As the Dark Lord of Wolfsburg loses his grip, is this the twilight of a dictator?
Lately, the mighty VW juggernaught has appeared unassailable. The Golf and Passat dominate their respective classes, while Audi and Porsche reap record profits on the back of a global luxury car boom. Yet serious fissures have appeared at the very top of the management chain which unchecked, could destabilise the entire organisation.
In an extraordinary series of events, Ferdinand Piëch publicly disassociated himself from VW CEO, Martin Winterkorn; previously favourite to ascend to the top job when Piëch retires in two years time, citing VW’s sales slump in the US market, coupled to a growing sense that Winterkorn has failed to get to grips with VW’s spiralling costs. The vaunted MBQ modular platform, developed at enormous cost is not delivering the efficiencies promised for it. Margins remain low due to high labour and engineering costs and more worryingly for them, VW have not benefited from the recent upswing in consumer demand across mainland Europe.
VW’s strategy in the land of the free has stalled and while resources are now being diverted to fast-track development of a range of US-centric SUV’s, it will be some years before they reach customers. Piëch believes the fault lies squarely with Winterkorn and in the run up to last week’s bitter confrontation with VW’s supervisory board, VW’s chairman repeated briefed against his former protégé.
VW’s problems are long-standing, culminating in last July’s announcement by Winterkorn of “painful action” aimed at slashing costs across the VW business, including the axing of unprofitable models. Yet VW simultaneously announced plans to develop a replacement for the Phaeton saloon, singled out by Berstein Research as one of the biggest commercial flops of the past decade. The original Phaeton was one of Piëch’s pet vanity projects. A new version will cost VW over €650m to develop, and with Mercedes’ utter dominance of the market, appears wildly irrational given VW’s pledge to slash costs. Quite frankly, to single out Winterkorn in this manner looks more like an attempt to paper over his own commercial hubris and lack of fiscal rectitude.
This week, the plot thickened further. Faced with a united front across VW’s supervisory board in support of their embattled CEO, Piëch has been forced to back down and support him, sparking speculation over his own future. Automotive News reported that Dr Piëch’s position has been significantly weakened, quoting anonymous sources who said; “Piëch was completely isolated. The question of who will chair the board [when Piëch retires] won’t be decided until 2017 unless Mr Piëch draws the consequences after this crisis which he alone provoked.”
VW’s rivals, most of whom would kill to have some of their problems, can take comfort in the fact that despite the group’s overall dominance and strength, serious fissures are appearing. There will be moves within VW to contain this situation as quickly as possible but this unseemly spat can only disrupt efforts to right some of the group’s more pressing structural problems, while ensuring an ordered succession. But while this soap opera drags on, damage is being done to VW’s reputation for managerial competence.
Dictators often lose their grip on reality just before they’re forced to cede power. VW’s once unassailable Chairman has not only become the story but appears more and more like a liability than a leader. Has the great manipulator been outmanoeuvred, or does he have one final ace to play? Find a comfortable pew folks, and watch the feathers fly.