Pischetsrieder Crashes At VW
After Battling With Chairman Ferdinand Piech, VW's CEO Will Step Down By The End Of The Year
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Volkswagen has been restructuring from deep losses in 2004 and 2005, but recent financial reports indicated the company's progress was ahead of schedule. Moreover, after a power play last year with VW's supervisory board chief Ferdinand Piech, when Pischetsrieder's future with the company was cast in doubt, his status seemed assured when he received a contract extension last spring that was to keep him in the CEO chair through 2012.
The surprise timing of the move, not even hinted at in the German business press in recent weeks, is leading to rampant speculation about the reasons for Pischetsrieder's departure. "We are completely taken by surprise by this," said one Volkswagen of America executive. VW offered no explanation for his pending departure after making the announcement.
Restructuring On Track
VW shares closed up 1% on Nov. 7 at 81.25, just about its 52-week high and up considerably from its 52-week low of 43.50. News of the change didn't break until after trading hours in Europe.
In the most recent quarter, the Volkswagen Group's operating profit increased to 991 million [$1.25 billion], excluding 668 million [$849.0 million] in one-off charges to replenish its pension fund and reduce excess staff at six unprofitable plants in western Germany. The Wolfsburg [Germany]-based company, which is Europe's largest automaker, is publicly traded on the Deutsche Borse. In addition to Volkswagen and Audi, it also owns Lamborghini, Bentley, Bugatti, SEAT, and Skoda, as well as a 34% stake in Swedish truckmaker Scania.
"This is the year in which we set the course for the future and the long-term success of our company," said Chief Financial Officer Hans Dieter Poetsch the day of the earnings report. "Our goal is clear: We want to generate profit before tax of 5.1 billion [$6.5 billion] in 2008," he added. On a divisional basis, the VW Brand Group before one-offs swung to an operating profit of 350 million from a loss of 54 million in the third quarter last year, while the Audi Brand Group increased profits by 46% to 437 million [$555.6 million]. Moreover, the CFO said VW expected further cost savings in 2007 of "hundreds of millions" thanks to a recent wage deal with the unions that improved flexibility in its six German plants.
The decision to remove Pischetsrieder was made by a six-man steering committee on VW's supervisory board, which was unanimous in naming Winterkorn to run the company. The full board will vote on the changes on Nov. 17. But the outcome is certain.
CEO's Plans Stiffly Opposed
It has been a turbulent year for Volkswagen. Pischetsrieder a year ago began pushing for an aggressive and unpopular restructuring that called for eliminating at least 20,000 jobs. Volkswagen has the most expensive labor force among European automakers, a situation that has grown out of a 20% ownership of the company by the State of Lower Saxony, which has long viewed VW as an entitlement program for jobs at the company's Wolfsburg factory complex, as well as for nearby auto-parts firms. The powerful German trade union spoke out against Pischetsrieder and his plan, leading Piech to publicly distance himself from his CEO.
At the same time, Porsche AG has purchased 21% of Volkswagen and now has a more prominent role in VW's strategy. Complicating the whole situation for Pischetsrieder is that Piech, with whom he has had a falling out over product and restructuring decisions, is part of the powerful Piech-Porsche family that also controls the voting rights at luxury carmaker Porsche, as well as exerts a lot of influence at VW. A Porsche official said on Nov. 7 in an interview with Bloomberg News, in advance of the announcement of Pischetsrieder's departure, that it is considering increasing its stake in Europe's largest carmaker to as much as 29.9%. "We have never ruled out increasing our stake to 29.9%," said Albrecht Bamler, a Porsche spokesman.
A German law now allows a shareholder with 20% to block major decisions such as factory closures and capital expenditures. That gives Lower Saxony veto power over factory closures. A European Union court is widely expected to end the law next year, increasing the threshold to 25%. In that event, Porsche, controlled by the Piech-Porsche clan, would have blocking power as it ups its stake in VW.
Unstable Career Takes Another Turn
Even with that Byzantine corporate opera featuring the Piechs and Porsches lining up with organized labor to pressure Pischetsrieder to leave, it appeared that he had defied the odds when his contract was extended. Pischetsrieder, who had previously run BMW AG and was personally recruited to VW by Piech, had the support of many institutional investors and stock analysts who felt that his extensive restructuring plans were necessary to make VW competitive, especially in Europe and the U.S. Many analysts, backed up by VW's declining quality and productivity and thin product lineup, had been very critical of Piech's last innings as chief and the problems he left for Pischetsrieder to clean up.
VW has also been beset by a scandal that involved various executives engaging in bribery and spending company funds on luxurious travel and prostitutes. But the causes and timetable for that scandal had occurred on Piech's watch, and hadn't washed up on Pischetsrieder's door except for having to clean it up as VW's CEO.
Pischetsrieder's career has been unusually unstable for the German auto industry. Tapped by legendary BMW CEO Eberhard von Kuenheim to succeed him in the early 1990s, Pischetsrieder orchestrated a controversial, and ultimately undigestable, acquisition of Britain's MG Rover Group. The debacle cost BMW billions and Pischetsrieder his job. While at BMW, he and VW's Piech met frequently to deliberate over how the companies would untangle the Rolls-Royce brand, which BMW purchased from the Bentley brand that VW bought along with the factory that manufactured both brands in Britain. Before taking over as CEO at VW, Pischetsrieder, in an unusual move for a former CEO, accepted a lesser job on the management board.
Explanation Forthcoming?
Meantime, Winterkorn, 59, has been widely praised for putting Audi on healthy footing and making the perennial also-ran in the European premium brand segment a much more formidable competitor to BMW and Mercedes-Benz. Sales and profits at Audi have been climbing, and the latest generation of vehicles has been praised on both sides of the Atlantic in the auto press. He has widely held confidence both inside and outside the company.
In the coming days, VW watchers will be looking for a clear explanation for Pischetsrieder's sudden and surprise departure. Did the labor unions finally succeed in pushing him out the door even after grudgingly accepting many of his cutbacks and workplace changes? Or does Pischetsrieder have personal reasons for exiting? Or does his departure foreshadow a financial restatement?
They will also be looking for any signs that Wolfgang Bernhard, the current head of the VW brand worldwide and the expected heir to Pischetsrieder, would look to leave the company in Pischetsrieder's wake. Bernhard is considered one of the top auto executives in the industry, with a rare combination of product-design instincts and leadership charisma. He was recruited to VW by Pischetsrieder after leaving DaimlerChrysler (DCX), where he clashed with former CEO Juergen Schrempp and the German trade union.
For all the shock about Pischetsrieder's impending departure, French carmaker Peugeot-Citroen made official on Nov. 7 what had been anticipated for at least two weeks. The automaker said its board appointed former Airbus executive Christian Streiff to succeed long-serving Jean-Martin Folz as its chief executive.
Copyright 2006
, by The McGraw-Hill Companies Inc. All rights reserved.
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