Speech Hans Dieter Pötsch, Chairman of Volkswagen AG

Ladies and gentlemen, I know you are all eager to hear from us. I'm sure I'm not giving away any secrets when I say that the past two and a half months have been something that no one has had experience with at the Volkswagen Group. That holds true for all of us: the Supervisory Board, the Board of Management, and the employees. Fortunately, no one here would have ever imagined that our company, a company that is a source of pride to so many here and in many places around the world, could end up in a situation like the one we've been experiencing since the end of September. I am deeply shocked by the events surrounding the emissions issue, and I am sure you are too. But these events have also put the group in a very difficult situation. I will often be asked to update you today on where we stand, how we are going to overcome this crisis, what steps we have already taken, and how the Volkswagen Group is driving its renewal forward.

Our most important, our biggest challenge now is to win back that trust. That is why we must continue to act with integrity and determination, rigorously address the mistakes, and ensure that something like this can never happen again. We owe that not least to our customers. At the same time, we must protect our operational business and defend our strong market position. Given the circumstances, that is not an easy task, but we are up to it. We can make it with our team. But above all, in all these efforts, we must also safeguard the group's future success on the one hand in financial terms, because the fallout from the crisis will probably be considerable, and on the other, we must systematically continue with the ongoing change process to prepare Volkswagen for the upheavals faced by our industry.

In a nutshell, we are in the midst of the greatest test in the history of the Volkswagen Group. It will take an enormous effort on the part of everyone to pass this test. We are all ready to play our part. It goes without saying that the Supervisory Board at times like these is supporting the Board of Management even more closely in its work. Moreover, the Supervisory Board has undertaken many initiatives of its own in recent weeks to take the process of clarification and realignment within the Volkswagen Group swiftly forward. First of all, I would like to mention that the new management structure which we signed off on September 25th means that Volkswagen will be decentralized to a greater extent in future. It will be more efficient, faster, and more dynamic, so that the group will be able to leverage its enormous potential even more. We have also speeded up staff reorganization in the group. For this realignment, we have not only recruited new renowned experts from outside the company, but also given some of the best minds from within our group new responsibilities. There are six new members on the Board of Management since early 2015. That shows how thorough this new realignment is. Mr. Müller will give you the details later on.

The Supervisory Board has engaged to a greater degree in dialogue with our stakeholders. In particular, we need support and goodwill from outside our company just as urgently as we need the commitment of all those in positions of responsibility within the group. We are soliciting support wherever possible. What's important is that Volkswagen is fully able to act in these very turbulent times. This company has a very solid foundation and many strengths that we can build on. How we will rise to those challenges is primarily, but not entirely, up to us. This also applies to the way we approach the clarification of the emissions issue. We want and indeed we must understand exactly how this could happen. That is the only way we can prevent anything like this from ever happening again. We've made a good deal of progress in this regard in recent weeks, and I would like to bring you up to date on what we have achieved so far. Allow me to recap: we are dealing with two very different issues. The first concerns up to 11 million of our diesel vehicles which have been fitted with a software program that systematically influenced the measurement of nitrogen oxide emissions. The second issue of recent weeks relates to CO2 emissions and the associated fuel consumption levels. It arose during the critical review of our processes as a result of the NOx issue. Information from an internal source drew attention to implausibilities in our CO2 certification. In mid-November, this was acted upon immediately and proactively communicated on November 3rd. We announced that around 800,000 vehicles could possibly be affected. We were concerned that the certification of these vehicles may have been deliberately based on incorrect measurement data. Since then, as we announced yesterday, it became apparent that this assumption was wrong. Suspicion of unlawful changes in fuel consumption data for current production vehicles has not been confirmed. Slight deviations were only found for a very small number of models, which will now be adjusted in the course of normal processes. That is good news for our customers and for the company.

Ladies and gentlemen, we have a clearly defined approach and goal for clarifying all aspects. Everything must be put on the table, and nothing will be swept under the carpet. There must be a comprehensive analysis of this and all other relevant processes from the source to the present day, fully traced and analyzed. It is essential that these investigations are absolutely independent. That applies to the internal specialists we have entrusted with this mission. They are to investigate in all directions, regardless of personal reputation and with no taboos. Obviously, the same applies to the external specialists we have retained. In all our efforts, we are cooperating fully with the relevant authorities. We have repeatedly emphasized, and I do so again today, that we are relentlessly searching for those responsible for what happened. You may rest assured that we will bring these persons to account. It is precisely because we are dealing with people that exhaustive clarification is so important for the future of the company. Diligence is absolutely imperative, even though it is sometimes difficult for you and for us to remain patient. Diligence takes precedence over speed. We are looking for definitive answers to the following questions: What exactly happened and why? We must trace the processes and the decision-making paths. Were regulations or laws broken, and which ones? What was it in our internal processes that encouraged possible wrongdoing? We expect this to give us insight above all into where we need to make improvements. Who is responsible? This is not only about direct responsibility but also about overall accountability. And finally, how do we make sure that nothing like this ever happens again in the Volkswagen Group? We have structured the clarification process in such a way that we can provide a reliable answer to each of these questions. The work of clarifying these issues is being monitored by the Supervisory Board's special committee chaired by Dr. Wolfgang Porsche. Since it was inaugurated on October 27th, the committee has met five times and closely follows the work of the investigators. There are two parallel threads to the investigations themselves, as mandated by the Supervisory Board and the Board of Management. Internal auditing is focusing on examining the relevant processes, reporting and control systems, and the accompanying infrastructure. Internal auditing is making its entire findings available to the experts at Jones Day, an internationally renowned law firm commissioned by the Supervisory Board to fully clarify the matter and identify those responsible. The second thread includes the forensic investigations carried out by the Volkswagen Group's own audit firm, with Deloitte providing operational support. In total, some 450 internal and external experts are involved in the investigations. The sheer number is an indication that we are taking this very seriously and seeking conclusive results as quickly as possible. Both teams of investigators are working independently of each other. That is fundamental. The objective is clarification of something we as a company are very keen to achieve, even if some of the findings are uncomfortable. To ensure that internal auditing operates independently and is fully functional, we have brought together the best experts from various units and brands within the group and formed a task force with a predefined clear mission. When that work is completed, the members of the task force will return to their usual duties. Incidentally, all supplies for the help of this mission have been assigned from Porsche AG to Volkswagen for the duration. This way we can ensure that no personal interdependencies or misguided considerations obstruct clarification or distort findings. Incidentally, a representative of Jones Day is also a member of the internal task force, a further guarantee for the independence of that task force's investigations. All in all, we believe the dual structure of the investigations guarantees maximum objectivity, transparency, and quality of results. There are two different scopes to the internal and external investigations, which explains the amount of time they need. The analysis of the relevant processes and systems conducted by internal auditing will be concluded soon. The work being undertaken by Jones Day, on the other hand, will continue well into next year. That is partly due to the fact that the external investigators have to sift through a gigantic amount of data. It is also explained by the fact that we need to clarify who is legally responsible. So this investigation must not only be plausible and consistent, but also stand up to scrutiny. We plan to report on the status of the investigation at the Annual General Meeting on April 21st, 2016.

We would like to give you some initial information today and share the findings made so far. Before we do that, I know you will understand that we cannot and will not be commenting on other people involved. We can only do that when the findings are absolutely watertight. Until such time, these people will be innocent until proven guilty. After all, we live in a state of law. In essence, what we have found out so far is that the NOx issue is the result of the interaction of three factors: individual misconduct and personal failures on the part of individual employees in one area of our company, which can at best be contained but can never be entirely eliminated in a group the size of Volkswagen; second, flaws in some of our own processes; and third, an attitude in some units of the company that tolerated breaches of the rules. That is apparently what happened in this case. I freely admit that this is the factor we all find the most difficult to accept. Ladies and gentlemen, I would like to make one comment before I look at the findings of the internal auditor. We widened the scope of the investigation in addition to the NOx issue once we found indications of irregularities in the CO2 certification process. The CO2 issue has largely been clarified quickly, and we can once again concentrate fully on the nitrogen oxide issue.

The areas investigated by internal auditing can be roughly divided into three classes: first, processes and systems; second, reporting and control systems; and third, infrastructure. The objective when analyzing the processes was to establish the exact sequence of events and to answer the question: what happened when? We know that the test processes had procedural problems. This applies, for example, to the test and approval processes for our engine control units. They were not suitable for preventing the use of the software in question. Internal audit has proposed specific remedial measures to remove these flaws. They focus on structuring processes more clearly and systemizing them better. In future, the 'four-eyes principle' will be strictly applied to the development of engine control units. At the same time, the committee responsible for the approval of such software will be reorganized with stricter and binding competencies and responsibilities. Even though we cannot prevent misconduct on the part of individual employees once and for all, in future it will be very difficult for anyone to bypass our processes. The second analysis involves exposing deficits in reporting and control systems, identifying breaches of existing rules. Here too, there were undoubtedly shortcomings. This was mainly due to the lack of a concrete definition of responsibilities. We must and will tighten everything up. The internal audit also uncovered shortcomings at some points in our infrastructure, in some of our IT systems. Obviously, an infrastructure that does not serve its purpose is not basically useful. Going forward, we will be installing IT-supported processing and control systems in the relevant areas that interact seamlessly with our workflow system. We will be introducing IT systems that make it possible to trace individual events more efficiently and with greater transparency. At the same time, that reduces our dependence on individual persons when identifying and possibly escalating problematic events. That means we should be better equipped to identify malfunctions in good time and limit negative developments.

The investigation by internal audit delivers valuable findings for us to create a framework where breaches of rules like those found in one area of the group are not encouraged but prevented or at least recognized early on. Ladies and gentlemen, as I already mentioned, the external investigators from Jones Day are also making good progress but still need more time. In order to arrive at meaningful conclusions on accountability, they have to systematically plow their way through enormous volumes of data. That includes, for instance, innumerable email sources. Each one on its own is just a loose end in a chain of communication where the context first has to be established. You can imagine how fragmented and complex this forensic work is. Let me illustrate my point with some figures. So far, the specialists have sorted through 102 terabytes of data. That is the equivalent of roughly 15 million books. 87 extensive interviews have been conducted to date in order to obtain the necessary information, and many more will follow. More than 1,500 electronic storage mediums such as smartphones and laptops have been secured from almost 400 employees. Around 2,000 employees were informed in writing that they have to make sure that they do not lose any data. The English term is 'litigation hold'. It is a protective measure. I'm not saying that all of these people are suspects. What it means is that on the physical devices and computers, there could be information that might be important for understanding the circumstances better. We do believe that only a comparatively small number of employees was actually actively involved in the manipulation. In essence, what we have learned from the material that has been viewed so far is: first, we have a better understanding of the situation and how to achieve a swift solution; and second, we are better able to understand the origins and genesis of the NOx issue.

In the next few charts, I will discuss the NOx issue in greater detail, beginning with the basic decisions to launch a major diesel campaign in the USA. I would simply like to give you a brief summary. The key finding is that we are not talking about a one-off mistake but a whole chain of mistakes that was not interrupted at any point along the timeline. Looking back, we regrettably have to recognize that the developers involved in the EA 189 project quite simply could not find a way to meet the tougher NOx limits in the United States by permissible means. At least they could not find a way they felt at the time was given to be meaningful and that fit in the time frame and the budget they had been given. So a software function was installed that regulated nitrogen oxide emissions by various means, such as adjusting exhaust gas recirculation levels, depending on whether the vehicle was on the road or on a test bench. Later on, effective technical solutions became available, but these solutions were not in fact used as they should have been, apparently in the mistaken interest of customers waiting for them. Once again, the engine management software delivered the supposed solution. The software features included the ability to vary the AdBlue dosage level. As a result, NOx levels on the test bench were particularly low, but they were significantly higher on the road. With hindsight, this all sounds almost like a little story, but that is perhaps why we find the whole thing so unbelievable. The decisions were wrong, but also the premises. In the midst of all this, it goes against the values of Volkswagen and the values by which the vast majority of 600,000 employees actually live. There are always occasions when there is not an immediate technical solution to a problem. That is when you have to keep working on it and take a frank and open look at conflicting interests, discuss alternatives, and possibly even totally rethink your approach. It is definitely unacceptable to choose a superficial or even an illegal solution. No business can justify transgressing legal or ethical boundaries. Every single employee at Volkswagen must embrace that creed. I still do not know whether the people that have been involved in this issue from 2005 to the present day were fully aware of the risks they were taking and the potential damage they could expose the company to. But that is something we are going to find out. Apart from the smaller diesel engine, the V6 developed by Audi has also come in for scrutiny in the United States. There is, however, one fundamental difference. The crux of the problem for the Volkswagen EA 189 engine is that the vehicle has two different exhaust strategies: one for the road and another for the test bench. That is not the case for the Audi V6 engine. Based on the same operating conditions, the warm-up strategy and the operating strategy are identical regardless of whether the vehicle is on the road or on a test bench. The so-called AECDs (auxiliary emission control devices) in the V6 engines that have come in for criticism in the United States are not currently subject to registration in Europe. However, on the balance of legislation, one of these devices can be considered to constitute a forbidden defeat device. Audi will be presenting a technical solution to the EPA and will implement this solution as swiftly as possible once it has been approved. Exactly when this will be the case has yet to be finalized. I would like to point out that we are talking about some 100,000 units, so the scale is significantly more manageable than the scale of the original diesel issue.

The situation with regard to the CO2 issue is entirely different yet again, as regards both the origins and the solutions. As I already mentioned, based on the information we had, we initially assumed that a total of some 800,000 vehicles from various brands and models could have been affected by deliberate incorrect CO2 measurements. We immediately began systematic testing of the models that could possibly be affected. In this, we also reviewed the measures and standards applied during test cases. Our findings: first, the suspicion that the fuel consumption figures of current production vehicles have been unlawfully changed is not confirmed. Second, Volkswagen's measurement procedure conforms to the industry standard and is guided by the relevant international standard tests. Third, measurements established that the actual consumption values for almost all current production vehicles are in fact in line with the catalogue figures and correspond to the original CO2 and fuel consumption figures respectively. Only slight deviations from the catalogue figures amounting to a few grams for 49 vehicle models were found. These model variants correspond to around only 0.5% of the Volkswagen Group's brands and models. Based on the findings of this official remeasurement, the CO2 and fuel consumption data will be updated if necessary at the earliest possible opportunity in line with the usual processes. It is important to bear in mind that the initially estimated two billion euro negative impact on earnings attributed to the CO2 issue has not been confirmed. That is good news for Volkswagen. We know that the CO2 issue has been a cause of considerable concern for many of our customers, so the latest developments are very good news for them. As things stand at the moment, any impact on tax seems unlikely. If taxes should be levied, Volkswagen has already given an undertaking to pay them.

Ladies and gentlemen, identifying processes, identifying mistakes, and establishing who is responsible is only part of the exercise. The other important part looks towards the future: drawing the right conclusions from past mistakes and taking all the measures necessary to prevent something like this from ever happening again. We have already begun to put this into practice. Let me begin with the most important of these landmark decisions for Volkswagen. We have decided that our emissions testing will include to be verified by external and independent third parties. We will also be introducing universal on-road emission measurements during real-life driving. We hope that will help us win back trust. I would like to make one comment at this point: when it comes to thresholds, we need the courage to be more honest. Obviously, the industry-wide discrepancies between the official emissions data and real-life levels will no longer be acceptable. We need to break new ground here. Implementation of more measures is already under way. Out of the 30 or so measures identified by internal auditing, many are already being implemented. All the findings from the internal audit will be submitted to Jones Day and therefore help clarify who is responsible. And finally, as far as responsibilities and consequences, the first step has already been taken: we suspended line managers possibly involved in the data manipulation. I do not intend to speculate on whether there will be further personal consequences, and if so what they might be. But I can guarantee that we will take this relentless clarification to its final conclusion. This is the foundation for the renewal of the Volkswagen Group, which has already begun. I am committed to this. The entire Supervisory Board of Volkswagen AG is committed to this. And with that, I hand over to Matthias Müller.