Posted by: Gail Edmondson on March 2, 2006
Anyone who bet the power struggle at Volkswagen was over in January when cantankerous Supervisory Board Chairman Ferdinand Piech agreed to relinquish his post in 2007, just lost the wager. This week Piech lobbed a bombshell by telling a newspaper that he doubted the contract of VW CEO Bernd Pischetsrieder will be extended — while Pischetsrieder stood in the media spotlight at the Geneva Auto Show. The subtext was clear: an embarrassing broadside to Pischetsrieder at a tactical moment. Yes, it’s high drama again in the executive suites at VW’s Wolfsburg headquarters. Expect Florentine-style plots and coups ahead as the battle of big egos plays out.
To understand the drama, one must forget about the parameters of a normal faceoff between American or British shareholders and management. The Old World power play at VW is only tangentially about the company’s performance. Various protagnoists are battling for their own interests and agendas, with poor Volkswagen often taking a backseat to big egos, politics, power lust, ideology and even greed and sex. Here’s what’s going on:
Piech is the brilliant engineer and grandson of VW founder Ferdinand Porsche, who headed VW as CEO for a decade before moving up to chairman of the supervisory board in 2002. He now controls VW through his family’s stake in Porsche, which bought 18.53% in VW in October. That move sparked investor outrage over Piech’s conflict of interest and intensified an on-going power struggle in the top ranks of the company. One reason is that Piech, who saved VW once, made a slew of bad decisions in the late 1990s that punctured VW’s competitiveness. He is now maneuvering to retain as much power, directly or indirectly, as he can. Anyone that gets in his way will be sacrificed.
Pischetsrieder, a former BMW executive who loves cigars and fast cars and never looks stressed, has been CEO for nearly four years but has made only halting progress in restructuring VW. The company suffers from an excess of some 30,000 workers, the highest labor costs in the industry, over-engineering, quality erosion, and poor marketing. German auto industry insiders say Pischetsrieder’s key value is as corporate buffer between warring factions. “He is useful,” says one. True, he has made a tentative start with cost-cutting programs, but VW’s cars are only barely profitable.
In January, Pischetsrieder enraged Piech by yanking his pet project, the unsuccessful $70,000 Phaeton luxury sedan, from the US market. A vengeful Piech probably wants to oust Pischetsrieder — hence his Machievellian missive about the contract not being renewed. Piech noted Pischetsrieder doesn’t have the support of labor representatives on the board — but Piech himself has long controlled those votes.
Ten VW labor representatives on the supervisory board will vote on Pischetsrieders’ contract. They are loyal to Piech, who is trying to undercut Pischetsrieder by making him appear to be the job-cutting boogeyman to worried labor leaders. VW’s labor reps have long done Piech’s will. A recent sex and financial scandal has prosecutors investigating corporate slush funds used to bribe labor reps with exotic sex trips and prostitutes.
Wolfgang Bernhard, the former DaimlerChrysler Wunderkind who helped Dieter Zetsche turn around Chrysler and is now in charge of the Volkswagen brand group, is gunning to become Pischetsrieder’s successor. But the able young manager is finding VW’s politics like quicksand. Though Piech once dubbed Bernhard VW’s dauphin, labor representatives are now seeking to discredit him as a “mere cost-cutter” lacking the stature to be CEO. Bernhard may well end up a sacrificial pawn in the battle of bigger forces. That might encourage his old friend Dieter Zetsche, now running DaimlerChrysler, to lure him back on board at Mercedes.
Wendelin Wiedeking, Chief Executive at Porsche, is the dark horse to replace Pischetsrieder as CEO. He’s widely admired as the best car manager in Germany, saving a near-bankrupt Porsche in the early 1990s and creating a formidable profit powerhouse with a decade of steadily rising sales and the highest operating margins in the global auto industry. Wiedeking now sits on VW’s board — part of the January compromise to give Porsche (and hence Piech) its due supervisory influence at VW while reducing Piech’s influence and conflict of interest. Wiedeking’s right-hand man, CFO Holger Haerter, will be elected in May to join the VW board. Watch for an accelerated restructuring effort as Porsche’s financial lieutenants take a closer look at VW’s books.
Martin Winterkorn, the CEO of VW premium unit Audi, which generates the lion’s share of VW’s profits, would also love to be crowned group CEO. He’s considered a longshot.
Christian Wulff, the prime minister of Lower Saxony, a German state which owns 18.2% of Volkswagen, sits on the VW board and claims to champion restructuring. He even lambasted Piech for his conflict of interest. But insiders say he is secretly will back Piech in a quid-pro-quo for avoiding radical job cuts in his electorate heartland. He is a wild card who tip the scales either way in a standoff between warring factions.
In the next weeks, the above players will test their alliances or forge new ones as Pischetsrieder’s fate plays out. One thing is clear, Piech is still in the driver’s seat. And he’s playing for power with Renaissance skill and aplomb.