Power Play at VW

Chairmen Piëch tightens his grip at the troubled automaker

by Gail Edmondson

Even for Volkswagen, a company accustomed to high-stakes management intrigue and boardroom drama, it has been a wild month. On Nov. 7, Chief Executive Bernhard Pischetsrieder stepped down after an unexpected no-confidence vote by VW's board. On the same day, rumors started swirling that VW brand chief Wolfgang Bernhard, who has been at the center of the automaker's efforts to restructure, would soon follow Pischetsrieder out the door. Then on Nov. 15, Porsche (PSEPF) upped its holdings in VW from 21% to 27%, fueling speculation that the giant carmaker might be taken over by the smallest player in Europe's auto industry.

The man behind all these developments is VW Chairman Ferdinand K. Piëch, one of the most controversial and powerful chieftans in the car business, scion of the legendary Porsche family, and a tycoon in his own right with a net worth of some $7 billion. Insiders at VW say that Piëch contrived the ouster of Pischetsrieder to reassert his grip on VW and speed change. Piëch, as the controlling shareholder at Porsche, also instigated the sports car maker's move on VW.

Is all this just a Machiavellian power play by Piëch to put himself back at the center of Volkswagen, perhaps at the expense of the company's future? Or is this Piëch's last act, a serious bid to restore VW's lost competitiveness?

A brilliant engineer but an obstinate and irascible manager, Piëch, who declined to comment for this story, already has a checkered legacy. During a 20-year stint at Audi, he pioneered breakthrough technologies and came up with hit cars. Moving to Volkswagen as CEO in 1993, he worked a turnaround but also over-engineered VW's autos, spent billions buying and retooling luxury brands, and misread the market. In the late 1990s he stumbled badly trying to take VW upmarket in a bid to challenge Mercedes-Benz (DCX). VW even built a billion-dollar plant for Piëch's pet project, the $70,000 Phaeton luxury sedan. The Phaeton has never sold well, and today that plant is operating at a disastrous 10% of its production capacity, says one consultant.

The sting of those missteps may be driving Piëch to reassert control at VW. Auto industry executives say Piëch is determined to match the oversized legacies of his grandfather. Ferdinand Porsche created the VW Beetle and was the founder of Porsche, the most profitable automaker in the world. Like his grandfather, Piëch is intensely competitive. Now that Toyota Motor Corp. (TM) is the industry benchmark, Piëch wants to ensure VW can keep pace with the Japanese superstar. Says a top German manager: "Piëch wants to be revered as an auto industry legend."

Pischetsrieder andBernhard have already made progress fixing the worst of VW's problems. Bernhard, who joined the company in 2005 after a management dispute at DaimlerChrysler, (DCX) where he was slated to run Mercedes, has been widely praised for overhauling VW's complex approach to building cars. A ruthless cost-cutter, Bernhard, 46, has a favorite technique: He routinely locks staffers in meeting rooms, then refuses to open the doors until they've stripped $1,500 in costs from a future model.

LOSING MONEY

Yet VW has a long way to go. The company is saddled with inefficient production lines and the highest wages in the industry. It loses money on every Golf and Passat built in Germany. "VW is still in deep trouble," says a consultant who has worked closely with VW.