VW chair­man quits, but ques­tions over fu­ture re­main

The China Post - - COMMENTARY - BY DAVID MCHUGH

Volk­swa­gen’s pa­tri­arch has left the build­ing. Does this mean change is com­ing to the world’s No. 2 au­tomaker — in par­tic­u­lar, to its high-cost ways of do­ing busi­ness?

Fer­di­nand Piech shaped the com­pany’s des­tiny for more than 25 years. He res­cued Volk­swa­gen’s for­tunes as CEO from 1993 to 2002. He then served as a pow­er­ful board chair­man, his clout height­ened by the fact his fam­ily owns a ma­jor­ity stake in the com­pany.

Piech had crit­i­cized CEO Martin Win­terkorn in an in­ter­view with Ger­many’s Der Spiegel mag­a­zine, say­ing he was “at a dis­tance” from him. Other board mem­bers — in­clud­ing Piech’s cousin, Wolf­gang Porsche — backed Win­terkorn.

Piech, 78, lost the battle and re­signed Satur­day. His wife, Ur­sula, re­signed her board seat as well.

He didn’t say ex­actly what his prob­lem with Win­terkorn was.

But the chal­lenges that may have pro­voked his dis­sat­is­fac­tion are very much still there.

Costs

Volk­swa­gen — the core mass-mar­ket brand un­der that name — spends more to make cars than its ri­vals Toy­ota and Gen­eral Mo­tors. Much of its work­force is in Ger­many, where wages and benefits are high. Em­ployee rep­re­sen­ta­tives hold half the 20 board seats un­der Ger­man law, and their in­flu­ence ob­structs cost­cut­ting. Volk­swa­gen makes parts, such as seats, which other com­pa­nies get cheaper by buy­ing from sup­pli­ers.

The com­pany earns only 540 eu­ros (US$584) per car in profit be­fore in­ter­est and taxes, ac­cord­ing to an anal­y­sis by Fer­di­nand Du­den­ho­ef­fer at the Uni­ver­sity of Duis­burg-Essen.

Com­pare that to 1,647 eu­ros per car for Toy­ota and 783 eu­ros per car for Gen­eral Mo­tors.

Volk­swa­gen sold 10.14 mil­lion cars last year, well ahead of its pre­dic­tions just a few years ago, and breath­ing down the neck of Toy­ota, which sold 10.23 mil­lion.

Prob­lem is, Volk­swa­gen has 593,000 em­ploy­ees — while Toy­ota did it with 344,000.

The US

Volk­swa­gen has been slow to get at­trac­tive ve­hi­cles — in par­tic­u­lar, a full pal­ette of sport-util­ity ve­hi­cles — to the U.S. mar­ket. The CrossBlue mid-sized cross­over, a blend of car and SUV, was shown at the 2013 Detroit auto show but won’t make it to deal­ers un­til 2016.

“You can­not be a suc­cess­ful mass­mar­ket car­maker in the United States with­out a com­pelling SUV,” said an­a­lyst Karl Brauer from au­to­mo­tive re­search firm Kel­ley Blue Book.

The com­pany saw its U.S. mar­ket share fall to 2.23 per­cent in 2014 from 3.03 per­cent in 2012, de­spite spend­ing US$1 bil­lion to build an as­sem­bly plant in Chat­tanooga, Ten­nessee. It has 6,000 em­ploy­ees at its U.S. arm, which is head­quar­tered in Hern­don, Vir­ginia.

Brands

Volk­swa­gen AG as a group makes money. That’s be­cause it has prof­itable brands such as luxury car­maker Audi and high-end sports car and SUV maker Porsche. Those ve­hi­cles bring much fat­ter profit mar­gins.

The name­sake Volk­swa­gen brand it­self is squeezed be­tween the pre­mium brand Audi, which skims cus­tomers from above, while po­ten­tial Volk­swa­gen cus­tomers at the lower end stray to the com­pany’s econ­omy brand Skoda.

Con­trol

The Piech and Porsche fam­i­lies own 50.7 per­cent of Volk­swa­gen through Porsche Au­to­mo­bil Hold­ing SE. The Ger­man state of Lower Sax­ony has 20 per­cent, and thus can block any ma­jor de­ci­sions that it doesn’t like. Qatar Hold­ing has 17 per­cent, leav­ing only 12.3 in other hands.

That means Volk­swa­gen doesn’t need to pay much at­ten­tion to stock an­a­lysts and the ups and downs of the mar­ket.

But de­spite that own­er­ship setup, the com­pany’s em­ployee rep­re­sen­ta­tives hold half of the board seats. They and Lower Sax­ony were among those back­ing Win­terkorn and so come out on top for now.

And those are the con­stituen­cies least likely to be en­thu­si­as­tic about cost cut­ting.

Still, Volk­swa­gen shares rose 5.3 per­cent to 245.45 eu­ros Mon­day in Euro­pean trad­ing.

Suc­ces­sion

Piech’s de­par­ture re­moves a fig­ure com­pa­ra­ble to Steve Jobs at Ap­ple — some­one who left his imprint through force of per­son­al­ity and ob­ses­sion with tech­ni­cal per­fec­tion. An en­gi­neer by train­ing, Piech re­vived the com­pany’s for­tunes by im­prov­ing Volk­swa­gen’s rep­u­ta­tion for qual­ity and the lat­est tech­nol­ogy. As an ex­ec­u­tive at Audi, he over­saw the in­tro­duc­tion of all-wheel drive ve­hi­cles such as the Audi Qu­at­tro.

On the down­side, he also en­gaged in costly van­ity projects, such as mak­ing the large Phaeton luxury sedan un­der the mass-mar­ket VW brand. The car lost money but, it seems, could not be killed off as long as he was around.

The board’s ex­ec­u­tive com­mit­tee said it would pro­pose ex­tend­ing Win­terkorn’s con­tract, which ex­pires in 2016.

Yet at age 67, Win­terkorn’s de­par­ture as CEO is not that far off. He may even­tu­ally move up to chair the board of di­rec­tors.

So the long-term suc­ces­sion at Volk­swa­gen re­mains very much an open ques­tion.

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