VW shrugs off leadership shifts but fails to convince its environmental critics

March 11, 2007


Update October 24th, 2007

With the demise of the so-called VW law, The future of VW seems increasingly connected with that of Porsche. Porsche has strengthened its share-ownership of VW and appears to be following a strategy of creating wriggle-room for a takeover bid at a time that is most advantageous to itself.

[Original report follows]

The VW motor giant has shrugged off its leadership shifts of the last year. New chief executive Martin Winterkorn seems to have re-assured financial analysts of the company’s future and of the successful implementation of its restructuring plans. An environmental perspective, however, indicates further challenges ahead.

In an earlier post, I pointed to the organizational instability that accompanies leadership shifts such as those that had befallen auto-giant Volkswagen. The background was the scandal concluding with a criminal conviction for Peter Hartz, formerly head of personnel at the VW corporation, and an influential figure in labour policy changes introduced by the former German chancellor, Gerhard Schröder.

Volkswagen chief executive Bernd Pischetsrieder had stepped down under unclear circumstances, followed by the departure of Wolfgang Bernhard. Mr. Bernhard pushed through plans to cut 20,000 jobs and extend the workweek during the course of 2006. But in the process, he alienated the powerful Volkswagen union, IG Metall, which is also closely allied with Volkswagen’s chairman, Ferdinand Piëch.

The VW preservation society

Meanwhile a long-rumbling legal progress was grinding its way through the German courts. Last month, The advocate general ruled that the so-called “Volkswagen Law” wrongly prevented the free flow of capital. If this is ratified, the company becomes more vulnerable to takeover.

Two stories are emerging

These were the circumstances under which Martin Winterkorn took over in the New Year. Two stories are emerging. The first points to the improved prospects future profits for the company announced this week. The second concerns the wider environmental picture.

A finance success story was more widely reported. In the UK, The BBC, for example, emphasized the good news, in a piece entitled Upbeat forecast lifts VW shares. The piece might have been more credible if it had managed to get the good Dr Winterkorn’s name right.

Meanwhile, Der Spiegel in an extended interview with Dr Winterkorn was addressing a concern that VW was lagging in its efforts to produce its hybrid cars.

A somewhat defensive Dr W denied that the German auto-industry was lagging in applying technology in the interests of the environment, saying it was ‘nothing but clever marketing on the part of our competitors. It has nothing to do with the facts’ .

What sense can we make of the two stories?

First, that the financial markets have absorbed the uncertainties regarding VW’s less secure future when and if the Volkswagen protection laws are removed. They are also unshaken by the leadership scandals, and by the risk that VW is falling behind Toyota in the development of its hybrid car range. (Strictly speaking, that is a wider concern for the future success of the German premium automobile marques, VW’s Audi, but even more so, BMW and Mercedes). At least Martin Winterkorn seems to be enjoying a leadership honeymoon.