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The bad drama at VW

Posted by: David Welch on November 7, 2006

Whenever a company’s board gives the top executive a vote of approval, look out. He’s sure to be packing his bags. Witness Volkswagen AG. The company’s supervisory board had just given CEO Berndt Pischetsrieder a five-year extension in May. And today he quit. He’ll leave the company at the end of the year with his likely replacement being Audi boss Martin Winterkorn.

What did he do wrong? No one is yet saying why he left. But here’s a hunch: Pischetsrieder didn’t get along with board chairman Ferdinand Piech. Piech’s arraogance and megalomaniacal tendencies are well-known. And he has a lot of power. He’s not only chairman of the supervisory board, he is a chief in the Porsche-Piech clan, which controls Porsche. Porsche owns 21% of VW. Piech could have easily found a way to squeeze him out.

The whole drama plays like an episode of Dallas, Saxon style. It’s too bad, too. Pischetsrieder is a smart car guy who helped VW refocus on mass-market cars after Piech went off on a luxury binge a few years ago. It was Piech’s brilliant idea to buy the likes of Bentley, Lamborghini and Bugatti and develop losers like the $100,000 VW Phaeton luxury sedan. Meanwhile, VW lost sight of its “people’s cars” not to mention its profitability.

Over the last five years, VW has lost share in European market, seen its U.S. share fall by one-third and watched General Motors eat its lunch in China. When VW was losing money in 2004 and 2005, Pischetsrieder had to clean up the mess. He had to tussle with the German unions—which isn’t his forte—and forge a restructuring plan that targeted 20,000 jobs. The costs of that plan erased most of a $1.2 billion operating profit in the third quarter. But VW is back in the black.

VW may still be an afterthought in the U.S. with just 1.4% market share. But the Passat and Jetta have fueled a small resurgence in the U.S. Sales are up 10% this year. VW has brought the Eos convertible to the States and is even mulling another model to sit in between the $17,000 Jetta and the $16,000 Passat. It’s a smart move. VW needs to get a real presence in the U.S. Another model would help.

All of this is goodness. Pischetsrieder’s reward? He’s out of a job. VW’s bigger problem is that Piech has clearly grabbed control of the company. His arrogance drove it into trouble before. There’s no reason he won’t do it again. Only this time, Pischetsrieder won’t be there to clean up the mess.

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Want the straight scoop on the auto industry? Our man in Detroit David Welch, brings keen observations and provocative perspective on the auto business.

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