Sunday 25 September 2016

New ceo must turn around fortunes of the wartime giant that became the pride of a nation

Andreas Cremer and Alan Tovey

Published 26/09/2015 | 02:30

Volkswagen was set up by Adolf Hitler to provide cars for the people
Volkswagen was set up by Adolf Hitler to provide cars for the people
Scrap metal lies in a boat in front of the Volkswagen power plant in Wolfsburg. Photo: Reuters
New Volkswagen boss Matthias Mueller

Volkswagen yesterday named Matthias Mueller, the head of its Porsche sports car brand, as its chief executive, as the fallout from the US vehicle emissions test rigging scandal broadened.

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Mr Mueller (62) had been widely tipped to succeed Martin Winterkorn, who quit on Wednesday, and will take responsibility for steering Volkswagen through the biggest business crisis in its 78-year history.

The crisis deepened yesterday as officials in Europe and the US stepped up their investigations.

Germany's transport minister said Volkswagen had manipulated tests in Europe too. "We have been informed that also in Europe, vehicles with 1.6 and 2.0 litre diesel engines are affected by the manipulations that are being talked about," said Alexander Dobrindt, adding it was unclear how many vehicles in Europe were affected.

Separately, a group of at least 27 US state attorneys general launched a multi-state investigation of Volkswagen's representations to consumers about its diesel vehicles, and said it will send subpoenas to the carmaker.

It's been a turbulent year for the German giant: Volkswagen Group overtook Toyota to become the world's biggest car manufacturer this summer, selling 5.04m vehicles in the first half, 20,000 more than its Japanese rival.

The milestone was achieved three years ahead of the goal the German auto giant set itself back in 2010 of becoming the world's dominant carmaker.

Based in Wolfsburg - a city established 78 years ago to house car workers - the business which also owns Audi, Skoda, Seat and Porsche appeared to be living up its name, which translates as "people's car". Roll on two months and the VW's future looks very, very different.

Revelations that it installed "defeat" software in diesel cars sold in the US which allowed them to cheat emissions tests has sent VW into crisis, with the penalties for violating US environmental laws that could run as high as $18bn. No wonder that VW's American chief admitted the company had "been dishonest and.... totally screwed up" .

But what's hitting VW hardest is investors want to know whether the deception is a major global issue or largely limited to the US.

The company has had an unusual history, to say the least. Set up in 1937 under Adolf Hitler to fulfil race-car designer Ferdinand Porsche's vision of producing a car ordinary Germans could afford, VW's soon converted to war work. This included alleged slave labour from concentration camps, which resurfaced in the 1990s when Holocaust survivors sued VW.

After the war the Wolfsburg plant began producing the Type 1 - later renamed the Beetle - which in 1972 took the title of the world's best-selling car. Following in its path in 1974 was the Golf, which incorporated technology from VW's 1964 purchase of Auto Union, which brought with it the Audi brand.

The Golf's success set VW up for product expansion and the introduction of new technology, along with taking full control of Seat in 1990 and Skoda the following year, cemented the foundations of the former Nazi business becoming a bastion of modern German industrialisation.

However, the transformation has not been trouble free. A decade ago, Germany was rocked by allegations of bribes and sex parties to win all-powerful union support.

VW also hit the headlines in 2008, when it temporarily became the world's largest company. Porsche tried to take over the business, causing shares to rocket as high as €1,005 as opportunistic short-sellers were caught out.

As they scrambled to cover their positions, VW's market cap hit €296bn, more than oil company Exxon. In 2009 the two German auto companies merged, with VW's name taken but Porsche holding 50.7pc of the joint business.

Overseeing operations of the company's confusing two-board management structure was Mr Winterkorn, who joined the business in 1981 and worked his way up in engineering roles. Bernstein analyst Max Warburton said: "Winterkorn's personal brand has been built on being 'the engineer's engineer' and the 'detail man'. There are stories of him personally pulling apart the gearbox of an Audi car at Le Mans after it broke and figuring out personally what went wrong.

"This is an engineer, who theoretically should have asked questions about how VW suddenly improved its emissions to meet Californian standards."

Mr Winterkorn's standing had been in question for some time with hints that boardroom knives could be out for him. He won a power struggle in 2007 to lead VW, beating veteran chairman Ferdinand Piech, whose family hold a large stake in the business.

Mr Piech, the grandson of the Ferdinand Porsche, resigned in April but despite no longer being in the boardroom is rumoured to have still blocked Mr Winterkorn from taking the chairmanship earlier this month.ider questions about the practicalities of how the software which allowed VWs to cheat tests got into the cars in the first place raises questions about just who in company knew about it.

Roger Kemp, an engineering professor at Lancaster University who has worked on vehicle emissions, said: "I don't think a smoking gun will be found in the code but electronics make up such a large part of a car's value this is absolutely not the work of one person, it's going to be a large room of people, along with their connections at test-beds and tracks.

"There's an incredible amount of quality assurance documentation that goes into sending vehicles to the US. That takes a lot of people."

Alarm bells could have rung earlier at VW - as well as motoring authorities - according to Nick Molden, chief executive of Emissions Analysis. He said his company tested a Golf and found it got 10pc better fuel consumption than expected, hinting that something could be afoot at VW - and potentially pointing towards the carmaker's motives. "VW is the only mass-market car maker pushing diesel power in the US," Mr Molden said. "I would guess that this decision came for competitive reasons and therefore went pretty high up the tree."

The sector the VWs caught up in the scandal compete in is one the most cut-throat in the market, he added, though this in itself could hint that use of defeat software is limited to the US.

"These cars are competing against Toyota Priuses and frugal direct-injection petrol cars," Mr Molton said. "VW would have been up against particular pressures and incentives to meet US limits in a market where miles per gallon matter."

And America is not happy. "I am furious that the world's leading car company wilfully took steps that polluted our environment and deceived consumers," Maryland Attorney General Brian Frosh said in a statement yesterday.

In Sacramento, California, that state's top air quality regulator said her agency is preparing a series of actions against VW. "Right now we are organising ourselves for a major enforcement action," said Mary Nichols, head of the California Air Resources Board.

The state also intends to order a recall of Volkswagen diesel vehicles sold in the state with the controversial onboard software.

The company's new ceo will have to restore the confidence of customers and motor dealers, who have expressed frustration at a lack of information about how they will be affected.

The supervisory board will also dismiss the head of the company's US operations and top engineers at its Audi and Porsche brands, a senior source told Reuters, as it seeks a fresh start.

"He is a good choice even though he may be seen as a transitionary ceo until another internal candidate such as VW brand ceo (Herbert) Diess has earned their stripes," Arndt Ellinghorst, an analyst at Evercore ISI investment banking advisory firm, said of Mr Mueller.

Mr Mueller, who has worked for parts of the Volkswagen empire since the 1970s, is a management board member of Porsche and so is close to the Piech-Porsche family that controls Volkswagen through the holding company.

The company is under pressure to act decisively, with German Chancellor Angela Merkel urging it to quickly restore confidence in a business held up for generations as a paragon of German engineering prowess.

"There will be further personnel consequences in the next days and we are calling for those consequences," said Volkswagen board member Olaf Lies. (Reuters/Daily Telegraph, London)

Irish Independent

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