Business

What now for Volkswagen after its chairman resigns?

A Volkswagen Passat and Golf 7 car stored in a tower at the Volkswagen Autostadt complex near the Volkswagen factory on March 10, 2015 in Wolfsburg, Germany Image copyright Getty Images
Image caption The Volkswagen Group faces challenges whoever becomes its new chairman

The sudden departure of Ferdinand Piech, has left Volkswagen at a crossroads. It has been freed from the control of a man often portrayed as an irascible and autocratic patriarch.

And it has been given an opportunity to pursue new strategies.

But it has also lost the drive and leadership of a towering figure within the industry, a man who revived the ailing carmaker in the early 1990s and placed it at the centre of a European automotive empire.

Mr Piech became chief executive of Volkswagen (VW) in 1993, following a successful early career at its subsidiary Audi.

He remained in the post for nine years, before stepping up to become chairman. The move did little to reduce his influence; and when he fell out with his successor Bernd Pischetsrieder in 2006 it was the chief executive who packed his bags.

His reign has been characterised by growth and ambition.

Last year, VW was the world's second-biggest carmaker by sales, behind Toyota and ahead of GM.

Image copyright Getty Images
Image caption Ferdinand Piech resigned after a power struggle with the firm's chief executive Martin Winterkorn

Takeover campaign

On his watch, the company took control of the luxury brands Bugatti, Bentley and Lamborghini, completed its takeover of Czech manufacturer Skoda and bought truckmaker Scania.

Upmarket Italian motorbike business Ducati was also brought into the VW stable.

Yet the crowning glory of his career was the takeover of sportscar maker Porsche by the Volkswagen Group, uniting two very different German companies that shared a common heritage.

His sudden resignation earlier this week followed an apparent attempt to undermine the current VW chief executive, Martin Winterkorn, whom he had criticised in a magazine interview.

His downfall was brought about because other members of the board - including those from the state of Lower Saxony, which is a key shareholder, and trade union representatives - reportedly refused to back him.

Instead, they sided with his cousin and bitter rival Wolfgang Porsche, who is currently chairman of the carmaker that bears his name.

Image copyright Getty Images
Image caption VW makes profits with its Audi and Porsche brands...

Family rivalry

One key question for the future of VW is whether this particular rivalry can now be laid to rest.

The two cousins are both grandchildren of Ferdinand Porsche, the designer of the Volkswagen Beetle and the founder of the Porsche car company.

Both have substantial stakes in the Porsche family investment vehicle, Porsche Automobil Holding SE - which in turn owns 50.7% of the Volkswagen Group.

They head up rival clans, and all the evidence suggests they really don't like each other. Mr Piech's achievement, in overseeing the takeover of Porsche by VW, was widely viewed as a humiliation for his cousin who vigorously opposed the plan.

Mr Piech's departure could be seen as payback for this.

Image copyright Getty Images
Image caption ...but its mass market VW brand is struggling

No more takeovers?

However, it may not be the end of the story. Mr Piech still has a significant stake in the Porsche holding company, and may be able to exert influence from behind the scenes.

Moreover, wider bickering between rival factions in the Porsche-Piech dynasty can be expected to continue. So VW's future is likely to remain, at least partly, a family affair.

In terms of strategy there may be some noticeable changes, however. The empire-building that characterised Mr Piech's tenure is widely expected to end.

Acquisitions such as Ducati have frequently been criticised by analysts for lacking business logic. So a long-mooted takeover of Alfa Romeo, for example, now looks unlikely.

Then there is the matter of cost-cutting. The VW group makes a great deal of profit from its premium brands, Porsche and Audi.

But Volkswagen itself, the mass market brand, is struggling. Its costs are too high, and its profit margins are far lower than at rivals such as Toyota and General Motors.

The question now is whether chief executive Martin Winterkorn can do anything about it.

Image copyright Getty Images
Image caption The Bugatti Veyron supercar may win plaudits from enthusiasts, but VW lost millions on every model it sold

Savings challenge

Experts say that during Mr Piech's reign, the company spent far too much on research and development and vanity projects.

The creation of the 1,000 horsepower Bugatti Veyron supercar was a case in point. The company lost millions of dollars on every model sold.

Without Mr Piech's influence, the brakes can come on and that outlay can be reduced to more manageable levels.

However, other costs will be more difficult to bring down. Quite simply, making cars in Germany is expensive because wages and benefits are relatively high.

This was all too apparent before Mr Piech's departure, and some commentators have suggested that his attempt to oust Mr Winterkorn was prompted by frustration at the chief executive's inability to deliver savings quickly enough.

It is hard to see how this will change simply because the chairman has left. Employee representatives hold half the seats on the VW supervisory board, and others are occupied by the German state of Lower Saxony, which holds a 20% stake in the group.

These are the same board members who helped Mr Winterkorn to keep his job. So it is unlikely he would want to risk antagonising them in future by introducing radical cutbacks, for example.

Image copyright Getty Images
Image caption Volkswagen's new chairman should not have ties to the Porsche family, say some analysts

'More efficiency'

Nevertheless, analysts say there is now an opportunity for change at VW - and it may mean Mr Winterkorn's reprieve is short-lived.

As Arndt Ellinghorst of research group Evercore ISI puts it, "VW should use this opening to renew itself.

"It should focus on finding a good external chairman, without ties to the Porsche family, who can bring in a new chief executive for the business.

"Then they can focus on efficiency - and a little more efficiency at VW would go a very long way."

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