VW chairman quits, but questions over future remain

AP News
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Posted: Apr 27, 2015 12:30 PM
VW chairman quits, but questions over future remain

FRANKFURT, Germany (AP) — 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.

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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 cost-cutting. Volkswagen makes parts, such as seats, which other companies get cheaper by buying from suppliers.

The company earns only 540 euros ($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.

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THE USA

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 mass-market 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 $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.

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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.

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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.

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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.