VW reorganizing North America activities

Bloomberg News

Volkswagen AG has chosen the head of its Porsche division, Matthias Mueller, to succeed Martin Winterkorn as chief executive.

Volkswagen’s supervisory board appointed the 62-year-old Mueller, a longtime company insider, on Friday.

The company also said it was suspending some employees and would reorganize its North America operations after admitting it had cheated on diesel car emissions tests in the U.S. through a piece of software.

The decisions come after the previous CEO, Winterkorn, quit the job this week over the scandal, which has damaged the company’s reputation and threatens its business.

Winterkorn took responsibility for the car emissions scandal in the U.S. but saying he wasn’t aware of any wrongdoing on his own part.

The 20-person supervisory board began its meeting Friday morning to vote on naming Mueller, a company veteran for four decades who enjoys the support of the family that controls VW as well as the automaker’s influential labor leaders.

The 62-year-old Porsche chief takes charge as Volkswagen seeks to regain the trust of consumers and regulators after admitting to rigging diesel engines to circumvent pollution controls in the U.S. The crisis wiped about $22.4 billion off VW’s market value this week, forcing Winterkorn to step down on Wednesday as the scandal widened and opened the door for the exit of other top managers.

Audi development chief Ulrich Hackenberg and Porsche development head Wolfgang Hatz are among those who will leave. Hackenberg, a Winterkorn confidante, was responsible for VW brand development from 2007 to 2013, while Hatz ran the group’s motor development from 2007 to 2011.

Mueller was already touted as a potential CEO successor when former Chairman Ferdinand Piech failed in a bid to oust Winterkorn in April. He’s run the maker of the 911 sports car since October 2010. Like his predecessor, Mueller is a long- serving Volkswagen employee, joining the Audi division as a toolmaking apprentice in the early 1970s. Mueller, who studied information technology, would be the first non-engineer to run VW since 1992 when Carl Hahn retired from the post. Hahn studied economics.

To repair VW’s image, Mueller will have to move quickly to get into the public’s eye — a task better suited for his cool, cosmopolitan demeanor than that of the stiff and autocratic Winterkorn.

“For the next 12 months or so, he’ll be a problem-solver who’ll have to credibly drive this process internally and represent it publicly,” said Juergen Pieper, a Frankfurt-based analyst at Bankhaus Metzler.

While the current challenge is significant, Mueller has experience dealing with critical audiences. As Porsche boss, he attended classic-car events to connect with purists and justify expanding into mainstream segments with models like the Macan compact SUV. Under his watch, profit rose 62 percent over four years, and deliveries are on track in 2015 to surpass 200,000 vehicles for the first time.

To succeed he’ll also have to dismantle “fortress Wolfsburg,” Pieper said, referring to the automaker’s centralized oversight, which funnels decisions through its headquarters.

“The challenge will be how to break up a bureaucratic culture, so that people can speak up when there’s a problem, even if it means they won’t meet a deadline and they won’t make market share,” said Lynn Wooten, associate dean at the University of Michigan’s Ross School of Business. “How do you rebuild that reputation now and change the culture at the same time? That’s going to be the two major challenges.”

The entire auto industry and the methods used for testing vehicles are coming under scrutiny following revelations that VW’s “clean diesel” cars have software intended to defeat emissions tests. The European Union urged all 28 members Thursday to start their own investigations, with Germany, Italy, France and the U.K. among countries in the region to already do so. Japan, India and South Korea have also announced probes into the matter.

A majority of U.S. states have begun a joint investigation of VW. The 27 states include California and Texas and will send subpoenas to the company, said Eileen Boyce, a spokeswoman for Illinois Attorney General Lisa Madigan. The states will pursue the investigation under consumer-protection and environmental laws, according to several attorneys general. The U.S. Justice Department has already begun a criminal probe, according to officials who spoke on a condition of anonymity.

The supervisory board will also decide Friday whether to hire U.S. law firm Jones Day to help with the investigation, said a person familiar with the matter, who asked not to be identified as the decision is still pending. VW has asked local prosecutors in Germany to start a criminal probe as well.

Volkswagen said this week that irregularities on diesel- emission readings extend to 11 million vehicles around the world, forcing the German carmaker to set aside 6.5 billion euros in an initial tally of the potential costs.

As part of the reorganization, Winfried Vahland will likely take over for the VW brand’s U.S. chief, Michael Horn, two people said. Vahland currently runs the Skoda division and prior to that was responsible for the automaker’s operations in China. Horn at an event on Monday in New York apologized profusely for what VW had done, saying: “We have totally screwed up.”

Speaking last week at the Frankfurt International Motor Show, Mueller, who has an apartment in a trendy part of Stuttgart rather than a sequestered villa on the outskirts, displayed a range of interests, discussing issues from illegal immigration in Europe to competition from Tesla Motors Inc. and potentially also Google Inc. And, although the diesel scandal hadn’t broken yet, he seemed ready to face the challenges ahead.

“It won’t be boring in our business,” he said in an interview.

Bloomberg News and the Associated Press contributed.