Fixing Volkswagen

Volkswagen has raided Audi, its brightest star, to replace departing
group chief executive Bernd Pischetsrieder, who is stepping down at the
end of the year. But Martin Winterkorn, currently head of the luxury
brand, has to do more than just sell c…

Volkswagen has raided Audi, its brightest star, to replace departing group chief executive Bernd Pischetsrieder, who is stepping down at the end of the year. But Martin Winterkorn, currently head of the luxury brand, has to do more than just sell cars if he is to succeed where Pischetsrieder failed.

Pischetsrieder’s resignation surprised many because, on the surface, VW looks in good shape. The Wolfsburg-based company is Europe’s biggest carmaker and its share price, until last week’s news, was at its highest level for more than eight years.

But one industry expert describes VW as “the most political of all the German car companies” and he adds that therein lay the problem. Pischetsrieder had no interest in the complex politics involved in running VW and that proved to be his downfall.

Pischetsrieder’s departure caps a rollercoaster year for VW. First, Porsche became its largest shareholder, which was swiftly followed by a thinly veiled campaign to oust Pischetsrieder by VW chairman Ferdinand Piech, who is also a controlling shareholder in Porsche. He was keen to install Winterkorn, who is seen by many as his protégé, in Pischetsrieder’s place.

The initial attempt failed and Pischetsrieder went on to lead a controversial restructure that included 20,000 job cuts. It is not clear whether he was forced to resign or had just had enough of the company culture. But the saga has put VW and Wolfsburg, a small “parochial” town in the Lower Saxony region of Germany, in the spotlight.

Myopic arroganceAssistant director of the Institute of Automotive Industry Research, Paul Nieuwenhuis, says: “VW suffers from a very myopic arrogance that most of its competitors don’t have and that’s a consistent problem. It’s only very recently that it has started to use English in corporate literature.

“Maybe Winterkorn will be more familiar with the VW culture but Pischetsrieder was a very competent chap and he couldn’t crack it, so maybe there’s something wrong with the company.”

VW’s group sales have been strong in the UK and across Europe this year. Volkswagen as a marque has seen sales increase more than 6% in the UK so far this year compared with the same period in 2005, according to the Society of Motor Manufacturers and Traders, while Audi’s sales are up almost 5%.

In Europe, the VW group has an 18% market share, according to the European Automobile Manufacturers Association, ahead of PSA Peugeot-Citroën with 13.5% and Renault on 9.5%.

As well as Audi, Skoda has also performed well this year but Seat is struggling. Like General Motors and Ford in the US, VW’s biggest problems have been in its home market.

One source close to VW thinks that some of its rivals have made up ground in recent years. “The dynamics of the whole market have changed over the past 20 years,” says the source. “There are not many bad cars around any more. VW’s unique selling point was that it produced these stonkingly good German cars that cost a lot less than BMW or Mercedes. But I think that strength has been eroded.”

Powerful unionsHowever, the source believes VW is still in an enviable position, adding: “The fortunate thing from VW’s point of view is that 80% of its product range is pretty damn good. You can’t necessarily say the same for GM and Ford.”

There is very little wrong with the VW brand but there are plenty of other challenges for Winterkorn. He must keep Piech – described by one VW insider as a “megalomaniac”- and the rest of the board’s factions happy, and also tame Wolfsburg’s powerful unions because, as Pischetsrieder found to his cost, a strong brand on its own is not always enough.

Robert Lester

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