Continental Diesel investigation: Karl-Thomas Neumann suspected

Dusseldorf The automotive supplier Continental and its top management are apparently more deeply involved in the diesel scandal than previously thought: According to information from the Handelsblatt, the Hanover public prosecutor’s office is also investigating former board member Karl-Thomas Neumann.

After ex-CEO Elmar Degenhart, ex-Powertrain CEO José Avila and the recently resigned CFO Wolfgang Schäfer, Neumann is the fourth board member who has come into the focus of the investigators. Investors reacted sensitively to the investigation news from last week, the Continental stock exchange price fell by almost five percent as a result.

The investigation revolves around the 1.6-liter EA189 diesel engine developed by Volkswagen, for which Continental, among others, had supplied the engine management system. In 2015 the manipulations became public. Public prosecutors launched investigations against the car manufacturer, but also against suppliers such as Bosch and Continental.

Over the years, the investigations in the Continental environment have been expanded further and further. There were a few searches, and the agency now has 61 suspects. The allegations are tough: it is about fraud, breach of trust and aiding and abetting, as well as willful breach of supervisory duties. With regard to the ongoing investigations, one does not want to comment on the allegations, said Neumann’s defense attorney Stefan Kirsch when asked.

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Neumann held a responsible position at Continental for many years. In 2004 he moved from Volkswagen to Continental. As a member of the Executive Board, he was responsible for the Continental Automotive Systems division. During this time, Continental took over the automotive division from Siemens-VDO. As a result of the takeover in 2007, the supplier became the second largest German supplier of automotive electronics after Bosch.

Shortly afterwards, Neumann moved to the helm of Conti in the middle of the Schaeffler family’s takeover attempt. The takeover failed, Conti ran into financial difficulties, and the Schaefflers were henceforth anchor shareholders and members of the supervisory board of the supplier.

The purchased Schaefflers and Neumann got in each other’s way several times. At the end of July 2009 there was a scandal. Maria-Elisabeth and son Georg Schaeffler withdrew their confidence in Neumann before a board meeting. Neumann had to give up his post in August. After his time at Conti, he first switched to VW, where he managed the China business. Neumann joined Opel in 2013 and headed the company for around five years. In the past few years, Neumann has been involved with various newer mobility providers.

The takeover of Siemens-VDO in 2007 was linked, among other things, with the goal of competing with Bosch, the world market leader in diesel. Before the takeover of Siemens-VDO, Conti hardly played a role in the diesel market.

Thanks to VDO, Conti was able to supply the engine control software for Volkswagen’s EA189 diesel engine, among other things. Further diesel orders should follow. The question is how far Conti has gone to land such lucrative diesel orders from VW.

Deficits in the investigation report

In September 2015, the car world was shaken by the VW diesel scandal during the IAA in Frankfurt. The world’s largest car maker at the time could no longer hide the fact that it had manipulated its diesel vehicles. It was a scandal that also made many German suppliers nervous. It was unclear what responsibility they had.

Neumann’s successor Elmar Degenhart had an investigation carried out internally. Even the employees’ computers were confiscated and engineers were interrogated intensively. Degenhart apparently also asked his employees to sign declarations that they did not participate in the manipulation, report former companions.

After about four weeks, the all-clear came: the company’s own compliance department had not been able to detect any offenses. Conti did supply engine control software for VW’s 1.6-liter diesel engine. “But we were only contract manufacturers from Volkswagen,” Degenhart is said to have told senior employees, reports people familiar with the process. Conti only implemented what VW had requested and did not actively manipulate the software.

Karl-Thomas Neumann as the Conti boss

After a scandal with the Schaeffler family, Neumann had to give up his post.

(Photo: AP)

The company headquarters on Vahrenwalderstrasse in Hanover was only quiet for a short time. But the investigating public prosecutor’s office in Braunschweig brought new investigative findings to light in 2015. Especially against Bosch, the allegations hardened. Conti was also mentioned in the files.

Suddenly, the Conti management was apparently no longer so sure. Another investigation followed shortly before the end of 2015, this time with the support of an external law firm, which six years later could become Conti’s undoing: the law firm Noerr.

The diesel investigations at Continental have gotten out of hand compared to competitors. While Bosch and ZF Friedrichshafen were able to complete the proceedings with comparatively moderate fines of 90 million and 42.5 million euros, respectively, there is no end in sight at Continental.

Apparently, something went wrong with the internal processing and defense of the company by the Noerr law firm. The public prosecutor’s office is said to be very dissatisfied. In the meantime, the company has reacted and replaced the lawyers.

Wolfgang Reitzle’s board of directors is also criticized. Like the former board members Degenhart, Schäfer and Avila, Reitzle was also able to see the so-called “Lupus Report”. The group’s board of directors and the supervisory board also referred to this report after the first raid last year in order to prove their own innocence. However, the lupus report was never published.

It was only when the Hanover public prosecutor’s office had the Lupus report handed over to them by the Noerr law firm last Wednesday that Wolfgang Schäfer, who was also the ex-CFO responsible for the compliance department, was shown outside the door. Meanwhile, Conti also admits that the investigation report, which was created in collaboration with Noerr, shows deficits.

More: Public prosecutor’s office is investigating the diesel scandal against ex-top management at Continental.

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