By William Boston
The new chief of Volkswagen AG's namesake brand, its biggest
business, faces the challenge of cutting costs and boosting profit
even as the company is driving toward a broader management
restructuring.
Herbert Diess, recently poached from luxury-car rival BMW AG,
made a name for himself as the man who stripped excessive costs out
of BMW's balance sheet. He takes over next month while a larger
shakeout has yet to play out at Europe's largest auto maker.
Volkswagen Chief Executive Martin Winterkorn once called Mr.
Diess, "one of the most capable men in the automotive industry." He
wants the 56-year-old Bavarian to work his magic and turn VW's
sluggish core business into a profit machine.
It's a tall order made more difficult by the parent company's
culture. The VW brand sold 4.6 million cars last year, generating
EUR99.8 billion ($113.2 billion) in revenue. Its scale dwarfs
Volkswagen's other business such as luxury car maker Audi and
sports car maker Porsche. But in terms of profitability, the VW
brand is a laggard. Porsche generated EUR14,500 ($16,500) in pretax
profit per car last year, compared to EUR540 at the VW brand,
according to IHS Automotive.
Some of the problems at the VW brand are the result of
Volkswagen's authoritarian management culture, deeply influenced by
former patriarch Ferdinand Piech, who was ousted as chairman in
April. The company has slowly allowed regional executives to have
more autonomy, but it has not happened fast enough.
Its experience in the U.S. has been telling. VW built a $1
billion plant in Chattanooga, Tenn., and launched a new Passat for
the U.S. market. The move more than doubled U.S. sales, but then
decisions about following on vehicles got tied up in Wolfsburg. It
took nearly two years to decide to build a sport-utility vehicle in
the U.S. as rivals were selling SUVs hand over fist.
"That was a shock," said a Volkswagen executive. "We did
everything right in the U.S. and then just neglected to follow
through. What happened in the U.S. is the catalyst that got us
thinking about change."
For years, Mr. Piech and Mr. Winterkorn had to make the final
decision on almost any project, even down to minute details in the
designs of cars.
After Mr. Piech's departure, top executives including Bernd
Osterloh, the powerful head of the VW works council, Rupert
Stadler, chief of Audi, and Matthias Müller, head of Porsche, urged
Mr. Winterkorn to delegate more responsibility. In December, he
tapped Mr. Diess to replace him as VW brand chief.
Two weeks after Mr. Piech's departure, Mr. Winterkorn held a
global conference call with his top executives and announced plans
to present a new management structure by October.
Now under discussion is a restructuring plan that would
streamline the management board and devolve more decision-making.
Some executives are pushing for four largely independent units
under a holding company format. But other executives involved argue
that the management board needs to be able to enforce cooperation
among the brands and wring cost-savings from scale.
Mr. Diess takes charge of the VW brand on July 1 and his first
task will be to implement Mr. Winterkorn's plan to extract at least
EUR5 billion in savings by 2017 and boost the VW brand's anemic
profit margin of 2% of sales to at least 6% by 2018.
Mr. Diess earned degrees in automotive engineering and a
doctorate in production technology from the Technical University in
Munich in 1987, and went to work for Robert Bosch GmbH, the German
auto-parts supplier. He joined BMW in 1996 and held various
management roles before he was appointed to the executive board in
2007 in charge of purchasing.
Last year, the Quandt family that controls BMW decided to
replace CEO Norbert Reithofer with a younger executive, production
chief Harald Krüger. Having been passed over for the top job, Mr.
Diess accepted the job at Volkswagen.
One area at VW that some analysts see as ripe for cost-cutting
is the company's components business. The depth of integration at
VW, where its components factories still make their own seats,
brakes and parts of the interior, is a big reason why VW lags
behind rivals Toyota Motor Corp. and General Motors Co. in
profitability.
Such deep integration no longer exists at BMW. But at VW, where
the state of Lower Saxony holds a blocking minority stake and the
current chairman is former head of the IG Metall trade union,
outsourcing the components will be a tough sell.
"Diess is a merciless cost killer," says a former associate at
BMW. "He will meet heavy resistance at VW with its culture of
co-determination between labor and management if he applies the
same formula he used at BMW. He is going to need different
recipes."
Volkswagen declined to comment. Mr. Diess couldn't be reached
for comment.
Write to William Boston at william.boston@wsj.com
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