Handelsblatt Interview

Steering the VW Tanker

  • Why it matters

    Why it matters

    VW needs to get a grip on Dieselgate and prepare itself for electric cars and self-driving technologies or it risks losing market share in the long run.

  • Facts

    Facts

    • In September 2015, VW admitted to the manipulation of 11 million diesel cars globally.
    • The cars emit more toxic nitrogen oxide gases than laws allow.
    • The company and some of its former and current executives face criminal investigation of violating shareholder disclosure laws, including CEO Matthias Müller.
  • Audio

    Audio

  • Pdf
main 81865093 source Christian Burkert for Handelsblatt – VW Volkswagen CEO Matthias Mueller
Volkswagen CEO Matthias Müller spoke with Handelsblatt about the latest developments in Volkswagen's Dieselgate sage. Source: Christian Burkert for Handelsblatt

Dieselgate, the world’s largest violation of emissions values so far, dates back to September 2015 but still weighs heavily on VW.

Prosecutors confirmed Wednesday they are investigating Chief Executive Matthias Müller, non-executive Chairman Hans Dieter Pötsch and former CEO Martin Winterkorn for possible market manipulation.

In a joint interview with VW board member Andreas Renschler, head of VW’s truck operations, Mr. Müller rejected the prosecutors’ allegations. “We are sure we properly and responsibly fulfilled all obligations to publicly disclose information in accordance with capital market laws,” he told Handelsblatt.

Beyond the probe, both executives are still hard at work to clear VW of the effects of the emissions scandal, which involved 11 million cars globally and has so far cost €21.6 billion ($24.1 billion) in expected repairs, buybacks, fines and legal costs.

Mr. Müller, who replaced Mr. Winterkorn after Dieselgate became public, said the fraud helped VW to change its culture and get ready for a future of electric and self-driving cars. “Without the crisis, many things would certainly have gone on the same way for a while. We wouldn’t have realigned the company as thoroughly, though that was much needed, to be ready for the new world of mobility, and we would have lost valuable time,” he said.

“It's true that the board works together very differently today. In the past, board meetings were more of a one-man show.”

Matthias Müller, CEO, Volkswagen

Volkswagen, which became the world’s largest carmaker last year ahead of Toyota and GM, is a car empire, producing twelve brands, including VW, Audi, Porsche and Seat cars, as well as Scania and MAN trucks and Bentley limousines. The Wolfsburg-based company is hierarchal and often feels like a “big tanker,” said Mr. Müller, who is trying to make VW more open and agile, allowing discussion and disagreement and giving employees more responsibility.

Together with Mr. Renschler, a former manager at Mercedes-maker Daimler, Mr. Müller walked Handelsblatt through VW’s process of dealing with Dieselgate, the criminal investigations and its new strategy, launched last year, which aims to cut 30,000 jobs globally by 2020. He also discussed his own successor after his own contract runs out 2020.

Handelsblatt: Mr. Müller, Mr. Renschler, we had actually planned to talk to you mainly about the future of Volkswagen. But in the wake of recent events, we need to address the past once again. The public prosecutor’s offices in Braunschweig, Munich and Stuttgart have initiated proceedings against current and former board members. Under these circumstances, how is it even possible to run Europe’s largest industrial corporation?

Mr. Müller: All you have to do is look at the results of the last three months to see that it seems to be working very well. Dealing with the crisis has been a daily effort for us for more than 18 months. We need to get through this. And believe me – Volkswagen will emerge stronger from this crisis.

Mr. Renschler: We achieved very good results last year, despite the energy we needed to process the issues and reorient the company. Our employees are motivated and determined to show what Volkswagen can do.

But how credible is a company when both the supervisory board chairman and the chief executive are being investigated for market manipulation? How can the cultural change that was promised be successful?

Mr. Müller: We are convinced that we have properly and responsibly fulfilled all obligations to publicly disclose information in accordance with capital market laws. I reject the accusation made by the Stuttgart public prosecutor’s office. I myself have nothing to apologize for. Of course, I will do everything in my power to ensure that the matter is resolved quickly and transparently. Of course, it would be preferable if these matters were dealt with more quickly. New uncertainty is constantly being created for everyone here in the company. But we cannot allow this to distract us from our real work.

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You have nothing to regret?

Mr. Müller: That’s right. Like everyone else involved, by the way. Of course, it would be easier if we could put an end to this matter, in the interest of the process of change we have launched within the company. But it simply isn’t the case. We continue to support the authorities in the ongoing investigations. After all, we have the greatest interest in finding out about all the background information and who was responsible.

Mr. Renschler: There is no doubt that we support the ongoing investigations. But now we need to prepare our company for a new era: for new business models, digitalization and a new working culture – and new technologies. We also have this responsibility toward our employees. This is our shared future.

The Braunschweig public prosecutor’s office is also investigating two VW human resource executives on charges of embezzlement, because they approved payments to works council Chairman Bernd Osterloh that were possibly too high. We are talking about annual compensation of up to €750,000 ($834,000). What is the justification for such high compensation for the works council chairman?

Mr. Müller: You are referring to the company’s determination of compensation for Bernd Osterloh. It was reviewed by an outside legal expert and he found that the classification satisfies the requirements of the Works Constitution Activity. We too assume that the compensation complies with legal requirements in every respect.

The many investigations and legal procedures don’t just cost a lot of money in legal fees. They also cripple the company. How much more dangerous can the legal disputes become for Volkswagen?

Mr. Renschler: I see no evidence of anything crippling the company here. But you’re right: We need to be very careful that we address the right issues.

Mr. Müller: And that’s exactly what we are doing with our Strategy 2025 and the many future-oriented initiatives now underway throughout the company.

Mr. Renschler, you joined VW at the start of 2015 after a decades’ long career at rival Daimler. What were your first impressions of Volkswagen?

Mr. Renschler: I thought VW was more modern and open. But I soon had experiences that showed me a different kind of company.

What sorts of experiences?

Mr. Renschler: For instance, confidential information had been leaked to the public. Things were very political. It’s different today. We can have discussions, and we can even disagree sometimes.

Mr. Müller: It’s true that the board works together very differently today. In the past, board meetings were more of a one-man show. Many decisions were not made in the management board but in other groups. Now we are a team whose members interact very openly. Criticism is welcome.

“In general, Volkswagen needs to become younger, more international and more female.”

Matthias Müller, CEO, Volkswagen

How exactly has work in the board of management changed since the end of the Winterkorn era?

Mr. Müller: We have now distributed tasks within the board among multiple individuals. I have a lot of respect for Mr. Winterkorn, but objectively speaking, he simply held too any positions. He was CEO of the Volkswagen Group, and he was head of the VW Automobiles brand and of the development area at Volkswagen AG. And then he was also CEO of Porsche SE. This no longer works that way today, and it certainly won’t in the future.

How much progress have you made with these changes?

Müller: Reorganizing these tasks and structures was a huge step for our organization. This isn’t working smoothly yet, but that’s in the nature of things. The conditions are everything but easy. At the same time, we are changing our leadership model, the corporate culture and our strategy. In addition, we need to continue coping with the diesel crisis, while simultaneously transforming Volkswagen for the digital future. Each issue alone is an enormous challenge.

What are the biggest difficulties in transforming an autocratic system into a decentralized system?

Mr. Renschler: We have to change the way people think and act, and the management board has to lead by example. The employees need to feel the change and that we are doing things differently now. And we are a team, that we discuss things openly and sometimes disagree.

Mr. Müller: This new way of working together takes time. It’s important to me that we serve as role models. Today the management boards meet for an entire day once every four weeks. We have dinner together on the evening before, and we talk about personal issues, not business. The next day, we discuss the big issues, with people from different parts of the company giving presentations. The meeting ends with joint and binding decisions.

Do you find it easy to delegate responsibility?

Mr. Müller: I believe that being able to let go is an important criterion for a successful leader nowadays. At the same time, you also have to find someone who is willing to assume responsibility. And that’s where the real problem lies at Volkswagen. If many people in the company have forgotten how to take responsibility, nothing comes of this at first. Unfortunately, this is still the reality in many areas.

Mr. Renschler: Leading through trust and responsibility takes practice. In my experience, however, this ultimately leads to an effective and fast organization.

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Do you get rid of managers who don’t cooperate?

Mr. Müller: First we try to convince people to take a more comprehensive approach to their leadership task. In general, Volkswagen needs to become younger, more international and more female. It’s certainly a sad commentary on a company that it lacked a true succession plan for its CEO. This sort of thing cannot happen again in the future – not with the position of CEO or any other departments. That’s why we are realigning management development.

Mr. Renschler: And it’s why our executives are required to have worked in two regions, in two positions and for two brands by 2022. We have redefined the profile for our future executives, and there are very clear conditions for those who want to qualify for positions with greater responsibility.

What is the importance of hierarchies in the new VW culture?

Mr. Renschler: We don’t care about epaulettes. But a hierarchy is not inherently a bad thing, and such a large company probably wouldn’t work without it.

Mr. Müller: Many employees also long for hierarchies and clear statements. In the old VW system, it was pretty easy to delegate responsibility upward, with the idea being that those people would take care of things. Nowadays, when it comes to certain issues I sometimes say: I’m not going to make this decision because someone else knows a lot more about it than me. We have committees in which a lot of people are involved but no one reaches a decision. We are in the process of getting rid of this system because it makes us slower.

How much time do you spend on this new culture of responsibility?

Mr. Müller: I do it all day long. It means having to talk, talk and talk some more.

Mr. Renschler: And it also means delegate, delegate, delegate – and having confidence in people.

Mr. Winterkorn and former non-executive Ferdinand Piëch shaped Volkswagen for decades. Both men have withdrawn from the company, more involuntarily than voluntarily. Does distance help in rebuilding Volkswagen?

Mr. Müller: The more we put 2015, the year of the crisis, behind us, the more effective the change process is. The old culture is becoming weaker and weaker. Change is taking effect, partly because more and more young people are moving into positions. This dynamic will certainly continue.

Mr. Renschler: …and because every change in the company triggers new processes, which we approach differently from the start than we did in the past.

What makes you so confident?

Mr. Müller: I experienced a similar dynamic at Porsche. Wendelin Wiedeking, as a father figure …

… your predecessor as head of Porsche…

…was always an over-sized, symbolic presence just behind me during me first few months as CEO. Everything in the company was very strongly focused on him. Culturally speaking, Porsche was difficult at the time. It took three years to turn around the company with its 12,000 employees. That’s how I know that I need patience and perseverance at Volkswagen. VW is a big tanker and it takes a little longer. But once the company has started turning, things will move faster and faster.

Do you have the patience for that? Volkswagen is delivering impressive figures, but the diesel scandal is still the dominant issue in the public perception.

Mr. Müller: As members of the management board, we’ve taken quite a beating in the media. Sometimes it makes us wonder whether we are the arsonists or the firefighters. We are working hard and with great dedication on pulling the cart out of the mud, and yet we are heavily criticized. But that’s just the way things work. We can do this. The important thing is that despite all weaknesses, VW is a terrific company with fantastic employees. That will become more apparent again.

Mr. Renschler: The board and the team have achieved a lot in the last 18 months – managing the diesel scandal and developing our new Together 2025 strategy and the related future initiatives we have launched. Last year’s figures are something to be proud of, despite the fact that we were constantly putting out fires. We would be pleased if some people had a little more patience with us.

main 81867630 source Christian Burkert for Handelsblatt – VW Volkswagen CEO Matthias Mueller right VW head of truck and bus left May 2017
Working in tandem: Andreas Renschler, left, and Matthias Müller. Source: Christian Burkert for Handelsblatt

But new conflicts are constantly arising. Beside the diesel scandal, there was the open conflict over the cost-cutting program for the VW core brand.

Mr. Renschler: Conflict isn’t necessarily wrong. We should have a lot more of that within the company. In the past, we were told to keep our conflicts private, so that no one could see or hear us. But a conflict can be very positive if it’s constructive.

Mr. Müller: It’s completely normal to have some grinding and even crashing with such fundamental structural change. Friction generates energy. But it’s important that things proceed fairly. The pact for the future (agreement with the works council) shows that this can lead to a good outcome.

In the old VW world, mistakes could quickly spell the end of a career. What’s it like today? Is there a culture of second chances?

Mr. Müller: I’m grateful when mistakes are exposed. That’s the only way I can react, and then we can make improvements the next time. People who work sometimes make mistakes.

What was your last mistake?

Mr. Müller: I’m sure I make mistakes every day, but hopefully small ones. Take the annual general meeting, for example, when I misspoke three times. Now that wasn’t really necessary (laughs).

The diesel scandal was the most expensive mistake in company history. What did VW learn from it?

Mr. Müller: We learned a great deal from it. For instance, the issues of compliance and integrity now have a completely different meaning. This is very important to us, as evidenced by the fact that we have created a separate management position specifically for these issues.

Doesn’t the diesel scandal make your employees afraid of making new mistakes?

Mr. Müller: That’s certainly correct. The developers are testing more intensively today, perhaps too much at times. But once again: Making mistakes is part of the process. Those who want to see more entrepreneurship at Volkswagen cannot shy away from mistakes and failure.

Mr. Renschler: I also believe that the diesel crisis is helping us expedite change.

Was the crisis necessary to make VW management realize that some things in the company were going very wrong?

Mr. Renschler: Nobody wanted this crisis. But it’s also been a great help in reorganizing the company. And the crisis certainly accelerated the realignment of the commercial vehicle business and the development of the Volkswagen Truck & Bus group. The new openness and management culture under Matthias has given us more latitude.

Mr. Müller: Without the crisis, many things would certainly have gone on the same way for a while. We wouldn’t have realigned the company as thoroughly, though that was much needed, to be ready for the new world of mobility, and we would have lost valuable time.

Can you rule out that there will be other cases like the diesel scandal in the future?

Mr. Müller: We will never be able to rule that out. We are taking all precautions, but there is no absolute certainty – not in any company.

The dispute between works council chairman Bernd Osterloh and VW brand boss Herbert Diess has boiled over repeatedly in recent months. To what extent does this confrontation get in the way of reorganizing the company?

Mr. Müller: Herbert Diess is in the process of making the VW brand more productive and efficient, and there is no getting around that. The sooner we begin this process, the sooner we can get problems under control. The age structure of our workforce helps in that partial retirement makes a large portion of job cuts possible. This isn’t something that worries me.

Mr. Renschler: The pact for the future, which we signed late last year for the Volkswagen brand, is also an expression of our new corporate culture. We made this plan after much internal discussion. Whether everyone in the company liked it is anybody’s guess. However, management is not shying away from tackling difficult issues. We don’t avoid issues. Or, to put it differently, it would have been easier not to do anything.

Could it be that Volkswagen’s works council is too powerful?

Mr. Müller: The arrangement at Volkswagen has always been special. The influence exerted by the works council hasn’t just been around since yesterday. It’s very important to me that the works council, headed by Mr. Osterloh, has acknowledged that the word “cohesion” applies to everyone in the company. The works council bears equal responsibility for our transformation, and the employee representatives fully agree. And let me put this clearly: I support participatory management, but participatory management also has to evolve.

“Volkswagen wasn't always a pioneer in the past, but when we got going we usually did things the right way.”

Matthias Müller, CEO, Volkswagen

While people at Volkswagen are busy discussing culture and cost-cutting, Tesla is demonstrating how electro-mobility works. Why did VW miss out on this trend?

Mr. Müller: In the past, we at Volkswagen were far too interested in what people here in Wolfsburg wanted. No one was buying electric cars here, so hardly any were built. It’s pointless to lose sleep over that now though. We realize that we have some catching up to do, so we are reacting. I have respect for Tesla, but also for their losses. Let’s put it this way: Volkswagen wasn’t always a pioneer in the past, but when we got going we usually did things the right way.

Mr. Renschler: At Volkswagen Truck & Bus, we in Europe are already at the forefront with networked trucks. We unveiled the E-Crafter and a MAN e-truck at the last IAA [Frankfurt auto show]. The first of these vehicles will be delivered to customers this year. Also, our developers bundled capacities and got production of these vehicles underway within a very short amount of time. This shows me we are on the right path.

And what are the other brands in the VW Group doing to keep up in the future when it comes to mobility?

Mr. Müller: We need to become younger, more international and closer to the customer, in terms of our way of thinking and our products. A look at China is all it takes. There is demand there for a new generation of cars with completely different features, as well as a world of mobility surrounding the actual vehicle, which is something that we too should strive for. Electric models by Audi, Porsche and Volkswagen will come onto the market in the next few years. By the end of the decade, we will be shaping the narrative when it comes to electric cars.

Mr. Renschler: We are already becoming more open as a company, entering into new partnerships and taking chances with things that could fail. This the only way we can be fast and innovative. Failure comes with the territory.

Mr. Müller, you recently announced that you only intend to complete your current contract, meaning that you would be CEO until 2020. Who could be your successor?

Mr. Müller: I am not the supervisory board, which makes those decisions. But I am already talking to the supervisory board today about who my successor could be. This process of succession needs to be initiated early on.

What talents must the future VW boss bring to the job?

Mr. Müller: The next head of Volkswagen will have to set different priorities than me. In the future, we will need people with an international career and who are much more familiar with portfolio management. A future CEO will have to remove himself from the operational business even more and make fundamental strategic decisions.

Would you take the job, Mr. Renschler?

Mr. Renschler: I enjoy my current job very much, and we still have a lot to do. My goal is to develop the commercial vehicle business into a global leader. But I also very much enjoy being part of the overall change process at Volkswagen.

Does your successor have to come from within VW?

Mr. Müller: It would be important and it would send a message to the company if my successor came from within our own ranks. At Porsche, I recommended Oliver Blume, the person who was most compatible with my system of values. It was absolutely the right decision.

 

Sven Afhüppe is the editor in chief of Handelsblatt. Stefan Menzel writes about the auto industry focusing on Volkswagen. Martin Murphy covers the steel, car and defense industries for Handelsblatt. To contact the authors: afhueppe@handelsblatt.commenzel@handelsblatt.com and murphy@handelsblatt.com

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