Restructuring Plan

At VW, Dividing to Conquer

Ausgang Winterkorn DPA
Martin Winterkorn, the VW CEO who survived a leadership struggle with the company's controlling shareholder, is planning to restructure the group into four units to make the 12-brand behemoth fleeter of foot.
  • Why it matters

    Why it matters

    CEO Martin Winterkorn is decentralizing power at the Volkswagen Group in the aftermath of Ferdinand Piëch’s resignation from the supervisory board.

  • Facts

    Facts

    • The Volkswagen Group will divvy up its 12 brands between four holding groups, which will have representation on the management board.
    • The holding groups will have more independence to set target countries and make decisions about marketing, distribution and sales.
    • The biggest change will come in the passenger brands. Volkswagen Passenger Cars, Skoda and Seat willbe consolidated into one holding under the leadership of Herbert Diess.
  • Audio

    Audio

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Wolfsburg, the headquarters of Europe’s largest automaker Volkswagen, has too much power. That was the simple message of the VW chief executive, Martin Winterkorn.

The 68-year-old Mr. Winterkorn met on Friday with the automaker’s policy-setting supervisory board and some close confidantes at an airport in Braunschweig before flying to Le Mans, France, for the world’s oldest 24-hour endurance car race.

According to information obtained by Handelsblatt, Mr. Winterkorn plans to consolidate Volkswagen’s 12 automobile brands — which include VW, Audi, Porsche, Seat, Skoda, Bugatti and Bentley, into four operating units.

The goal is to give the parts of the German automaker much greater independence to choose the countries where they focus their sales, and other aspects of their operations.

In the future, only the leaders of these groups will be members of Volkwagen’s management board, the top executive board in the automaker.

Marketing and distribution will no longer be represented on the top panel. Instead, the brands will take over these responsibilities themselves.

The VW headquarters in north central Germany will then focus primarily on strategy and management. Mr. Winterkorn, who has been deeply involved in day-to-day operations of Volkwagen’s core brand, plans to take a step back.

 

Facets of a Car Empire-01

 

By delegating more power, he hopes to secure his base of support and make the automaker more responsive to changes in global markets.

The structure will be modeled after the new commercial vehicles group, which includes VW’s Scania, MAN and Volkswagen Commercial Vehicles.

Little will change at Audi and Porsche, Volkswagen’s most profitable brands. Audi head Rupert Stadler will continue to lead Ducati and Lamborghini. Porsche chief Matthias Müller will take over Bentley Bugatti.

“Business is good at Audi and Porsche, we cannot risk their success,” a source at Volkswagen, who asked to remain anonymous, told Handelsblatt.

The real change will take place in the mass-market brands.

Volkswagen Passenger Cars, Seat and Skoda will be consolidated into a single group under Herbert Diess, a former member of the board at BMW.

Volkswagen’s core brand faces growing challenges in China, one of its most important export markets. Beijing has ramped up the production of its domestic car manufacturers, cutting into Volkswagen’s sales there.

During the first quarter of 2015, core brand sales in China had fallen slightly below the previous year for the first time. Volkswagen’s core brand sales have also slumped in North and South America.

Volkswagen's core brand faces growing challenges in China, one of its most important export markets. Beijing has ramped up the production of its domestic car manufacturers, cutting into Volkswagen's sales there.

High costs at Volkswagen’s German plants will soon be the subject of discussion as well, according to sources within the the company.

Volkswagen declined to comment publicly on the restructuring.

But according to Handelsblatt’s information, the rough outlines should take shape by the time Mr. Diess assumes his position as head of Volkswagen Passenger Cars division in July.

Members of Volkswagen’s management and supervisory boards will work out the details of the restructuring in the coming weeks.

 

winterkorn piech april 2013 shareholders meeting in hannover, germany source DPA Jochen Lübke
To become the supervisory board chairman of Volkswagen, VW CEO Martin Winterkorn, left, may need the help of VW shareholder Ferdinand Piëch, whom he vanquished in a power struggle at Europe’s largest automaker in April. Source: DPA

 

A decision is expected in September. But according to one manager, it will take a while before the new structure is implemented.

So far, the response has been positive, even in Lower Saxony, the German state where Volkswagen is based. The state, with 20 percent, is one of Volkswagen’s largest shareholders.

Under the plan, a significant amount of power within the automaker would leave the northern state and move south to Audi’s German seat in Bavaria’s Ingolstadt and to Porsche’s in Stuttgart.

Lower Saxony would be left with the economy brands under the leadership of Mr. Diess as well as the commercial vehicles. The two groups would probably be based in Hanover, the capital of Lower Saxony.

“Volkswagen is a global company,” Stefan Weil, Lower Saxony’s state premier, told Handelsblatt. “In an enterprise of this size, the balance between centralization and decentralization has to be constantly adjusted.”

The attempt to boost VW’s collaborative decision-making process appeared to win over major stakeholders such as Lower Saxony.

In the days when Ferdinand Piëch, the VW shareholder who controlled the automaker for 20 years until April, was chairman of the supervisory board, a decision about restructuring would have been made by a much smaller circle.

Mr. Piëch, Mr. Winterkorn and few other confidantes would have prepared a plan and informed the supervisory board whenever it struck their fancy. But Mr. Piëch, who lost a highly publicized power struggle to Mr. Winterkorn last month, no longer leads the supervisory board.

In the days when Ferdinand Piëch was chairman of the supervisory board, a decision about restructuring would have been made by a much smaller circle.

His attempt to oust Mr. Winterkorn backfired when the supervisory board threw its support behind the chief executive. Mr. Piëch resigned from his post as supervisory board chairman but remains a major shareholder.

The two men reportedly disagreed over the company’s China strategy.

While Mr. Piëch wanted to cooperate with Chinese automaker Great Wall to produce an economy car that could compete in the country, Mr. Winterkorn backed Volkswagen’s three-decade-old partnership with another maker, FAW.

The power that Mr. Piëch once held has fallen into the hands of many.

The automaker’s labor works council, Lower Saxony and representatives of the Piëch and Porsche families are playing a greater role in the decision making. Their self confidence has grown since they stood up to and in effect ousted Volkswagen’s former patriarch.

Mr. Winterkorn, for his part, is preparing the future, and his own successor.

 

VW Volkswagen headquarters Wolfsburg Source Laif 44448999
Under VW CEO Martin Winterkorn’s restructuring plan, the company’s headquarters in Wolfsburg would retain responsibility only for the automaker’s mass-market brands: VW, Seat and Skoda, and its trucking divisions. Source: Laif

 

Volkswagen is currently centered around the popular CEO, who led the automaker to record profits and sold more than 10 million cars for the first time.

By devolving power to the four new groups, he hopes to make it easier for his successor to take over the reigns.

“This concentration of power cannot be handed over into one person’s hands,” a source in the supervisory board, who spoke on the condition of anonymity, told Handelsblatt.

Mr. Winterkorn is not necessarily on his way out after the restructuring.

The supervisory board still hasn’t chosen a successor to Mr. Piëch, the former supervisory board chairman. Berthold Huber, an experienced trade-unionist, has taken over for the transitional period.

Representatives of Lower Saxony and Qatar, two large shareholders, haven’t shown any interest in leading the supervisory board.

Mr. Weil believes the Porsche and Piëch families should nominate a candidate. They remain Volkswagen’s largest shareholders.

 

VW WTB 2014 Volkswagen

 

But there aren’t many obvious choices within their own ranks.

Ferdinand Oliver Porsche is the only family member who has shown any interest in the supervisory board chairmanship.

According to insiders, it’s possible that Mr. Winterkorn could land the job.

Normally transfers from the managing to supervisory board are frowned upon because ex-chief executives have little incentive to change past strategies.

To pull this move off, Mr. Winterkorn would need the support of not just Lower Saxony. He would also need the backing of Ferdinand Piëch’s own family again – which may or may not be forthcoming.

 

Markus Fasse, Martin Murphy and Christian Schnell write about the German auto industry and Volkswagen. To reach them: fasse@handelsblatt.com, murphy@handelsblatt.com and schnell@handelsblatt.com

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