. What we needed to make sure was that we worked within the appropriate boundaries of the KBA. That is the simple reason.
Q207 Graham Stringer: But you maintain that that recognition of the testing conditions—that the car was under test—was not a defeat device under European law.
Paul Willis: That is correct; yes.
Q208 Graham Stringer: Can you expand on that? The notes I have before me say that a device that recognises testing conditions is not compliant with European regulations.
Paul Willis: European regulations say that it has to be part of the emission control system. European regulations also say that it has to be under conditions that may reasonably be expected to be encountered in normal vehicle operation. Our position is that that is absolutely not the case.
Q209 Graham Stringer: You are saying that even though your device recognised that the car was being tested, according to your legal advice, it is still compliant with European regulations.
Paul Willis: That is our position, yes.
Q210 Graham Stringer: How much money are you spending on lawyers at the moment against possible action by different authorities?
Paul Willis: I have no idea about that.
Q211 Graham Stringer: Why not?
Paul Willis: Why should I know how much we are spending on lawyers? I don’t know. Across the world I don’t know. I am responsible for Volkswagen Group United Kingdom. I don’t speak to lawyers outside the United Kingdom.
Q212 Graham Stringer: How much are you spending in this country?
Paul Willis: I don’t know. I really genuinely don’t know.
Q213 Graham Stringer: Isn’t that odd for a person in your position?
Paul Willis: I don’t think so. I speak to my colleagues maybe once a week. No, I don’t think so. I am actually concentrating, Mr Stringer, on trying to satisfy customers, regain trust and get these cars fixed. That is my concentration at the moment.
Q214 Graham Stringer: But I would have thought part of your responsibility to shareholders would be about costs.
Paul Willis: Of course.
Q215 Graham Stringer: If you are potentially subject to legal action by a number of regulators, I would have thought you would want to know what your potential liability was, and therefore would be hiring in lawyers. I just find your answer incredible.
Paul Willis: I can talk you through the financial results of Volkswagen United Kingdom, but I do not think that is appropriate here.
Chair: No. We want the answer to Mr Stringer’s question.
Q216 Graham Stringer: If you are telling the Committee, when you are potentially liable to action by a number of different regulators and individuals, that you do not know how much your business is spending on lawyers, I find it incredible from somebody in the top job. But if you are telling the Committee that is the case—
Paul Willis: That is the case, yes. What I can tell you is that if you go back to the press releases you can see that our company has provisioned—I cannot remember the exact number—something over €6 billion.
Chair: Mr Willis, we will be asking you more questions about that specifically. Mr Stringer was asking a slightly different question.
Q217 Stewart Malcolm McDonald: Could you provide the Committee with an update on the Jones Day investigation?
Paul Willis: I can tell you three things about the Jones Day investigation, which are along the lines of what I heard on 10 December. There is an enormous amount of information to go through: over 100 terabytes, which I understand is the equivalent of 50 million books. I can understand that that will take a very long time. We have employed Jones Day and other advisers to help us, and 450 people are currently trawling through people’s devices; over 1,500 employees’ devices have been taken to be looked at. We know from what we have found so far—answering Mrs Ellman’s earlier question—that it is clear that some of the work processes needed to be improved. We are waiting to hear what the rest of the report has to say. The supervisory board has committed that the next formal update will be when we publish our 2015 results. I think the date is around 21 April.
Q218 Stewart Malcolm McDonald: When you came to the Committee in October, you said that you thought this was down to the work of a few rogue engineers. You have just outlined that 1,500 devices are being looked at by 450 people—the equivalent of 50 million books. Has anyone senior in Volkswagen UK been suspended?
Paul Willis: Not at all; absolutely not. I want to come back on that question. Just because someone has said, or I have said, that there were one or two people—that is conjecture and we do not know—it does not mean that we are not trawling through all the information. We are looking through all the information because we have to find out what went wrong. It is very widespread. Coming to the UK, I can categorically say that neither I nor any of my employees had any idea of what was going on. I repeat what I said at the last Committee for the avoidance of any doubt: I did not know what a defeat device was before this, though I now know what a defeat device is, and neither did my employees.
Q219 Stewart Malcolm McDonald: You cannot say that until the Jones Day inquiry concludes, can you?
Chair: Mr Willis, you did say that neither you nor any of your employees knew. How could you possibly know that until the inquiry is completed, unless somebody is not allowing the inquiry to access all the information it needs?
Paul Willis: Because I am a sales, import and finance company. That is why I can say it. It is very clear. We have nothing to do with engine development. I am really clear on that, ladies and gentlemen.
Q220 Stewart Malcolm McDonald: How would it be possible for a reputable company such as Volkswagen to be engulfed in a scandal this big and for it only to be the work of a handful of engineers? Do you honestly think that the public at large—I do not just mean Volkswagen consumers—buy that, Mr Willis? I will be honest with you; I don’t, and I don’t think this Committee does.
Paul Willis: I will give you my opinion. My opinion is that I think it was very few people. We will have to wait until the Jones Day report comes out. Like you, I am bemused about how something like this could happen. I am really bemused. I have been associated with this company for over 15 years. Let’s wait and we will find out when the Jones Day report comes out.
Q221 Stewart Malcolm McDonald: Do you think that Volkswagen is an ethical company?
Paul Willis: Yes, I do.
Q222 Stewart Malcolm McDonald: Do you think it knows the difference between right and wrong?
Paul Willis: Yes, I most certainly do.
Q223 Stewart Malcolm McDonald: To follow up on Mr Stringer’s points, you seemed to dance on the head of legal jargon as to whether or not it was a defeat device and whether it does or does not break European law. Don’t you think that what people see is that the Volkswagen Group, essentially, is “at it,” as we say in Scotland? You have perversed environmental regulations. You have treated European customers with disdain. You have treated regulators like bureaucrats and people are quite fed up, and not just with the actions of Volkswagen. We now see Renault potentially being in a similar situation. You talk about your company being ethical—
Paul Willis: Sorry; who is in a similar situation?
Stewart Malcolm McDonald: Renault is potentially in a similar situation. You talk about your company being ethical and knowing right from wrong, but isn’t your entire industry dogged by this kind of problem, where you have tried to get around regulations all over the world?
Paul Willis: No, I absolutely refute what you are saying.
Q224 Stewart Malcolm McDonald: Do you really?
Paul Willis: Yes, I absolutely do. Volkswagen is an upstanding company. It cares about its customers. It invests billions, more money than any other car company, in technology. It is important that we get to the bottom of this. By the way, I do not agree with what you say—that we treat people and customers with disdain. I am very clear that none of this affected customers in any way. Mr Schmidt says, and I believe him and I believe the KBA, that there will be no impact on fuel consumption, but I would like to understand completely what has gone on. Absolutely. With regard to the industry, I think it is very important for the United Kingdom and Europe.
Q225 Stewart Malcolm McDonald: It needs to clean its act up though, don’t you think?
Paul Willis: What I think is that we all have an obligation to become transparent, with testing in the real world. We need to make people more aware, because that is really the issue.
Q226 Chair: Mr Willis, when you were asked who had been suspended, the question was about senior employees. Have any employees been suspended?
Paul Willis: Yes. Nine employees have been suspended, but I don’t know who they are. Under German privacy laws that is the case.
Q227 Chair: What level are they?
Paul Willis: Again, I am sorry to report that I don’t know specifically, but I understand they are of varying levels. We will find all this out in the Jones Day report. We are not trying to hide anything from you, please believe that.
Q228 Stewart Malcolm McDonald: On that final point about not trying to hide anything, can you answer two things for me? Who will see the report before it is published, and will they have the opportunity to edit it before it is published?
Paul Willis: Let’s take the first one first. The report will be reported on at our results. If it is not finished, we will report on it again. I am not sure that the entire report will be given out where there is competitively sensitive information. I must draw your attention to that. I know Mr Pötsch very well, the chairman of the supervisory board. He is the gentleman who talked about the changes our company is making. I have known this gentleman for a very long time.
Q229 Stewart Malcolm McDonald: Will he be able to edit the report before publication?
Paul Willis: No, not at all. He is a very—
Stewart Malcolm McDonald: He will not be able to edit the report.
Paul Willis: I will come to that. Can I just finish? I am very convinced that we will be open and transparent, because our future depends on it. I do not believe anyone would edit the report.
Q230 Stewart Malcolm McDonald: But will anyone have the right to edit that report? I enjoyed your waxing lyrical there, Mr Willis, but will anyone have a right to edit that report?
Paul Willis: I would find it implausible, if you have independent legal—
Stewart Malcolm McDonald: So you don’t know.
Paul Willis: I find it implausible that if you employed independent lawyers you would edit the report.
Q231 Stewart Malcolm McDonald: But you cannot guarantee that it will be totally independent, because you do not know whether or not Volkswagen will have the ability to edit the report before the public see it.
Paul Willis: I don’t know. I will not be there, but I think it is implausible.
Q232 Chair: Mr Schmidt, do you think it is possible that the defeat device could have been installed by a group of rogue engineers without senior management knowing anything about it?
Oliver Schmidt: I have to refer you to the Jones Day report.
Q233 Chair: No. I am asking you, in your opinion, could that possibly happen from your knowledge of how things work?
Oliver Schmidt: Yes.
Chair: It is possible.
Oliver Schmidt: As I described earlier, we did not have the four-eye principle in the past; engineers coded it, so of course if there was nobody supervising or checking what they did, it could have been possible.
Q234 Chair: What could be their motivation?
Oliver Schmidt: This is what got published—
Chair: From your knowledge and experience, you are telling us that it is possible that such a thing could have happened. What could their motivation be in doing such a thing?
Oliver Schmidt: As published on 10 December, the motivation was to meet American emission regulations.
Q235 Chair: It could be that a small group of engineers, without anyone seeing or knowing anything about it, took a decision of that nature to do with that strategic view. That is what you are telling us.
Oliver Schmidt: To my knowledge and understanding that could have been possible in the past, yes.
Q236 Will Quince: On that exact point, what possible incentive could there be for engineers to take that unilateral decision, which could have such far-reaching impacts, as we have seen it has, on the business as a whole?
Oliver Schmidt: I could only speculate.
Q237 Will Quince: You are an engineer, so could you speculate?
Oliver Schmidt: I can keep costs down. That would be my speculation.
Q238 Will Quince: I understand that, but how can that possibly be a motivation or an incentive for the engineers? It would be a motivation or an incentive for management but not for engineers.
Chair: It’s a financial issue, isn’t it? Do you think it is likely that a group of engineers would take such a major decision on a financial basis that they were not employed to consider?
Oliver Schmidt: As I said before, during the time this happened I was not in powertrain engineering, so I was not directly involved in the processes. I cannot tell you who did it or why they did it. I can only speculate. The only thing that comes to my mind is that people wanted to meet American emission laws with the technology available at the time.
Q239 Iain Stewart: Mr Willis, I would like to go back to your comment in answer to Mr McDonald’s question, that no UK employees have been suspended or otherwise implicated in the investigation.
Paul Willis: That is correct.
Iain Stewart: Given, therefore, that the UK team are completely blameless, have any members of staff, many of whom are my constituents, suffered financial detriment either through redundancy or loss of overtime and bonuses or anything like that?
Paul Willis: Not as yet, but we have around 900 people in Milton Keynes, and when the crisis first broke I had a very worried workforce, for the obvious reasons. As news broke, I stood together with them. We have one big hall at the front of our building. It is the only hall that we can get 900 people in, and almost on the stump I would speak to them. I would then open the floor to questions, which is when I found how deeply concerned people were. It was coming up to Christmas. People were thinking about Christmas presents and their future employment. Of course we spoke about that a great deal. I spoke to people in Germany about it. At this stage I do not intend to make any redundancies. In fact, my plan, which has been approved by my supervisory board, is to expand our workforce by about 39 people through 2016 on qualitative areas, not related to this, in connectivity and other parts of the business. I am fighting very hard to make sure that that loss is not the case.
However, the management control and cost base of our business in the UK is benchmarking the world, so I have some headroom to ensure that we are well supported and well resourced financially to make sure there is no direct effect in the UK. I must say, however, that during October and November I was concerned, but now that the orders have come back again I am really quite confident. We are still not through it yet. We have a lot of work to do with customers. I have to submit to that. We have to be clear, clear and clear again.
Q240 Iain Stewart: Have any members of staff wanted to leave the company as a direct result of the scandal breaking?
Paul Willis: Not to my knowledge. I have discussed it very informally with all levels of staff. No one has said to me that they want to leave the company. In fact, I would say it is the opposite. We feel that we are a little bit under pressure and that we have to work together to make our points. Of course we have to answer your questions, but everyone is working together to try to make the points as clear as possible and to be as open as possible to customers. That is our priority, and my staff in the different customer areas have done an absolutely outstanding job.
Q241 Martin Vickers: I am becoming more and more confused, Mr Willis, as we go through this.
Paul Willis: I am very sorry about that.
Martin Vickers: You have a device that you say actually does conform to the regulatory regime, yet you have written to 1.2 million customers. You have 450 staff working on it and you are analysing 40,000 responses. Why? You could not answer Mr Stringer’s question about how much it is costing you, but it is costing you an enormous amount in reputation. Would you agree that it has been a public relations disaster?
Paul Willis: It has certainly not been helpful to our brand image—
Chair: That must be the understatement of the year.
Paul Willis: But although consumers in general may not listen to me and they may not listen to the questions here, they read the independent magazines. If you read the independent magazines they make it very clear, and that is why customers are returning to buy our vehicles. However, we have a duty to the 1.2 million customers we sold the cars to, and we have to fix the cars so that they are within the regulations.
Q242 Chair: In your most recent letter to me, Mr Willis, you say that it is common across the auto industry for software to be installed that recognises when the vehicle is undergoing testing. What did you mean by that, and how do you know about it?
Oliver Schmidt: European regulation gives you the ability to recognise that your vehicle is undergoing testing in order to have repeatability of emission testing, so that every time you go through an emission test you achieve the same result and are not bound to random circumstances. That is in the European regulation; you are allowed to recognise the test. What you are not allowed to do is tamper with your emissions while recognising the test.
Q243 Chair: When you said that, were you reflecting on other places where this has been happening? That is not what the letter said to me. The letter did not draw attention to a regulation. It spoke about what it said was common practice elsewhere.
Oliver Schmidt: That is what I said. European regulation allows you to do it.
Q244 Chair: Yes, you have told me that it allows you to do it, but I am asking you where else it was being done, or is it being done?
Paul Willis: We don’t understand. What do you mean by “where”?
Oliver Schmidt: Do you mean at other manufacturers?
Q245 Chair: I am asking you, because you told me that it was common across the auto industry for software to be installed that recognises when the vehicle is undergoing testing. I am asking where else that was happening—it may still be happening now. Which other manufacturers were doing things like that?
Paul Willis: We do not know which other manufacturers, but we know it is common practice.
Q246 Chair: How do you know?
Paul Willis: Because the test is set up in a certain way. It is as simple as that. The test does not represent the real world.
Q247 Chair: What are you telling me—that the statement you made in the letter is not really correct, or that it doesn’t mean what we think it means?
Paul Willis: No, the statement is correct.
Q248 Chair: The statement does not refer to what is allowed. It talks about common practice.
Paul Willis: Would you mind just pointing the statement out to me so that I can refer to it and refresh my memory? Is it 21 December?
Chair: We will find it. It is the last letter you sent me.
Paul Willis: Which page?
Q249 Chair: You are telling me that in your view this is in the regulation, but you do not know if it is actually carried out by anyone other than Volkswagen.
Paul Willis: I don’t know who does what. I can only comment on VW.
Q250 Chair: So you do not know. Was the defeat device software that you admitted to using in the US market the same software that was installed in the European market?
Oliver Schmidt: No.
Q251 Chair: Why were there different types of software?
Oliver Schmidt: The base function of the software is the same—it recognises drive traces—but the effect of what the software does afterwards is different. In Europe, in an effective Euro 5 engine there is no NOx aftertreatment system on the engine. You have only an oxidation catalytic converter and a particulate trap for particulates. There is nothing that reduces NOx on a Euro 5 engine. On a US engine in our older generations you have a lean NOx trap. In the newer generations you have an SCR, a selective catalytic reduction system. In the US, the software influenced the function of those two systems, which are not present in the EU.
Q252 Chair: Don’t you think that somebody might think you were perhaps trying to deceive different regulatory authorities by acting differently in different places? Both of them were found to be wrong.
Oliver Schmidt: I do not understand the question.
Q253 Chair: Could that be interpreted as an attempt to deceive the different regulatory authorities, the European ones and the American ones, by making different adjustments in different places, and both have been found to be wrong, if not illegal?
Oliver Schmidt: I don’t know what to say.
Paul Willis: The question of deceit will be clearly brought out during the Jones Day inquiry. I am hoping to find out what exactly the reason was for this. I agree with what you are saying. We will find out in the Jones Day report.
Q254 Chair: If it was correct that a small group of engineers took a decision in Europe to take actions and install this defeat device, would you not then have needed another group, perhaps a different group of engineers, working on vehicles for the American market to take an equivalent decision there?
Oliver Schmidt: It is the same group.
Q255 Chair: It does not sound very likely, does it?
Oliver Schmidt: It is the same group.
Q256 Chair: The same group, if they were responsible, took a decision to do one thing to deceive authorities in one place and another thing to deceive authorities in another place. Is that what you are saying?
Oliver Schmidt: At the moment it looks that way, but, as Mr Willis pointed out, we have to wait for the details. The base software is developed in one department.
Q257 Robert Flello: Mr Willis, previously you told us that you thought most vehicles in the UK or in Europe would need to be amended with the software change, but there would be some that required a hardware change—a physical change.
Paul Willis: Yes.
Q258 Robert Flello: How many vehicles have so far been physically changed?
Paul Willis: None.
Q259 Robert Flello: Why is that?
Paul Willis: Because we have always said that the timeline starts in week nine, month three, and that is what we are working towards. I can report one small thing. Last week on the 2 litre engine in the Amarok, which is a very small volume, we eventually agreed the technical fix with the KBA. The engineers are very clear that there is no difference in the torque curve. There is no difference in the driveability or fuel consumption. In principle, the KBA agree and we are just waiting for the written signature this week. That is one piece of good news for everyone. The real volume you are talking about—the 2 litres—starts in week nine.
Q260 Robert Flello: Let me come back to the question. Have you identified how many vehicles will need a physical change rather than a hardware change?
Paul Willis: Yes. The physical change, which is the flow transformer, affects 430,000 vehicles, but that fix will not start until the ninth month.
Q261 Robert Flello: Mr Schmidt, as an engineer, tell me what the flow transformer does.
Oliver Schmidt: It sounds simple. In the air flow from the front end of the car to the actual intake manifold, you have an air mass sensor where you can measure the amount of air going in. In the configuration that was brought into production, the onboard computer could not get a proper reading of the air mass going in, so the actual volume of air mass going in was not what we read on the air mass sensor. The transformer, or rectifier as it is sometimes called, gives you not a turbulent but a laminar streaming around the sensors, so now we are able to get a proper reading of the air that is going in and we can inject the proper amount of fuel according to the air mass.
Q262 Robert Flello: What would happen to those vehicles if that piece of kit was not fitted—if just the software was changed to get rid of the defeat device but that piece of hardware engineering was not added?
Oliver Schmidt: That is a very good question. That is what we will be doing for the Volkswagen Caddy. That is certified under the N1 truck certification to be able to fix those vehicles earlier. We will put the fix—
Q263 Robert Flello: What would happen if you didn’t?
Oliver Schmidt: You would meet N1 regulation but not M1 regulation. The N1 regulation for the Caddy is 235 mg NOx and for the passenger car—the M1—it is 180, so it gives you at least an additional 55 mg per NOx reduction.
Q264 Robert Flello: So that I am clear, upgrading the software and removing the defeat device but not putting in that particular air flow device would increase the amount of NOx emissions, because there is extra fuel going into the engine that should not be, because you cannot get a proper reading. Is that correct?
Oliver Schmidt: You cannot say “increase”, because the actual test result was achieved using recognition of the drive trace. You cannot compare.
Q265 Robert Flello: Why can’t you compare? I am driving along in one of these vehicles now, with a defeat device fitted to the software, and it then gets plugged in and as far as I am aware it is emitting at the right level. If I now take it in and have the software upgraded to remove the defeat device, but do not do the hardware fix and plug it in, surely it is now going to fail the emissions.
Oliver Schmidt: That is correct, but it is not how the service will actually be carried out.
Q266 Robert Flello: I am sure it would not be. I am sure you would change the hardware as well, but in terms of the emissions, without that defeat software and without having to make a physical change to the engine, it now no longer complies with the emissions test.
Oliver Schmidt: It would not. Yes. As I mentioned, it complies with the N1 regulation for a truck, but it would not comply with an M1 if it is the same vehicle size. Of course, if you go to smaller and lighter vehicles, we have not measured those without, and I cannot give you exact results; this would be the comparison for a Volkswagen Caddy, which is one of the heaviest cars we sell—
Q267 Robert Flello: We are back to square one again, though, in that it is not just a simple matter of saying that without that software it would still pass the test anyway. It is not; you have to put a physical device in half a million vehicles.
Oliver Schmidt: On the 1.6 litre you are correct. We need to put in the flow rectifier in order to do that. There are even more changes. I compare it to an iPhone, for example. On the 2 litre and the 1.2 litre, we put new apps on your iPhone. On the 1.6 litre we give you a new operating system. The base software in the ECU is totally changed, while on the 1.2 and 2 litre, we are only changing the calibration data—although “only” is the wrong word. We do not change the base software, except of course for removing the switch logic—
Q268 Robert Flello: I hear all that, Mr Schmidt, but it still comes back to the point that for half a million vehicles, without a physical change to the engine—not just a software change—those vehicles would no longer meet the emissions test. That seems to fly in the face of what we have been hearing for most of today—that it is just a software problem.
Oliver Schmidt: As a theoretical game, yes; if you played that, you would be right.
Q269 Mary Glindon: The purpose of the emissions limits is to protect people’s health. Does Volkswagen engineer its vehicles for that particular purpose or is it only to comply with the letter of the law?
Paul Willis: First of all, there are no legal limits on NOx in Europe. Our cars, as are all manufacturers’ cars, are designed to come within the testing regime. That is why Mr Hawes said it is important that we move on from a benign test to a test that is more reflective of the real world. That is not a new discussion; it has been going on since at least 2010.
Oliver Schmidt: The new European regulation is out. We have to perform real-world driving testing now, and how that needs to be done has been defined. We are forced to publish the results. That is also in the regulation. We give first a confirmatory factor of 2.1 to the new European driving cycle and in the later stage we give a confirmatory factor of 1.5. This means that the limit in real-world driving emissions is 120 mg per kilometre. As we recently announced, with this change we will update all vehicles that we sell to an SCR system, because the SCR is a better system for ensuring that we always meet new and upcoming NOx regulations under real-world driving conditions.
Q270 Mary Glindon: You are talking about the regulations again. What is the attitude of the company? Is it just always to comply with regulations, whether or not they are robust enough; or would the company say that, in caring for their customers and people who use their vehicles, the predominant issue is health?
Oliver Schmidt: The leading German motor magazine recently published an off-cycle NOx study. It was performed by Nick Molden from Emissions Analytics in a Golf. A lean NOx trap that we define as not sufficient passed the test, but we are going to change those vehicles to an SCR system, in the timeframe between 2017 and 2020. At the moment we are developing all diesel engines towards the SCR system and getting rid of lean NOx traps.
Paul Willis: Could I add two other points to support that? I do not think it is fair to characterise us as not caring about any of this. We deeply care about it. We spend billions on the development of plug-in hybrid vehicles, which will take a long time to pay back. Volkswagen Group is the first car company to sign up to the 95 grams per kilometre for 2020. We certainly recognise our obligations and understand that we have to get back the trust of our customers, but we really are a straightforward organisation and we take our customers’ comments very seriously.
Q271 Chair: When Volkswagen submitted vehicle technical information documents to the authorities in seeking type approval, did you declare the software that you were using?
Oliver Schmidt: Are you referring to Europe? At the moment Europe does not have a regime where you need to declare software. That is coming in with the new regulations.
Q272 Chair: Does that mean that you did not declare it?
Oliver Schmidt: No, we did not declare it because it was not mandated.
Q273 Chair: Do you think the type approval body was rigorous enough in its assessment of what you were doing? You gained approval, but clearly a lot was wrong, if not illegal. Does that put a question mark over the type approval body? Did it act properly?
Oliver Schmidt: As I pointed out, the reaction is already there. As in the US, we have to submit, starting in September 2017, every AECD—auxiliary emission control device—so all strategies that differ from the base calibration of the engine have to be submitted to the authorities.
Chair: But in the past—
Oliver Schmidt: In the past you are correct, of course, but there is already a reaction and in the future we have to submit that data.
Q274 Chair: It is alleged that companies shop around for certification authorities or type approval authorities to find the one that is most likely to accept them. Do you think there is any truth in that, Mr Willis?
Paul Willis: No, I do not. I cannot comment.
Oliver Schmidt: For Volkswagen, we are with the KBA, which is the German type approval authority. The technical service witnessing the test is the TÜV Nord, which is the one closest to us. I do not see any hint of shopping around on this.
Q275 Chair: Has the company had any approaches from either the Competition and Markets Authority or the Serious Fraud Office in terms of investigating Volkswagen?
Paul Willis: No.
Chair: You are not aware of any.
Paul Willis: No.
Q276 Mark Menzies: Thank you again, Mr Willis, for coming before us today and bringing Mr Schmidt with you. I am really relieved to hear that Volkswagen is now regarded by yourself as being a straightforward organisation, to use your own words from a few minutes ago. If you are a straightforward organisation, why did you feel the need to install a defeat device in order to deceive customers, Government and regulatory authorities?
Paul Willis: First of all, we do not accept the premise that we designed software that you characterise as a defeat device to do what you said. The answer to your question, quite frankly, is that I do not know and we have to wait for Jones Day. Our position is very clear: this is not a defeat device. We have to wait for Jones Day to have full clarification.
Q277 Mark Menzies: When you came to see us on 12 October, you said: “Volkswagen Group will be providing a package to consumers tailored to each country and its particular circumstances. This is to seek to encourage loyalty to the brand, and to rebuild the trust that has been lost.” Are you not just engaged, bearing in mind that you are a sales and marketing person, in a glorified PR exercise? This is not about getting customers looked after and cared for; it is about minimising the impact to the Volkswagen brand, and indeed even to yourself.
Paul Willis: Not at all. When I speak to customers in the rural parts of Scotland, in Pembrokeshire and Carmarthenshire, and when I speak to customers in Ballycastle in Northern Ireland or in any rural parts of the UK, they say to me, “We are really pleased, Paul, that what you are doing is giving us the opportunity to have a different set of tailored packages.” The gentleman or lady who lives in London, Manchester or blah, blah, blah has a very different challenge to have their car fixed. So absolutely not at all.
Q278 Mark Menzies: Good. Taking that point, you go out and speak to your customers, so why are UK car owners being treated with contempt, whereas Volkswagen United States, with the exact same issue, is paying $500 to its customers and $500 of credit vouchers?
Paul Willis: I will take this first and then Mr Schmidt can carry on. You cannot compare what customers are thinking, feeling or going through in the United States with here.
Mark Menzies: In effect, British customers are substandard and second-class.
Paul Willis: No. If I could just explain it will become clear, or I hope I can make it clear. The first thing is that in the United States there is no fix. We do not know what the fix is yet, and we are still in discussion with EPA. The second point is that we do not know how long it will take to get the fix. The third point is that all diesel models, new and used, are on sales hold in the United States. If you are a customer, you cannot sell your car. If you are a dealer, you cannot sell a used car. That is a dramatic situation. If you talk to some of the United States dealers, and I have talked to one United States dealer, the impact is extremely serious. That is why we have done what we have done.
Now let’s come to Europe and what we have done in Great Britain and the United Kingdom. We have written to our customers. We have been as transparent as we can with all the information. I have written to them twice. I have said in various Committees and in the media that our objective is to regain trust. I have given approximate timelines for when the cars will be fixed and I have said that we will fix the cars without any inconvenience.
Q279 Mark Menzies: If you want to regain trust, let us just remind ourselves of the journey we have been on. For example, you want to rebuild trust, but you clearly want to get away without paying any form of compensation, even as a good will gesture, to your customers. Let me take you through it step by step. You sold cars that you have already acknowledged were fitted with defeat devices.
Paul Willis: No.
Q280 Mark Menzies: Volkswagen have again already acknowledged that customers bought those cars with no knowledge that the defeat devices were fitted. They were misled. That is a basic breach of contract, if I am right.
Paul Willis: You are not right.
Q281 Mark Menzies: You promised something to your customers. Why did you come before the Committee and apologise with a mea culpa?
Paul Willis: Mr Menzies, you are not right.
Mark Menzies: Why did you apologise to the Committee with—
Paul Willis: Mr Menzies—
Mark Menzies: No, excuse me, why did you come to the Committee before Christmas apologising, with all the mea culpas at the opening about how sorry Volkswagen was, and now you are telling us—you are really telling us—that at no point were these defeat devices, which were fitted to cars without customers’ knowledge or any forward marketing, an attempt to deceive? If you are saying that, the words you said earlier about seeking to be honest and transparent are hollow words.
Paul Willis: Thank you. I would like to repeat what I said. I do apologise for what our company has done. We want to fix the cars so that they are in line with regulations. I refute your allegation that we misrepresented the vehicles in any way. To have compensation, Mr Menzies, you need a loss, and there is no evidence of a loss. However, the most important thing is that we fix the cars with no inconvenience to the customers. There is no difference in the fuel consumption today or tomorrow, so there is no loss.
Q282 Mark Menzies: But you do not know if there is going to be any future impact value on cars. You keep referring to the report, and we keep hearing about what is going on in the States, but if in the States loss is identified to customers, and British customers see American consumers getting compensation and class actions taking place, and they are told by you and Volkswagen that that does not apply to them because they are British and they don’t count, isn’t that quite offensive?
Paul Willis: No, Mr Menzies. You are characterising this in a completely wrong way.
Q283 Mark Menzies: Hang on a minute. There is a real danger in all this. Rather than seeking to really address the concerns of your customers and rather than seeking to build trust and re-engage in a relationship with your customers, you are trying to do this on the cheap.
Paul Willis: No.
Mark Menzies: I’m afraid you are. If you are sitting there today telling me that you value your customers so much—all that customer loyalty, and Volkswagen customers have historically been incredibly loyal—that Volkswagen was prepared to go that extra mile to give them some form of compensation, and for goodness sake US $500 plus $500 credit vouchers is a drop in the ocean to Volkswagen, why on earth are you not prepared to value your British customers just that one little bit? Why?
Chair: What kind of work are you doing now, or do you plan to do, on assessing reductions in resale values, for example? You spoke about a loss in the States that did not apply here and you referred to fuel but to nothing else. What work are you actually doing?
Paul Willis: I can tell you that we have an enormous amount of information and data on residual values. I can tell you the residual value development of every single vehicle and every single engine; not here today, but I have the records and you can get them. I will quote some independent people, because it is important we say this. CAP, who are completely independent, said in December, “We do not expect to see any reduction in values, and even if there were to be such a reduction, it would be very difficult to establish how much of any price fall was attributable to the emissions scandal.”
Q284 Chair: What kind of work are you going to do on that, looking ahead? We have had evidence in this Committee on that subject. We have heard various views, but the common factor in the views we have heard is that those are comments about the position at the moment. What are you going to do about looking into the future?
Paul Willis: As part of our normal business practice we have a sister company which is a finance house. We finance, I would say, approximately 350,000 to 400,000 cars a year where we have a risk on those vehicles, so we have a great deal of analysis of all those vehicles, the trends and residual values. It is a part of our normal working practice. We have forecasts going forward one year, two years and three years.
Q285 Chair: Are you going to monitor what actually happens apart from opinions about what might happen?
Paul Willis: Mrs Ellman, when you have a risk book of circa 400,000 cars a year, I can tell you that you pay very close attention to it.
Q286 Chair: How much money have you set aside for fines?
Paul Willis: Fines for what?
Q287 Chair: From regulatory authorities for what you have done.
Paul Willis: I am not aware that we have set any money aside.
Q288 Chair: You have not set any money aside for fines.
Paul Willis: First of all, I am head of the UK. I have set no money away for fines. I do not know about the global company. My understanding is that it is a fluid situation and I cannot answer that question.
Q289 Chair: You set aside €6.7 billion for modifying vehicles.
Paul Willis: Yes; that is for the fix.
Q290 Chair: What was that based on?
Paul Willis: That is the fix of all the vehicles.
Oliver Schmidt: Worldwide.
Q291 Mark Menzies: Just to be clear, are you ruling out any form of financial compensation for British consumers?
Paul Willis: Yes, I am.
Q292 Mark Menzies: That is very clear, and it is important that we establish that. Before I hand over to my colleague, who did you bring with you today? We know about Mr Schmidt, but who else accompanies you today?
Paul Willis: My head of customer services. I have a lawyer with me.
Q293 Mark Menzies: Just the one.
Paul Willis: Yes. I have the head of legal counsel who works for me in my office.
Q294 Mark Menzies: Is that a second lawyer?
Paul Willis: I think he is a qualified lawyer. I have another customer service manager and two assistants.
Q295 Mark Menzies: What do the assistants do?
Paul Willis: They help me get data together.
Q296 Mark Menzies: Mr Stringer was asking you about lawyers and how much you have spent on them. You have brought two lawyers with you today, yet you have no idea whatsoever about how much the company is spending on lawyers.
Paul Willis: First of all, one of the gentlemen who is with me works in my office. He works with us as an employee so he costs whatever his salary is. I do not think he wants me to tell his salary in a public domain. The other guy is—
Q297 Mark Menzies: Volkswagen is treating this all like a great big magic roundabout. It is all just a game.
Paul Willis: I refute that.
Q298 Mark Menzies: Your aim in terms of Volkswagen is to get away with paying as little as you possibly can.
Paul Willis: Mr Menzies, I totally refute that. Our prime objective is to regain trust and support our customers.
Q299 Will Quince: I am interested in pursuing the idea of potential resale value. You mentioned that the sales of new cars have picked up recently. Can you tell us what the split is between diesel and petrol, and whether you have seen a pick-up in petrol versus diesel?
Paul Willis: Diesel has not gone up or gone down; it is around 48% for Volkswagen. It is about the same. If you look at the data for Europe, the diesel market is more or less on track. The mix is as it was before and after—so far anyway.
Q300 Stewart Malcolm McDonald: I am amazed to hear that you have been to Scotland, Mr Willis. You obviously speak to people who are much more charitable to your company than they are when they talk to me about your company.
Paul Willis: I didn’t say they were charitable.
Q301 Stewart Malcolm McDonald: My constituency office backs on to the car park of a shopping centre on the south side of Glasgow. I do not have to walk the length of myself to find a Volkswagen driver near my office. Do you know what they say to me, Mr Willis? Someone described your company as a fraud. It is Burns day today: “Facts are chiels that winna ding.” It does not matter how you try to repackage this in Europe or the US: your company has sought to deceive people—deceive both its users and its regulators.
Here is one thing I want to pick up from what Mr Menzies said. You say that you will not be paying any compensation in the UK because there is no loss. When you attended before Christmas I asked you why taxpayers should foot the bill for the VCA’s retesting programme as a result of the VW scandal. You replied that they should not, and, if you had to have a discussion with the VCA about that, you would. Have you had that discussion and how much cash have you put aside to pay the public back?
Paul Willis: I have had many discussions with the VCA.
Q302 Stewart Malcolm McDonald: Specifically on that?
Paul Willis: Yes. They asked me and I said yes. They have not come to me with any more, and I have not put a provision aside. I will wait to see what they ask me for.
Q303 Chair: Mr Willis, presumably in the light of your previous statement you would be willing to address that issue.
Paul Willis: I stand up and I am totally consistent that the British taxpayer should not have to pay any money for any additional testing of Volkswagen vehicles.
Q304 Chair: And that still stands.
Paul Willis: Yes, of course it does.
Q305 Iain Stewart: I have one further question on the compensation argument. I understand that at the moment you say there has been no financial loss because of resale value, and therefore no compensation can be paid.
Paul Willis: Yes.
Iain Stewart: But we are not at the end of the journey. We are waiting for the Jones Day investigation to be complete. If the conclusion and consequences of that cause a verifiable drop in resale values, will the compensation question be reopened?
Paul Willis: It is too premature to answer that question. Every single indicator says to me that that will not be the case.
Q306 Iain Stewart: Whose decision would that be? Do you have autonomy on that decision in the UK or would it be a board decision of the parent company?
Paul Willis: Any decision regarding large sums of money is a discussion that always takes place with my supervisory board, of course.
Q307 Chair: You asked me earlier, Mr Willis, about the reference to the letter that you wrote to me. We were referring to paragraph 2.3. I am not returning to that now, it is just for your information.
Paul Willis: I appreciate that; thank you.
Q308 Graham Stringer: I have a simple question and a slightly more complicated question. You are managing director of Volkswagen UK. I do not know the international structure of Volkswagen, but do you sit on the international board, the European board or the world board?
Paul Willis: No.
Q309 Graham Stringer: How do you communicate with those bodies?
Paul Willis: Sorry; I sit on the UK board and I communicate with a chairman of the supervisory board who is situated in Germany. I communicate by visiting him, by Vico, and by telephone of course.
Q310 Graham Stringer: You said in answer to questions that these are matters for the European board, the world board or the American board. Have you sought to ask those questions?
Paul Willis: I have been in close liaison with various senior levels of the company on this topic, of course.
Q311 Graham Stringer: Some of your answers were very UK-centric.
Paul Willis: Yes. I am responsible for the UK. Indeed.
Q312 Graham Stringer: But some of the questions were about the world, and you say you do not know about that because you do not sit on those boards, as we now understand. Are we to believe that you have not thoroughly talked through these issues with the different levels of the company?
Paul Willis: I have talked very thoroughly with levels of the company. Indeed, yes. I am here to help you as much as I possibly can. In order to help you as much as I possibly can, I have talked to senior levels of the company, of course.
Q313 Graham Stringer: I want to go back one final time to a point that I do not really understand. I have here Euro 6 Regulation 715/2007/EC. Article 3(10), which defines a defeat device, and it is worth putting on the record: “any element of design which senses temperature, vehicle speed, engine speed (RPM), transmission gear, manifold vacuum or any other parameter for the purpose of activating, modulating, delaying or deactivating the operation of any part of the emission control system, that reduces the effectiveness of the emission control system under conditions which may reasonably be expected to be encountered in normal vehicle operation and use.” That is how it is defined.
Paul Willis: Correct.
Graham Stringer: Previously you conceded that the software recognised when it was being tested, and then changed the level of NOx emissions. Can you explain to me again why that does not come under that definition?
Paul Willis: What I also said, as you read out, was “part of the emission control system” and “under conditions which may reasonably be expected to be encountered in normal vehicle operation and use.” Our position is that it is most certainly not a defeat device.
Q314 Graham Stringer: Even though you say it changes the NOx levels, in a separate submission, it is not a defeat device; it recognises the system and it changes the NOx levels, but you still maintain it is not a defeat device.
Paul Willis: Indeed. That is our position.
Q315 Graham Stringer: Isn’t that contradictory?
Paul Willis: I don’t think so.
Q316 Chair: That is something that might end up being resolved in the courts. It does not sound very logical.
Oliver Schmidt: As I explained earlier, the emission control system of a Euro 5 engine consists of an oxidation catalyst and a particulate trap. It does not affect those.
Q317 Huw Merriman: There are two strands I want to explore. The first one relates to the answer you gave to the Chair’s question that the defeat devices differed between the US and the European market. Would the US defeat device have breached the EU regulations?
Oliver Schmidt: Yes. As I described, we have a lean NOx trap or an SCR system on those, and we explicitly reduced the effectiveness of that.
Q318 Huw Merriman: That would suggest that whoever put the defeat device together for the European market, the reason they had a different device was so that they could keep just within the EU regulations.
Oliver Schmidt: It is speculation. It definitely could be. In the US, the description of a defeat device is totally different from the one in Europe. Every different mapping from base mapping that is not announced via an AECD application could be considered a defeat device. It is a totally different regulation. Even if you looked for temperatures and did not announce it to the EPA in the US, it could be considered a defeat device.
Q319 Huw Merriman: This question is slightly related to that. Obviously when Mr Willis came before the Committee before Christmas he apologised for letting down customers, whereas now we are told that the technology complies with EU regulations and indeed does not impact NOx. This is not a trick question, but it feels to me that, having looked back retroactively, you got lucky by being within the letter of the EU regulations, if not the spirit, and lucky because you had a poke around with the technology and found that things were not quite as bad in retrospect. Is that a fair feeling of how you view it in VW?
Paul Willis: That is pure speculation. I wrote to the Chair on 21 December in answer to those questions, which are the same questions as you have asked. That is speculation.
Huw Merriman: It all feels a bit convenient. Perhaps that is the point of my question.
Q320 Chair: This could all go back to the group of rogue engineers who took those very sophisticated and far-reaching decisions without reference to anyone else.
Paul Willis: Yes.
Oliver Schmidt: I do not know. We have to wait for the Jones Day report.
Chair: Thank you both for coming and answering our questions.
Oral evidence: Volkswagen Group emissions violations, HC 495 20