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Cheating Death: Volkswagen Thrives Despite 'Dieselgate'

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Michael Horn, President and CEO of Volkswagen America, reacts to being mobbed by the media after he apologized for the Volkswagen diesel scandal at the LA Auto Show on November 18, 2015. Despite investigations into the affected models, Volkswagen is resisting releasing full details of the investigations over concerns about their bargaining power in negotiating with the EPA. Lucy Nicholson/Reuters

Updated | Late last year, at the height of its “Dieselgate” scandal, Volkswagen unfurled a white banner across the front of its iconic 1930s-era plant in Wolfsburg, Germany. Written on it was an appeal in German that translated to: “We need transparency, energy and courage—but most of all, we need you.”

The banner, which looked a bit like a flag of surrender, was directed at Volkswagen’s workers and the scores of tourists who flock to the company’s birthplace. Just a few months before, in September, the U.S. Environmental Protection Agency announced that the German automaker had installed cheat devices in its diesel engines that gamed emissions tests in the lab and allowed them to spew pollutants many times above the legal limit when on the road. The scandal soon widened to include more than 567,000 vehicles in the U.S. and nearly 12 million cars globally—the biggest known fraud in automotive history.

Volkswagen’s chief executive at the time, Martin Winterkorn, resigned shortly after the EPA’s disclosure, while the U.S. Department of Justice mounted a criminal probe. Winterkorn’s successor, Matthias Müller, promised late last year to release the results of an independent investigation into the scandal by spring 2016.

Today, Wolfsburg’s white banner is gone—and Volkswagen’s promise to release the findings of its probe has vanished along with it. Despite Müller’s assurances, it seems increasingly likely that the German automaker, which recently set aside $18 billion to cover the cost of the crisis, will never reveal who was responsible for Dieselgate. In late April, Volkswagen stated that although interim results of its independent probe into the crisis are now available, it decided that disclosing them would “present unacceptable risks” and “weaken its position” in negotiating a final settlement with the Department of Justice.

In an emailed statement to Newsweek, Volkswagen spokesman Michael Brendel says he “cannot answer” whether the company still plans to issue a comprehensive report about what caused the fraud and who was responsible, noting that the company may defer to a “statement of facts” that it expects the Justice Department to release at the conclusion of its criminal probe. The Justice Department declined to comment.

While many Volkswagen drivers remain shocked at the scale of the fraud and dismayed by the company’s silence, some tell Newsweek they would still buy a Volkswagen. In fact, less than a year after the scandal erupted, the company’s sales and stock price are rebounding. On Tuesday it reported a return to profitability in the first quarter after posting a steep $1.8 billion loss in 2015. Which means VW’s seemingly crazy gambit to cheat, then hunker down, might just pay off.

Don’t call it customer loyalty—it’s more a case of consumer cynicism, says Jeffrey Kelliher, a resident of Bernardston, Massachusetts, who bought his first VW, a turbodiesel Passat, last summer, just before Volkswagen was caught cheating. “My wife, Tori, says, ‘You would never buy a car from those liars again, would you?’” Kelliher says. “But my honest answer is that I would not rule it out. It’s the first Volkswagen I’ve ever bought, and I do like the performance…. There’s a reason why people call it the poor man’s Audi.”

Robert Szpila feels the same way. While he says “Volkswagen’s lack of action and total inability to explain what happened almost a year later is infuriating,” he admits he likes the mileage and torque of his turbodiesel VW Jetta SportWagen, which he purchased early last summer in Manchester, New Hampshire. Szpila and Kelliher both say they would never buy a diesel again, but the scandal hasn’t turned them against Volkswagen.

Their main concerns now: Will Volkswagen ever explain what went wrong? And will its settlement with the Department of Justice and U.S. regulators force them to make some difficult choices about their cars?

The settlement terms between the Justice Department and Volkswagen call for VW owners to have the option to sell their cars back to the company or have their vehicles fixed by the automaker to meet U.S. emissions standards. The settlement is not expected to be finalized until later this summer and applies only to owners of 2-liter vehicles, with a settlement for 3-liter vehicles still pending. Drivers also will receive “substantial compensation,” according to a U.S. district judge overseeing the negotiations.

Szpila and Kelliher say they likely will have VW buy their cars back, even though they really like them. “Having Volkswagen fix my car, which right now gets great mileage and performs well, probably means taking those benefits away from me,” Szpila says. “So, in that sense, fixing the car means making it worse.”

Kelliher agrees. “I am 99 percent sure the car will not run the same way after a fix,” he says. “If the pep and the torque were gone, then I’d be really annoyed.”

What’s really annoying some of Volkswagen’s major shareholders is the company’s lack of transparency. The major fund Hermes Investment Management in London, Brussels-based investment adviser Deminor and German investor group DSW have called for an audit of the automaker’s management and supervisory boards, both of which voted not to share the interim results of the company’s investigation. In late May, investors said the audit would allow for checks of “potential breaches of duty” by Volkswagen’s highest ranks.

The shareholder group has also questioned the independence of Jones Day, the U.S. law firm hired by Volkswagen to conduct the company’s probe. It noted that the firm is investigating only VW’s management board and not its supervisory board. The group may push for a broader investigation at a major meeting of shareholders on June 22 in Hannover, Germany. (Jones Day declined to comment.)

Other shareholders just want compensation. In May, Norges Bank Investment Management, a Norwegian sovereign wealth fund, issued notice that it plans to join a German class-action lawsuit of around 280 investors, all of whom are angry that the scandal hammered VW’s share price. The suit seeks around $3.67 billion in damages.

Yet for all the money investors have lost, the company is rapidly bouncing back. Volkswagen’s stock has regained much of its value since this past fall. On Tuesday Volkswagen reported a 3.4 percent increase in first quarter operating profit, as the company raked in $3.8 billion and seemed to put the worst of last year's losses behind it. At the same time, its stock has regained much of its value since last fall, with shares hovering around $30 in late May, inching toward pre-scandal levels of $40 to $50 a share. Volkswagen sales are climbing too; in the first three months of 2016, the company overtook its biggest rival, Toyota, to again become the world’s top automaker.

If these trends continue, Volkswagen may have no reason to release the Jones Day report. The company’s white banner, it seems, wasn’t a flag of surrender; it was a bluff.

This story has been updated to include details from the company's quarterly report, which it released on Tuesday.