Commentary

Diess Will Steer Volkswagen After CEO Muller Is Shown The Exit Ramp

In what is being described as a boardroom coup, Volkswagen named Herbert Diess as its CEO yesterday, abruptly ending the less-than-three-year reign of Matthias Müller, the executive who kept it running following the “Dieselgate” scandal, which the company refers to as “the greatest challenge in its history.”

Diess is expected to oversee “sweeping changes” at the automaker, which also owns several other brands including Audi and Porsche, the BBC reports. "The carmaker said it will reorganize its 12 brands by creating six new vehicle divisions and a special arm devoted to China, its largest market.” Details of the plan should emerge later today.

The ouster of Müller “follows slow progress in reorganizing the group’s car brands, a key pillar of ‘Strategy 2025’ to transform Germany’s biggest car company into a leader in cleaner cars and to move on from its diesel emissions scandal of 2015,” Reuters reports. “For Volkswagen, it’s the biggest overhaul since it became a multi-brand conglomerate under former chief executive Ferdinand Piech, a grandson of VW Beetle designer Ferdinand Porsche.”

“The move comes nearly three years after Volkswagen admitted to rigging 11 million diesel-powered vehicles to cheat on emissions tests, sparking a large recall and criminal prosecutions, while costing the company more than $25 billion in fines, penalties, consumer compensation and legal fees,” William Boston for the Wall Street Journal reminds us

Diess “quietly orchestrated a boardroom coup while he was rebuilding the company’s namesake brand,” Boston writes in his lede.

Rumors of the move had been circulating for a few days.

“Sources close to VW suggest Müller’s possible departure has been engineered as part of a boardroom coup engineered by Hans Michel Piëch, Wolfgang Porsche and Hans Dieter Pötsch,” Greg Kable reported for WardsAuto Tuesday. “Piëch and Porsche are VW board member representatives from the families which together control more than 52% of Volkswagen Group shares. Pötsch is chairman of the VW supervisory board.”

Müller, 64, had a contract to run the company until 2020.

“Müller handled a difficult job competently. VW today is back to roughly the same financial shape it was in just before the scandal broke in mid-2015, with a market capitalization of some $105 billion. Its share price has outperformed those of its peers. Last year it doubled profits and sold a record 10.7 million vehicles, The Economist points out. But “increasingly frustrated at internal opposition to his efforts to change the way the company was run,” the unsigned article suggests, “he may be happy to go,” 

Diess, 59 and an engineer by training, “has one big advantage as he takes over as the chief executive,” Jack Ewing writes for the New York Times. “He is not a product of Wolfsburg, the carmaker’s base.

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“As a relative newcomer to the company, a former BMW executive who joined only two months before an emissions scandal erupted, Diess is not associated with the wrongdoing that continues to weigh heavily on the company’s image and finances, and that remains the subject of major criminal investigations by German and United States authorities.”

Coups and upheaval seem to go with the territory at both the parent company and the VW nameplate.

Reflecting on the unfolding emission scandal in late 2015, James B. Stewart wrote in the New York Times: “Volkswagen’s recent history — a decades-long feud within the controlling Porsche family, a convoluted takeover battle and a boardroom coup — has dominated the German financial pages and tabloids alike. This week, the German newspaper Süddeutsche Zeitung compared Volkswagen’s governance to that of North Korea, adding that its ‘autocratic leadership style has long been out of date.' It said ‘a functioning corporate governance is missing.’”

Perhaps all the intrigue is giving way to financial reality as the auto industry as a whole faces the dissolution of the business model that has driven it for a century.

“There have been historic episodes where cost cutters have been brought in to sort out the namesake VW brand, but who then leave or are squeezed out before their work is really done,” Sanford Bernstein analyst Max Warburton wrote in a note quoted by Bloomberg’s Christoph Rauwald. “Instead of being squeezed out, he has been pushed upward, and has been made CEO. It’s a sign of real change at VW.”

They may not be Thinking Small, but they are definitely Thinking Different.
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