Matthias Müller

Steering VW Beyond Diesel

vw pic Sebastian Gollnow dpa
Gearing up for a new era.
  • Why it matters

    Why it matters

    Volkswagen is one of Germany’s leading carmakers – and also a traditional firm. Investors hope the emissions scandal will shake up how the company operates.

  • Facts

    Facts

    • Matthias Müller became chief executive of Volkswagen in September 2015 after the company caused international shockwaves after it admitted falsifying emissions data in some diesel engines.
    • He had been chief executive of the Porsche Group since 2010
    • Volkswagen has a new program, called Strategy 2025 that emphasizes electric and driverless cars.
  • Audio

    Audio

  • Pdf

Volkswagen Chief Executive Officer Matthias Müller and senior managers are steering the beleaguered car giant towards so-called Strategy 2025, its bid to revamp Europe’s largest carmaker over the next decade.

Mr. Müller, 63, announced a massive restructuring last week and set a goal of selling 2-3 million electric cars by 2025. This major shift came nine months after it emerged that VW had cheated emissions tests by installing special software in 11 million diesel engines around the world, a scandal that has cost the carmaker more than €16 billion and wiped off billions of its market value.

Investors and consumers have filed hundreds of lawsuits against the Wolfsburg-based carmaker in Europe and the United States, where VW violated clean air regulations because the manipulated diesel cars emitted more nitrogen oxide, a toxic gas which contributes to creating smog, than allowed. The investors want compensation for the lost value of their shares and cars.

On Tuesday, institutional investors, including a leading U.S. pension fund, the California State Teachers’ Retirement System, filed a new lawsuit against VW at a court in Braunschweig, a city close to VW’s headquarters in Wolfsburg. The investors demand €700 million, or $791 million, from the carmaker, claiming VW informed shareholders too late about the diesel emissions manipulation. The news came close on the heels of lawsuits filed by the Boston’s civil servant pension fund against the automaker in California.

On Monday, German prosecutors announced they were investigating the company and its former chief executive, Martin Winterkorn, for possible market manipulation, alleging VW failed to reveal the scandal soon enough to investors.

Speaking to Handelsblatt ahead of these developments, Mr. Müller, who took over from Mr. Winterkorn as CEO in September, explained how the carmaker is changing course following Dieselgate, in particular the future of diesel engines and battery-powered vehicles and new trends in mobility.

 

Handelsblatt: Mr. Müller, you were at the Geneva Motor Show in March when the new Bugatti Chiron was unveiled, with a 1,500-horsepower engine and a top speed of 420 kilometers per hour (260 mph). Was that the last appearance of a race car from VW?

Mr. Müller: Experts and, most of all, customers were enthusiastic about the car. We have received many advance orders for the Chiron. In other words, there is apparently a market and a clientele that likes to buy products like the Chiron. And if it stays that way, we will continue to provide models that appeal to these customers.

When speaking about the refugee debate recently, you said that managers also need to demonstrate the right attitude. But doesn’t this also apply to the environmental debates of our time? Or, to put it differently, how green is Matthias Müller?

You are alluding to our new Strategy 2025. I am interested in finding convincing answers for tomorrow, not ideologies. The Volkswagen Group has made it its mission to become a mobility provider with a full range of products. That includes carsharing models and a variety of new electric cars, as well as the Bugatti high-performance sports car you mentioned. And who knows, perhaps the next version of the Chiron will be an electric car.

You plan to sell two to three million fully electric cars in 2025. It sounds ambitious. But how are customers reacting?

To begin with, we simply need a convincing product line. Countries like Norway have shown that this shift in propulsion methods is possible. Our industry has reached an agreement with the German government that these cars will be given state support, and that includes the necessary infrastructure. High prices and short ranges are the reasons things are not progressing rapidly today. But we are convinced that this will change. Electrification is an important building block of our new strategy.

The old VW board of management emphasized bulk and size, and it aimed to permanently overtake Toyota and position itself at the top of the global automobile industry. Is that yesterday’s news?

The former strategy was successful in its time. But it wasn’t just a matter of size. VW also focused on customer and employee satisfaction, as well as competitive earning power. We will continue the good aspects of that strategy. And we will either get rid of or change the things that no longer work.

The diesel emissions scandal was and remains a serious blow to Germany’s largest automaker. But was it also a wakeup call which kick started the current changes?

Long before the diesel scandal, we knew that we had to change the company, by making structures more decentralized, for example. But it is true that many things are possible now that wouldn’t have worked or would have taken too long in the past. I have been in charge for eight months now, and it was clear to me from the very beginning that we need to embark on new paths. Our industry is in the midst of a transformation process. And the Volkswagen Group is part of this process.

As the head of Porsche, you were responsible for 2 percent of auto sales at VW. Now you are responsible for 100 percent of cars and 150 percent of the company’s problems. How does that feel?

I liked working at Porsche. It was a lot of fun. There is no doubt that I am now feeling the other dimension of responsibility. Reforming this company is exhausting, but I enjoy it. The good thing about it is that everywhere we look, we are seeing a substantial willingness to change. That’s why I am confident that our employees will be proud of Volkswagen once again in one or two years.

Things are not looking good for the company’s VW core brand. So far, VW has simply been unable to achieve the strict profitability objectives already in place under former CEO Martin Winterkorn. Why should it be different now?

There is never a guarantee. But there is confidence in the management, and in the entire board…

…including Herbert Diess, the head VW’s passenger brand, who is constantly tangling with the employee representatives, perhaps out of necessity…

…of course. The supervisory board recently expressed its confidence in the entire brand management team. But it is true that we have not hit our profitability targets for the VW brand in the past. The problem is that there may been too much emphasis on size, while too little attention was paid to profitability. We are changing that now. We need to become more efficient, if only because the core brand plays a key role in paying for enormous investments in the future.

But the traditionally powerful works council, which, together with the State of Lower Saxony, with its Social Democratic government, holds the majority of seats in the supervisory board, also has to cooperate. 

We are in agreement with the chairman of our works council about where the journey is headed. It’s true that there are disagreements here and there. But Herbert Diess and Bernd Osterloh both know how to cooperate and cope with the issues. This fall, they will explain how the VW brand will implement its “Pact for the Future.”

A chief executive in a company like ours, with 600,000 employees, active all over the world, can't always know everything.

Will this succeed without job cuts and plant closings?

We will put together a total package on the subject of efficiency in the next few months. Labor costs will certainly be part of it. One thing is clear: Even in difficult times, we live up to our responsibility to our employees. And that will still be true in the future.

If the pivot toward electric vehicles succeeds, it will likely have consequences for the current engine production plants, like the one in Salzgitter. Do you anticipate job cuts in classic production areas?

Old functions will disappear, but new ones will be added. The battery component, for example, is likely to reach 20 to 30 percent of the value added in an electric car, and that work needs to be done somewhere. In other words, there will be a plan on how we intend to transform the company from old to new, from the internal combustion engine to the electric engine. This process is likely to take a few more years.

Where will your new battery plant be located?

You are too impatient. We are now looking at the entire process chain, from raw materials to the finished car. After performing a precise analysis, we will decide what we will actually do ourselves and where the company will cooperate with others.

The German auto industry is dealing with new competitors, primarily from Silicon Valley. What is your assessment of a purely electric company like Tesla?

I respect Tesla, but I’m not afraid of it. They approach the whole thing very forcefully. They have the confidence to do something we have been discussing for a long time. It just so happens that decisions are reached more quickly in a small company. And Tesla has an enormous advantage, namely that they were able to start from scratch, technologically speaking, and didn’t have to juggle several balls at the same time. But we are familiar with that at Volkswagen. There were many times in our history when we were second to do something, and ended up doing things better.

So is the practice of platform strategy and identical parts production a thing of the past?

Over the years, Volkswagen has seen the development of a strong interweaving of brands and plants. The whole thing has become difficult to control. We would do well to try to simplify these interrelationships. The Components division is getting more free rein. And why shouldn’t we also supply other manufacturers?

What are your plans for the United States, where VW is traditionally weak and is still coping with the damage to its image?

There is no doubt that the VW brand’s image was damaged. We need to achieve a turnaround there. As of today, we do not have an overall strategy for the United States, but we will have one this fall.

Does diesel technology still have a future in the United States?

That’s hard to answer at this point. I know that we have to confront the issue very thoroughly. We are familiar with the tougher emissions legislation that will be introduced in 2020. We have an idea of what will follow five or 10 years later. Based on these insights, it’s already predictable today that emission control for diesel engines will become extremely costly and complex. At the same time, electric vehicles will become cheaper. Given these circumstances, we will confront the question of whether, at a certain point in time, we should continue to invest a lot of money in continued development of the diesel engine.

The departure from the internal combustion engine is reminiscent of the energy transition at E.On and RWE, which, after a few convulsions, will lead to the end of nuclear technology and a decline in the use of natural gas and coal.

That’s certainly an apt comparison.

Germany still provides a tax benefit for diesel technology, because it was once considered particularly ecofriendly. Shouldn’t that be abolished?

The diesel remains very popular with customers in Germany and Europe. Modern Euro-6 diesel engines are very clean and fuel-efficient. I don’t know if the federal government will make any changes to the tax benefits for diesel. We need to see how this plays out, as part of our dialogue with lawmakers.

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Which learning process did you undergo? As recently as September 2015, you were still somewhat derisive about driverless cars, which are now supposed to be part of Strategy 2025. You said: “In my view, there is a lot of hype over driverless cars, but nothing to justify it.”

Anyone with a healthy sense of self-awareness can change his mind once in a while. I was still head of Porsche at that time. Every Porsche driver is characterized by the fact that he derives great pleasure from driving his own car. I was speaking for those customers at the time. I was skeptical over whether these changes would actually happen quickly. I see the situation with different eyes today. A great deal has happened all around us, as we face new competitors like Google, Uber and Apple. VW needs to take action. We want to be remain the masters of our destiny and not be dependent on others.

Are the talks with U.S. authorities over settling the diesel scandal moving forward?

After three months, we came to grips with the diesel issue at the beginning of the year. We are working constructively and intensively with the authorities in the United States and Germany, and we are moving toward a solution.

No one has seen the U.S. attorneys’ final report on the diesel scandal. When will you be able to call a spade a spade?

The Jones Day investigation is still underway. I don’t have the power to answer your question. The results are expected by the end of the year.

You create the impression that VW is out of the woods. Isn’t that a little bold, given the fact that there is no final report year, and it is still unclear how the cheating software was installed in more than 10 million cars?

It makes me feel optimistic that we returned to normal operations after the difficult first three months. The recall process has gotten off to a good start, and more and more diesel cars are being refitted. The Federal Motor Transport Authority has approved a significant portion of the German cars that had to be refitted. And then I mentioned the constructive negotiations in the United States, where we are approaching an outcome. That would be a big step.

Everyone on the board says they had no knowledge of the illegal practices involved in artificially reducing emissions levels. Is that even credible, in a centrally managed company like VW?

As I said, the Jones Day investigations are still underway. We will simply have to be patient until everything has been completely cleared up.

We asked our readers what they would like you to tell them. Many don’t believe that the board of management and the supervisory board, including (former Chief Executive Officer) Martin Winterkorn and (former Supervisory Board Chairman) Ferdinand Piëch knew nothing about the cheating software, and they would like to know what the new VW chief executive thinks about that.

I acknowledge that and would refer your readers to the conclusion of the investigations. That’s when we will discover who knew what, and when.

Do you understand our readers’ skepticism?

Our course your readers and our customers want answers. I understand that perfectly well. All I can say today is this: A chief executive in a company like ours, with 600,000 employees, active all over the world, can’t always know everything. Besides, everyone should examine these complex processes more closely before judging them.

But the board of management must have been interested in the fact that approval was not being granted in the United States. Consequently, it should also have wanted to know how the approval was granted after all, without any technological breakthroughs with the diesel engine.

An independent investigation is currently underway over how exactly these decision-making processes took place, who was informed, and when they were informed.

You are referring to the investigation report by the attorneys. But shouldn’t you have formed your own opinion by now, after eight months as chief executive?

There is no doubt that I think about these issues a great deal. But my personal opinions are not up for debate here. And I certainly won’t anticipate the results of the investigation.

We’re just asking.

Apparently I need to clarify this once again: In light of our confidentiality agreement with U.S. authorities, we are unable to provide any information in advance.

Our task is to regain the faith of our customers. Volkswagen made a huge mistake. The management, the board, the employees, the customer, the public – everyone was devastated by the scandal. It's a terrible situation for any reputable company.

You have created a reserve of €16 billion ($18 billion) to cope with the emissions scandal. Will it be enough?

Based on our credibly assessable calculations at this point, it is sufficient.

Getting back to the issue of trust: The money alone won’t be enough to regain the trust of customers. Or will it?

We are interacting with the affected drivers as part of the current recall process. In our repair shops, we have to demonstrate that we get it. Our task is to regain the faith of our customers. Volkswagen made a huge mistake. The management, the board, the employees, the customer, the public – everyone was devastated by the scandal. It’s a terrible situation for any reputable company.

While U.S. drivers can expect a decent amount of compensation, European drivers are hardly getting anything. Our readers feel this is unfair and even scandalous.

We pay attention to every customer. But the affected vehicles are subject to different laws in the United States and Canada when it comes to consumer protection. That’s why customers there will likely have to wait longer for the remedies arranged with the authorities than in most other countries. We are currently developing a total package for all affected markets and customers, so as to make the process as pleasant as possible for our customers. In addition, no customer will incur any costs for implementation of the required technical measures.

So no compensation in Germany?

As I said, we have completely different legal and technical conditions and laws in the United States. It can’t be compared with Germany.

Would VW go under if the same standards applied in Europe as in the United States?

Things would certainly be difficult.

Does former Supervisory Board Chairman Ferdinand Piëch, who is also an important co-owner of VW, support your new strategy?

I have not personally discussed the new strategy with Mr. Piëch in recent weeks.

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Ferdinand Piëch was not involved in something as important as determining the new strategy?

Of course, I do meet periodically with the families, as our biggest owners. But I’m not about to tell you who exactly attends those meetings.

Does the company feel the absence of its two father figures, Ferdinand Piëch and Martin Winterkorn?

Both men were very successful in their time, and they achieved a great deal for Volkswagen. But when it comes to what we are now planning for the future, we need to make do without them.

Despite this crisis-ridden year, the supervisory board has approved additional compensation for you and all members of management. Shouldn’t all you have turned down the raise of your own accord?

There was an intense discussion of all options. Nothing is being paid for 2015. But something is being paid for the years before that, because a longer time horizon applies to our flexible compensation. We made this decision, knowing full well that it would trigger public criticism.

Some of the profits in the past were phantom profits, as evidenced by the many billions in reserves today. Why aren’t past bonuses being repaid?

The members of the management board have contracts. Why should management be penalized for having done a good job in 2013?

But manipulated cars were already being sold in 2013.

Now you are going too far. Volkswagen is more than the diesel scandal. By your logic, we might as well go back to 2006, when the software in question was apparently created.

Why not? The entire decade, going back to 2006, has been cast in a different light today.

How do you intend to explain that to a manager who had nothing to do with the whole thing? We discussed this at length, and this is the solution we eventually reached. After all, we are talking about a compensation program here that applies to 19,000 managers in the entire group.

What do you think of the idea of making your profit sharing dependent on whether the emissions reduction is successfully achieved in your cars?

We will present our proposal for a new compensation system – with a different orientation – to the supervisory board in the next 12 months.

Will a cap on compensation be part of that discussion? Has the gap between the average wage earner and the board of management become too large?

Of course we have to think about that. I haven’t thought about the details yet. But I do think a cap is self-evident.

You have a major effort ahead of you, which is why we think this is a fair question: How long can you, or anyone, handle this job?

As strenuous as it is, I feel motivated when I go to work. Why? Because I’m proud of the fact that his company did not collapse in the crisis. Because I sense that our employees are rolling up their sleeves and working hard – from line workers to members of senior management.

The CEO as superman?

Don’t worry. I have a five-year contract, and I will do everything in my power to do a good job.

Mr. Müller, thank you for this interview.

 

Gabor Steingart is publisher of Handelsblatt and Handelsblatt Global edition.Sven Afhüppe is the editor in chief of Handelsblatt. Stefan Menzel is the managing editor of Handelsblatt’s website and closely follows the car industry. To contact the authors: steingart@handelsblatt.com, afhueppe@handelsblatt.commenzel@handelsblatt.com 

 

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