VW's Faltering U.S. Strategy Drives Tussle At The Top

A power struggle has erupted at the top of Volkswagen leadership after chairman Ferdinand Piëch told the German magazine Der Spiegel last Friday that he is “keeping myself at a distance” from his former protégé and current CEO, Martin Winterkorn, who is in line to succeed him. 

The article also reported that “Piëch’s brother, supervisory board member Hans-Michel Piëch, had faulted the CEO for his failure to introduce a low-cost car and master the U.S. market,” reports Christoph Rauwald for Bloomberg.

Over the weekend, “The statement prompted others including [Piëch’s] cousin, Wolfgang Porsche, the government of Lower Saxony and employee representatives on the board to reiterate support for Mr. Winterkorn,” reports Thao Hua in the Wall Street Journal while pointing out that the comment “could reflect deeper divisions over strategy at its namesake brand.”

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“Winterkorn may have fallen out of favor in part because of the failure of Volkswagen to expand its market share in the United States,” write David Jolly and Jack Ewing for the New York Times. But “in a show that all was normal, Mr. Winterkorn attended a public meeting at an industrial fair with Chancellor Angela Merkel of Germany and Prime Minister Narendra Modi of India on Monday.”

“While the reasons for Piëch’s campaign remain unclear, a senior labor representative said the chairman had criticized Winterkorn at past board meetings, particularly with regard to the weak U.S. operations,” write Reuters’ Ilona Wissenbach and Andreas Cremer.

“VW's $1 billion plant in Chattanooga has been underutilized for more than a year after demand dried up for the locally built Passat salon, a model that Winterkorn had personally lobbied for, a company source said.”

Winterkorn “has invested a lot of money and the result was permanent loss of market share” — now at 2% and less than Subaru’s — Ferdinand Dudenhöffer, a professor at the University of Duisburg-Essen, emails Jolly and Ewing. 

Prospects were indeed looking promising in 2007 when VW launched a “lower-priced, Mexico-made Jetta” and began “churning out” the new Passat in Chattanooga with a goal of hitting 800,000 in sales by 2018, as Automotive News’ Neal E. Boudette reported in January. “Today, the magic is gone,” he wrote, and the company “missed out on a key boom period in U.S. sales.”

To be sure, the company’s woes are broader than its failure to maintain traction in North America. 

“During Winterkorn’s tenure, VW has expanded at a huge rate, but hasn’t managed the transition well,” observesForbes contributor Neil Winton. “Volkswagen … is said to employ too many people, doesn’t make enough money, and is relying on raising sales to flex its muscles rather than focusing on the bottom line.”

To be fair, Winterkorn started from a lower base and “in his eight-year reign has overseen VW's transformation from a struggling German group saddled with high labor costs into one of the world's most successful automakers,” as Reuters points out.

Winterkorn, who had been running the premium Audi division, was named CEO in 2007 following the ouster of then-CEO Bernd Pischetsrieder in 2006, reports Bloomberg’s Rauwald.

“Piëch’s criticism raises the question about his real motives,” Stefan Bratzel, director of the Center of Automotive Management at the University of Applied Sciences in Bergisch Gladbach, Germany, tells Rauwald. “VW as a company has been very successful in recent years. That’s in part because Winterkorn and Piëch provided strong leadership at the top.”

But Piëch, 77, who is an engineer by training and famously “aggressive and demanding as a manager” by predilection, has a history of management by quotable quotes. 

Or, as the Financial Times Richard Milne puts it: “Nobody does a corporate defenestration quite like Ferdinand Piëch. Volkswagen’s long-time chairman has ended the careers of many of the German carmaker’s top executives with little more than a few carefully chosen words.

“Franz-Josef Paefgen was one of the first to get a message through the press when Mr. Piëch said of VW’s luxury brand Audi in 2001: ‘Gridlock reigns there.’ A few months later, Mr. Paefgen resigned as head of Audi.” 

Milne concludes by suggesting that Piëch’s “Machiavellian ways” have a history of succeeding in the long term. 

But, writes Jonathan Braude for The Street, “the Porsche and Piëch families control Volkswagen's shares, but labor representatives and the state Lower Saxony have an outsize influence on its board and it does not look right now as if Winterkorn is going anywhere before his contract expires at the end of next year.” 

So perhaps he’ll have an opportunity, after all, to execute on his wistful statement to a German car magazine a few weeks ago, as reported by Automotive News, that “we need to find a different way to reach the souls of the Americans” than the Jetta and the Passat, 66 years after the first Beetle arrived.

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