Power Play at VW

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Key to Piëch's success will be a massive drive for improved productivity. Much of the heavy lifting will fall to Martin Winterkorn, newly appointed head of VW and a close Piëch confidant. Formerly chief of VW unit Audi, Winterkorn replaced Pischetsrieder, who clashed with the autocratic Piëch one time too many. Bern¬≠hard is still widely expected to depart, since Piëch passed him over for the CEO job in favor of Winterkorn, but insiders say Piëch and Winterkorn are seeking to persuade him to stay.

Piëch must whittle a still-bloated workforce, shutter unneeded plants, and introduce the kind of flexible labor practices that make Toyota's plants the yardstick in productivity. In addition to the 20,000 voluntary departures negotiated this year by Pischetsrieder, the company needs to get rid of another 20,000 people from the remaining 80,000-strong workforce, says Garel Rhys, professor of motor industry economics at Cardiff University in Wales. VW also has to develop processes that make cars easier to assemble. "Piëch has to grasp that nettle," says Rhys.

To do that Piëch has to learn from his mistakes. During a decade at the helm of VW, he led a turnaround by introducing models that customers craved. He was able to avoid layoffs, thanks to a cut in work shifts to 28.8 hours a week. But he also coddled labor leaders to ensure their support in power clashes with other board members. And he allowed costs to get dangerously out of control.

Managers close to VW say Piëch's obsession with scoring a win before he bows out may finally help him shed his engineering blinders and bear down on VW's lagging competitiveness. "Piëch is very intelligent. He understands that VW has to improve its cost structure and chase Toyota," says Ferdinand Dudenhoeffer, director of the Center for Automotive Research in Gelsenkirchen. So Piëch is unlikely to reverse Pischetsrieder's focus on mass-market cars. CEO Winterkorn plans to regroup the carmaker's seven brands into two, more logical, clusters: a mass-market division for VW, the Czech brand Skoda, and Spain's SEAT, and a premium cluster comprising Audi, Bentley, Lamborghini, and Bugatti.

One thing seems clear: Piëch isn't likely to use his family's control of Porsche to engineer a complete takeover of VW by the luxury carmaker anytime soon. Yet Porsche is already in the driver's seat at VW. And Porsche CEO and VW board member Wendelin Wiedeking will prove an important player. Wiedeking rescued Porsche from near-bankruptcy in the early 1990s. The Stuttgart-based sports car maker now has the highest margins in the industry, thanks in part to Wiedeking's embrace of Toyota's lean production techniques. To tackle German complacency at Porsche, Wiedeking sent planeloads of managers and shop floor workers to Toyota's plants and imported Toyota managers to train Porsche workers in Stuttgart.

Wiedeking is determined to make sure Porsche's $5.8 billion-plus investment in VW pays off. At recent board meetings, Wiedeking has peppered Pischetsrieder and Bernhard with detailed questions about VW's production processes, seeking comparisons to benchmark against Toyota.

Can Piëch and his team transform VW into a German Toyota? VW's 20% of the European market gives it massive leverage if it can produce more efficiently. It also has a 17.5% share of the fast-growing Chinese auto market. "If VW can get its costs down," says economics professor Rhys, "it would start to create a war chest to match or trump Toyota in every segment."

Edmondson is a senior correspondent in BusinessWeek's Frankfurt bureau.