Bloomberg News

VW May Back Third Term for Piech With No Heir Apparent in Sight

October 26, 2011

Oct. 26 (Bloomberg) -- Ferdinand Piech, the mastermind of Volkswagen AG’s strategy to become the world’s biggest automaker, has the support of the German company’s supervisory board for a third term as chairman, according to two people with direct knowledge of the situation.

Piech, who thwarted efforts by Porsche SE to take control of VW in 2009, has the backing of the majority of the 20-member body for another five-year term, said the people on condition they not be identified because board discussions are private. The support eases concern of a leadership gap at the Wolfsburg- based automaker with less than six months left in Piech’s current term and no clear succession plan in place.

“The next generation of leaders at VW should’ve been identified long ago,” said Peter May, founder of Intes, a Bonn, Germany-based consultancy that advises family-owned companies, like Porsche, on succession issues. “Volkswagen is at risk of heading into a vacuum.”

VW is leaning on Piech, whose current term is due to end April 19, 2012, two days after he turns 75, and Chief Executive Officer Martin Winterkorn, 64, to spearhead its pursuit of Toyota Motor Corp. and General Motors Co. Piech, part of the family that owns Porsche, has spent 18 years at the helm of VW, becoming chairman in 2002 after nine years as CEO. Winterkorn, his protege, took over as CEO in 2007.

More Profit

The maker of VW, Audi and Skoda cars bested its chief rivals in profit through the first six months of 2011. Fueled by growing sales in China and Brazil, VW’s net income surged more than threefold to 6.5 billion euros ($9.1 billion), beating GM’s $6.45 billion and the 31.4 billion yen ($410 million) at earthquake-hobbled Toyota, Bloomberg data show.

The latest progress report on the German carmaker’s strategy is due tomorrow when it reports third-quarter figures. Earnings before interest and taxes at VW may have surged 32 percent to 2.61 billion euros, according to the average of 14 estimates compiled by Bloomberg. A revaluation of options on Porsche’s car unit will have a “clearly positive contribution” to third-quarter results, VW said Sept. 8.

Consistency may be the best recipe for VW, as it tackles a slowing economy in Europe and pursues a merger with Porsche. The company also plans to combine heavy-duty truck unit Scania AB with MAN SE after making a public takeover offer, while it feuds with partner Suzuki Motor Corp.

‘Perfect Complement’

“Piech and Winterkorn complement one another perfectly,” Joerg Bode, a VW board member and economy minister of Lower Saxony, the company’s second-biggest shareholder, said in an interview. “It seems the ideal leadership pair for VW in challenging times.”

A grandson of Ferdinand Porsche, the founder of the sports- car maker who also developed the Beetle under a contract with the Nazis, Piech became CEO of VW’s Audi division where he developed the brand’s pioneering Quattro four-wheel drive technology before joining the parent company.

Under his leadership, VW acquired ultra-luxury nameplates Bugatti, Bentley and Lamborghini SpA and integrated the mass- market Seat and Skoda brands. Piech, who hasn’t commented on his desire for another term, declined to be interviewed for this story.

When he took over as CEO in 1993, VW was losing money, prompting Piech to cut wages and weekly hours at German factories and streamline production by sharing parts among models and brands. The measures helped turn a loss in 1993 equivalent to about 1 billion euros into a 2.6 billion-euro profit in 2002 when Piech was elected chairman.

Engineered Ousters

Piech showed that he remained firmly in charge by orchestrating the ouster of Bernd Pischetsrieder, his handpicked successor in 2006. The former Bayerische Motoren Werke AG CEO pulled the Piech-developed Phaeton luxury sedan from the U.S. and disagreed over the use of VW’s holding in truckmaker Scania. His departure made way for Winterkorn, who worked closely with Piech at Audi in the 1980s.

“Piech is the ultimate strategist,” said Helmut Becker, a former chief economist at BMW, who now runs a consulting business in Munich. “There are multiple casualties along his career path.”

His biggest coup may have been his role in turning the tables on Porsche, including his cousin Wolfgang Porsche, in the failed takeover of VW. After initially backing the deal, Piech withdrew support as financing unraveled, opening the door for VW to acquire 49.9 percent of the maker of the 911 sports car. Porsche CEO Wendelin Wiedeking and Chief Financial Officer Holger Haerter stepped down after Piech publicly criticized both executives for creating Porsche’s financial problems.

No Heir Apparent

“It’s not possible to take a company to the top by focusing on the highest level of harmony,” Piech said in his 2002 book “Auto.Biographie.”

Filling his shoes won’t be an easy task for Europe’s biggest carmaker. Becker predicts that Piech will cede the chairman role to Winterkorn when the CEO’s contract ends in 2016. Possible candidates to then replace Winterkorn include Winfried Vahland, the chief of Skoda, and Karl-Thomas Neumann, former CEO of parts-supplier Continental AG who now heads VW’s China operations, Becker said.

Winterkorn, who will be 69 when his contract expires, “can imagine” joining the supervisory board after his tenure as CEO, he said in an interview published in “Antrieb fuer die Zukunft,” a September 2010 book about VW’s competition with Toyota. The shift requires a smooth transition and “the heir apparent has not yet been found,” Winterkorn said. The comments were confirmed by spokesman Michael Brendel.

“It’s bad for companies when managers miss the right point of time to resign, when strength capsizes to weakness,” said Intes consultant May. “It’s a traditional weakness of patriarchs that they refuse to sort out their succession.”

--Editors: Chris Reiter, Chad Thomas

To contact the reporter on this story: Andreas Cremer in Berlin at acremer@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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