At Volkswagen, engineering change in the eye of diesel storm
IN NOVEMBER 2014, the captains of Germany’s auto industry gathered for an annual ceremony honoring the year’s best cars in a 19th-floor private club with sweeping views of Berlin.
As dozens of corporate A-listers gladhanded and sipped wine in the wood-panelled salon, Porsche chief Matthias Mueller received three Golden Steering Wheel awards – part of the Volkswagen Group’s six-trophy haul. But the most valuable thing he may have picked up that evening was the business card of Thomas Sedran, an industry veteran and former head of General Motors in Europe.
After being appointed CEO of Volkswagen a year later, Mueller quickly rang up the consultant. The once-revered company had acknowledged rigging 11 million diesel vehicles to cheat on emissions tests, effectively putting profit before public health.
Instead of a gleaming icon of German engineering, the company was reviled as a trickster that had besmirched the hallowed MadeinGermany brand.
As he sought to pull the company back from the brink, Mueller needed someone with a fresh perspective who could help him make tough decisions. Recalling Sedran’s work in restructuring GM’s European operations, which included closing a German factory and shutting down the Chevrolet brand in the region, he invited the consultant to Volkswagen’s Wolfsburg headquarters for a chat.
For decades, there had been little upside to critical thinking in VW’s corporate culture, and Mueller wanted an outsider who might give him an unvarnished view of the company.
Meeting in the office of his discredited predecessor, Martin Winterkorn, Mueller found himself perched behind a baronial desk, a symbol of the prestige and power that felt dissonant with his push for more openness and cooperation. So he stepped around the massive wooden slab to meet Sedran eye-to- eye, sitting beside him in one of the modest visitor’s chairs.
Sedran outlined steps VW might take to absorb the blow from the scandal while still investing in the changes disrupting the industry. Less than a month later, Mueller hired Sedran for the newly created position of Strategy Chief, tasked with re-mapping the direction of a colossus with 620,000 workers, 121 factories, a dozen brands ranging from the budget Skoda to Lamborghini and Bugatti, and development spending that exceeds Apple’s.
“When Mueller called me, I thought ‘ Awesome! What a chance,’” says Sedran, who has been asked to end inefficiencies like separate demand forecasts from the sales, purchasing, and
Juergen Pieper, an analyst at Bankhaus Metzler in Frankfurt
finance departments. “My job is to step on a lot of people’s toes.”
VW needs some toe-stepping, or even stomping. Like all of its key rivals, the company must invest billions to adapt to the looming shift to electric cars and selfdriving technology.
But the VW brand, Volkswagen’s largest unit, is barely profitable. And unlike its competitors, Volkswagen faces criminal investigations, hundreds of lawsuits, and incalculable damage to its image due to the emissions cheating. So far, VW has set aside 18.2 billion euros ( RM88 billion) for fines and repairs, its market value has dropped by 13.5 billion euros, and its US sales are off by 10 per cent this year.
Overcoming the scandal involves more than paying off the damages and rolling out electric cars to clean up its image. Mueller, who has abandoned Winterkorn’s stately quarters in Volkswagen’s landmark red-brick high rise for more humble digs next door, says the company must also redefine its rigid, top- down management and soften an atmosphere of fear.
“We need the courage to make mistakes,” he told staff and guests at the opening of a software lab in a loft-like space in Friedrichshain, a hipster neighborhood alongside the River Spree in the former East Berlin.
“If we can combine the new world with the old, we’ll be successful.”
Putting an newcomer like Sedran in such a key position was an early sign of Mueller’s efforts to combine those worlds. Volkswagen has long been run by a small cadre of executives with ties going back decades, and its supervisory board is dominated by conservative power players: workers, the government of its home state of Lower Saxony, and the billionaire descendants of the creator of the original VW Beetle. The workers and Lower Saxony have a majority of seats on the board, and they typically vote together to ensure maximum employment.
“To implement any real change at VW, “you need a lot of negotiations to ensure political support and the backing of labour,” says Juergen Pieper, an analyst at Bankhaus Metzler in Frankfurt who has covered Volkswagen for more than a decade.
“All of this takes time” and limits the scope for reforms.
For a company built around mobility, VW is surprisingly static, weighed down by a record of success that never necessitated a deeper analysis of its byzantine structure. Its main Wolfsburg facility – a jumble of manufacturing halls and office buildings that covers an area as big as Monaco – was established by the Nazis in the 1930s to churn out a ‘ people’s car.’ Its state backing and isolation from other German industrial centres contributed to an insular culture with its own set of rituals.
There are bizarre excesses like the so- called Service Factory – a team of 3,400 caterers and custodians paid the same wages to serve sandwiches and sodas as line workers who assemble Golfs and Tiguans. There’s an in-house butcher churning out more than seven million sausages a year and a garden centre where employees can order flowers. Its home town of Wolfsburg boasts the Autostadt, a park-like tourist attraction that celebrates VW’s history with a museum and pavilions for its various brands.
And there was an extreme deference to authority, with underlings exiting elevators to make way for top brass, and lunches in the executive dining room delivered under gleaming silver domes.
Past Volkswagen bosses perpetuated the hierarchical structure. The gruff Winterkorn was detail- obsessed and micromanaged vehicle development. He was molded by his own boss, chairman and family patriarch Ferdinand Piech, a grandson of the Beetle’s creator.
In an effort to loosen things up, Mueller and Sedran have curtailed the powers of the Product Strategy Committee, or PSK, a politburo that lorded over every aspect of development. Before the change, engineering, sales, and finance teams shared responsibility, and the inevitable disputes were settled by the PSK – often by adding features sought by the engineers, leading to ballooning costs and complexity.
Today, when a decision is made to add a new option, the manager in charge of the model line must ensure that it will generate enough money to justify the expense.
To streamline operations, Sedran pushed for Volkswagen to bundle together the group’s sprawling component operations, which include about 70,000 workers at more than two dozen locations. While that ruffled feathers by threatening to take away lucrative parts business from some brands, it’s aimed at finding savings across the group and ensuring there’s money to invest in electric cars and services like ride- sharing. — WP-Bloomberg