Teutonic Displacement: Volkswagen Konzern (Part 1)

After having gone from strength to strength in recent years, Volkswagen AG (VAG) all of a sudden appears to be in an awful lot of trouble. But appearances can be deceiving.

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First in a series on the German automotive industry, seen from a German perspective.

In the not-too-distant past, it seemed as though it was just a matter of time before VAG chairman, Ferdinand Piëch – aided by his obliging CEO, Martin Winterkorn – could finally ascend the throne of the global automotive domain. There may have been the odd mumble regarding disappointing performance in the US market, but, by and large, everything seemed to be rosy in Volkswagenland.

It was therefore all the more surprising when the alarm bells began ringing ear-numbingly in recent weeks. VAG needs to save billions. VAG’s (prematurely) lauded MQB platform architecture isn’t working. The Volkswagen brand’s yields are astonishingly low. VAG owns too many brands. That is what we have heard not just through the press, but from within VAG itself over the past weeks. It does sound dramatic indeed – and like an overdue wake up call aimed at shaking up a company in danger of oversleeping, still being somewhat tipsy after having indulged in a complacency overdose.

As is so often the case, the determined commentator must try to cancel out the alarmist’s sirens, just as previous declarations of imminent world domination had better been taken with a dollop of salt.

The most surprising, and indeed: alarming, piece of news concerns the shortcomings and complications regarding VAG’s tide-changing MQB platform.

Burdened not just with high European wages, but a workforce far bigger than the competition’s (550.000 people), the basic idea was to overcome this crucial obstacle by being smarter than the rest, by pursuing an engineering solution. So far, so German, but something must have gone wrong during the project’s execution, which is reflected not just in the (MQB-based) Golf VII’s ongoing production woes, but, rather drastically, in the very public sacking of VW’s head of production, Michael Macht. Macht, who had been instrumental in implementing Kaizen production techniques at Porsche during the 1990s and succeeded Wendelin Wiedeking in the aftermath of Porsche’s failed takeover of VAG, is seen as the culprit for MQB’s woes. Teething troubles seem to be mostly centered around the overwhelming scope of different options available for MQB-based cars, which leads to production delays and, in turn, higher costs. As the architect of the infrastructure behind MQB and the person in charge of its implementation, Macht had to shoulder the responsibility for this failed introduction.

Whether MQB will eventually work out as intended, once more derivatives have been brought to market, is the billion Euro question. The decision to publicly address the issue and give Michael Macht the sack in the run-up to the new (MQB-based) Passat lends this matter all the sense of urgency imaginable in a corporate context.

Even more troubling is the talk of VW’s future models’ projected yields. MQB may have been intended to be an engineering measure aimed at addressing VAG’s enormous labour costs, but for the time being, it appears to be only worsening the problem.

Casting our minds back some years, we could find VAG in a situation similarly dramatic as the current state of affairs. Following the bodged introduction of the Golf V, VAG’s new leadership under former BMW CEO, Bernd Pischetsrieder, realised that the company’s high costs needed to be addressed, and urgently so. This issue was then taken care of mainly by Pischetsrieder’s newly-appointed man of action, Wolfgang Bernhard – he who had so very nearly been appointed MD of Mercedes-Benz at the end of Jürgen Schrempp’s ill-fated reign.

Bernhard, who fancied himself as a corporate maverick, immediately shook up VAG’s traditionally cosy labour relations and announced a new mantra: less social democratic workers’ participation, more competitive vigour. Those were the days, we ought to remind ourselves, when neo-liberal corporate policies were still seen as the solution to everything – and when Wolfgang Bernhard appeared to be destined for great things.

As he had announced before being banished from Stuttgart, Bernhard set out to leave no stone unturned, shaking up not just labour relations (albeit without the feared mass redundancies), but engineering, as well. Unlike so many other German automotive executives, Wolfgang Bernhard is no obsessive engineer and therefore a rare champion of  engineering compromises among his ilk.

Despite the expected labour disputes never reaching the anticipated dramatic levels, Bernhard found himself among the first victims when Porsche’s takeover of VAG eventually failed and Ferdinand Piëch’s confidant Martin Winterkorn replaced the ousted Bernd Pischetsrieder. A while later, in a certainly ironic turn of events, Bernhard returned to Stuttgart, where his old Chrysler buddy, Dieter Zetsche, had meanwhile taken over the helm.

Adding further irony to this anecdote is the fact that Bernhard’s legacy turned out to be at the core of the success attributed to Martin Winterkorn in the ensuing years.

The third-generation Scirocco may be the best known product of Bernhard’s reign, but his influence actually reaches deeper. Before he found himself ousted, he had instigated a thorough facelift of the Golf V, aimed primarily at lowering its unreasonably high production costs, as well as the Tiguan SUV and a facelift of the then already ageing Phaeton.

But the Tiguan, Golf VI, Scirocco and Phaeton that were eventually brought to market were quite different to the cars Wolfgang Bernhard had instigated.

Together with his then heads of styling, Murat Günak and Peter Schreyer, Bernhard had intended to give VW a more fashionable appearance, as communicated through a number of concept cars. Most notable among them was the Iroc, which gained a few letters, but lost its aggressive snout on its way to series production. This stylistic change was one of a plethora of amendments carried out by newly appointed head of VW styling, Walter de’ Silva and his team. But what some call amendments, some might actually describe as last minute rescue measures.

In an exercise in not particularly subtle malicious gossip, the new reigning champions at VW – mostly engineering fetishists of the Piëch/Winterkorn camp – made it clear that the Bernhard era cars would have ruined VW, had they been brought to market unchanged.

And there may very well be some truth to this admittedly denunciatory remark, judging by the rather gauche, ephemeral style of VW’s Günak/Schreyer-era output (the less said about the proposed, utterly dreadful Phaeton facelift, the better). But the fact of the matter is that the Winterkorn-enhanced Bernhard cars turned out to be the money-spinners that helped finance VAG’s attempt at world domination.

To be continued…

8 thoughts on “Teutonic Displacement: Volkswagen Konzern (Part 1)”

  1. For me, the existence of Bugatti, a company that permits every Polo buyer to subsidise a very rich person’s ownership of a car finished in an unfortunate paint scheme, demonstrates that VAG is not the relentlessly logical corporation that some of its other products suggest. The tension between engineers and designers is interesting and, if recent UPs, Polos and Golfs are the result of engineers getting the upper hand, or at least stemming stylist’s excesses, I find that good. Of course others don’t and no pub or comment column is free of the adjective ‘boring’ for long once VWs are mentioned. I’d really like to see this range of cars that were so dreadful that they would have destroyed VW. Was that the current guard being politically melodramatic, or is it their correct perception that once VW starts meeting Hyundai and Renault on their own design-fad led ground, their special status would be lost?

    1. I find the “lost” Bernhard cars strangely fascinating. Before he’d arrived, VW had released a string of disappointing and underperforming models: Golf V, Passat B6 and a number of plaque grille facelifts. Those cars were already moving towards a more fashion-led style, but their engineering was still of the old school.

      Bernhard tried – if I interpret his decisions correctly, that is – to make VW trendy and do away with engineering luxuries the costumer doesn’t see any benefit in.
      So yes, I’d say he was promoting a more short-term kind of product policy, with Peugeot perhaps being an unlikely role model (we mustn’t forget that ten years ago, Peugeot’s Moebius style cars weren’t regarded as the kind the reputation suicide we see them today, but a successful attempt at rejuvenating a formerly conservative, boring brand).

      I wouldn’t describe myself as either a Winterkorn or a de’ Silva fanboy, but doing away with VW’s inherent “soberness” would have done a lot of damage to the brand, even if the Bernhard cars wouldn’t have fallen apart. VW’s semi-premium reputation has survived for so long mainly because the cars usually at the very least appeared to be more substantial than the competition.

    2. Kris. I understand your fascination. The idea that, rather than possibly not selling as well as they might, that they would have actually destroyed VW conjures up something of such grotesque ineptitude that would make the notorious Austin Maxi prototype look elegant.

      I would join Eoin in praise of your reporting, but Hannibal Piech’s tentacles are all embracing and my Audi appears to have developed a leaking head gasket, so I don’t want to attract his attention.

  2. This is an fine and illuminating analysis – all the more so for the complete lack of reporting on this subject by the mainstream UK automotive press. The Kacher’s and their ilk are so cosily embedded now, they’d never dare attempt anything that remotely smacked of investigative journalism – or heaven help us all – criticism. Mind you, there’s always the wrath of Piech to consider…

  3. I can remember it being reported that in the early 90s VW made about 100 pounds’ profit on each of their cars. These days the profit margin is often just the price of the metallic paint option. What has changed?
    VW ought to be happy that they cover their costs which include investment for the future.
    The MQB system could be considered to be so complex as to be indistinguishable from having a vast pool of unique parts which was how it was done thirty years ago. I suppose I am saying that if the modules in a modular system are too small then it loses its advantage over a non modular system. Also, it could be that if you keep the number of car lines at X and introduce a complex modular system you can get ahead but if you also increase the number of car lines as well as introduce a complex modular system you eat up the advantage conferred by the new production/assembly concept.
    It’s like risk homeostasis. Or the way CAD allows you to work faster but instead of finishing the week on Wednesday you do 40% more work and fire 40% of your draftsmen.

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