Family feud – The Economist
SIX words startled corporate Germany on April 10th: “I’m at a distance from Winterkorn.” Ferdinand Piëch, the chairman of the supervisory board at Volkswagen, directed them at the carmaker’s chief executive. Slipped into an interview, they set observers to the company talking about Martin Winterkorn’s future. Mr Piëch, who is due to turn 78 on April 17th, is soon to retire. Mr Winterkorn, 67, wants to replace him as chairman. That now looks unlikely.
Mr Piëch is known for quickly and mercilessly abandoning underperforming managers. In 2009, asked about the head of Porsche (which belongs to VW), he said, “At this time I still trust him,” before adding, “You can cut the ‘still’.” In 2006 he said that the contract of VW’s then chief executive was “an open issue”. Both men soon lost their jobs. Mr Piëch is equally curt about himself: “My need for harmony is limited,” he once said.
Mr Piëch does not have the power to dump Mr Winterkorn summarily from VW, which is a peculiar hybrid of family business, state-owned enterprise and public company. A holding company for the Porsche and Piëch families—the descendants of Ferdinand Porsche, who created the original “people’s car” for Adolf Hitler—owns a minority stake but a majority of votes. The families have promised to resolve any differences behind closed doors rather than appear divided in front of the rest of the board. Wolfgang Porsche, a cousin of Mr Piëch who runs the holding company, says his words about Mr Winterkorn were a “private” opinion that had not been agreed upon by the families. But company-watchers note that he did not say anything about Mr Winterkorn.
Even if they agreed to sing off the same sheet, the Piëchs and Porsches would not entirely call the tune. The state of Lower Saxony has a 20% stake, and its economy minister has backed Mr Winterkorn. Employee representatives have half the seats on VW’s supervisory board; and the workers like Mr Winterkorn, who has preserved jobs—especially German ones—while cutting other costs and expanding the business. Under Mr Winterkorn’s leadership since 2007, the group’s sales have nearly doubled and net profits nearly trebled.
Now, only Toyota sells more cars worldwide, and VW may soon overtake it. But its operating-profit margin, hovering for several years at around 6%, papers over big differences between the group’s brands. Audi, a premium brand, made an operating profit of 9.6% in 2014, and has done particularly well in China and America, the two largest markets for cars. Skoda, a mid-market brand with roots in communist-era Czechoslovakia, has been a success story, with a margin of 7.2% and a milestone reached of 100,000 cars sold in March.
The core Volkswagen car brand, which accounts for about 60% of the vehicles the group sells, and half of its revenues, is the laggard. And Mr Winterkorn, who has been its direct boss as well as the group’s chief, looks responsible. A mass-market brand should not be expected to make Audi-style profits, but the Volkswagen brand’s operating margin for 2014 was just 2.5%, far short of its 6% target. In America, a burst of optimism and a new factory in Chattanooga, Tennessee have been followed by falling sales. For all Mr Winterkorn’s other achievements, Mr Piëch sees a glass half-empty.
His own succession may be more interesting than Mr Winterkorn’s. A motor-industry analyst at a bank admits he cannot name the chairmen of any other companies he covers. Mr Piëch’s unsentimental willingness to eject managers has given him a unique and contested legacy. He is said to want his wife (20 years his junior, but steeped in the industry for decades, and already on the board) to take his place. Tim Urquhart of IHS, a research outfit, says that the family interest has been good for stability and long-term planning. But the shock waves caused by Mr Piëch’s surprise attack on Mr Winterkorn would be nothing next to what would happen if he tried openly to make his wife his successor. “There would be a shareholder revolt.”