As boardroom struggle ends, Volkswagen looks to the future

Jack Ewing

Ferdinand Piëch inspired many stories, and one comes from many years ago, when he noticed that cars on display at the Volkswagen dealership in Salzburg, Austria, were covered in snow.

It snows often in Salzburg. But Mr. Piëch — whose extended family, the Porsches, owns the dealership there and occupies a compound nearby — was not pleased. Since then, the story goes, no flake of snow has been allowed to linger on any Golf or Passat at the lot in Salzburg.

The anecdote, told by Ferdinand Dudenhöffer, a university professor and former employee of Porsche, the maker of sports cars, says much about the character of the man who dominated Volkswagen for decades until he resigned on Saturday as chairman of its supervisory board.

Martin Winterkorn
Getty Images

Mr. Piëch had sought to force out Martin Winterkorn as Volkswagen's chief executive. But Mr. Winterkorn, 67, refused to go and other members of the supervisory board rallied behind him, handing Mr. Piëch, who is 78, a shocking defeat.

Volkswagen said in a statement on Saturday that Ferdinand Piëch would resign as chairman of the automaker's supervisory board.

Mr. Piëch was exacting, willful, feared by subordinates and obsessive about his company's products. He was also remarkably successful, leading Volkswagen from near bankruptcy in the early 1990s to No. 2 automaker in the world, after Toyota. Like Steve Jobs at Apple, Mr. Piëch was among a handful of executives whose personal stamp was unmistakable on the companies they ran.

Mr. Piëch's departure resolves an internal power struggle at Volkswagen but not the formidable challenges that the automaker faces, including slim profits, dwindling market share in the United States and an organization that critics say has become bloated and inefficient.

Volkswagen earns a profit of just 6 percent on sales, compared with about 9 percent for Toyota. And most of Volkswagen's earnings come from its high-end brands. The Porsche division, with sales last year of about 200,000 vehicles, earned more than Volkswagen-brand cars with sales of more than six million.

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With Mr. Piëch gone, there are likely to be some who question the business logic of the automaking empire he built. Volkswagen manufactures everything from Skodas that sell for less than 9,000 euros ($9,600), to Bugatti super sports cars that sell for more than $1 million. The company, based in Wolfsburg, Germany, also makes MAN and Scania trucks, Ducati motorcycles, Bentley luxury cars, and Lamborghini sports cars.

"A lot of his obsessions were distractions that cost money," Karl Brauer, a senior analyst at the automotive research company Kelley Blue Book, said in a telephone interview on Sunday. Volkswagen's size could still prove to be an advantage, Mr. Brauer said, because the company benefits from efforts to share components among its wide array of vehicles.

But the loss of the Volkswagen patriarch also raises the question of whether anyone, even the formidable Mr. Winterkorn, will bring the same resolve and attention to detail.

"Most people would say Piëch got the company going in a direction that made it one of the biggest car companies in the world," Mr. Brauer said. "He has to be given credit for that."

Volkswagen may also need to cut costs more aggressively, especially in Germany, a difficult task for a company that is 20 percent owned by the government of the state of Lower Saxony, and where labor unions exert strong influence.

Berthold Huber, former president of the IG Metall labor union and a member of the Volkswagen supervisory board, is serving as acting chairman of the company until a permanent successor to Mr. Piëch is named. That is the equivalent of the president of the United Automobile Workers overseeing Ford or General Motors.

Though Toyota produces more cars than Volkswagen, it has far fewer employees. Part of the discrepancy reflects the fact that Volkswagen produces more of its own components, like brake discs and seats, than Toyota, which buys more parts from outside suppliers. But the high number of employees is also a reflection of how hard it is to shrink the work force in Germany.

In Europe, Volkswagen is by far the biggest carmaker. All its brands together command a 23 percent market share in the European Union, more than double that of PSA Peugeot Citroën, the No. 2 automaker in Europe. But the European market, though recovering, does not offer the same long-term potential for growth as China, the United States and Latin America.

Tensions rising at Volkswagen

In much of the rest of the world, Volkswagen is struggling. In the United States, the second-biggest auto market after China, sales of all Volkswagen brands fell 2 percent last year, to about 600,000 cars, even as the overall market grew.

The company sold about 370,000 cars with the Volkswagen brand, fewer than Subaru, which has traditionally been considered a niche player.

The decline in the United States is particularly embarrassing for Volkswagen because it has made a concerted effort to increase its market share, investing $1 billion to build a plant in Chattanooga, Tenn., where it manufactures Passat sedans.

Sales in China, Volkswagen's largest market, have also showed signs of slowing, rising just 2 percent in the first quarter for all brands. Worldwide, sales rose 2 percent in the quarter, but the growth came from Audi, Porsche and Skoda.

Sales of cars with the Volkswagen emblem slipped 1.3 percent, suggesting that the core brand is losing sales to its siblings — Skoda at the low end of the market and Audi at the high end.

Even after giving up control of daily operations in 2002, when he ceded the post of chief executive to become chairman of the supervisory board, Mr. Piëch continued to set the tone at Volkswagen. His power also derived from the Porsche family, which owns more than 50 percent of the voting shares.

Of the remaining company shares, Lower Saxony has 20 percent and the sovereign wealth fund of Qatar has 17 percent. Only 12 percent of Volkswagen shares trade on the stock market, which meant that Mr. Piëch and his handpicked cadre of top managers did not need to pay much attention to fund managers, bank analysts or financial journalists.

Mr. Piëch was often accused of empire building at the expense of profit. It was telling that when Mr. Piëch lost faith in Mr. Winterkorn, the chief executive, he bypassed the supervisory board and told the German magazine Der Spiegel that he was distancing himself from his onetime protégé.

Mr. Piëch seems to have believed that he could get rid of Mr. Winterkorn by undermining him publicly. But for once he miscalculated. Mr. Winterkorn won the support of Volkswagen employees, the government of Lower Saxony, and the rest of the Porsche family. Mr. Piëch, along with his wife, Ursula, who also had a seat on the board, resigned.

Mr. Piëch, the grandson of Ferdinand Porsche, who designed a car for Hitler that would later be known as the Beetle and founded the company that produces Porsche sports cars, often had tense relations with his cousins, but had managed, until Saturday, to outmaneuver them.

With Mr. Piëch gone, there could be a power vacuum at Volkswagen, and instability as the shareholders and top managers argue about strategy.

There could be calls to dismantle some of the empire that Mr. Piëch built. Some shareholders or members of the Porsche family — even Mr. Piëch — could decide the time is right to cash out.

"Volkswagen is back now where it was 15 years ago," Mr. Dudenhöffer, the professor and former Porsche employee, said on Sunday. "Maybe next year there will be snow on the cars in Salzburg again."