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Auto Industry Shake-Up

Pischetsrieder Leaves Volkswagen

By Michael Kröger

Volkswagen head Bernd Pischetsrieder has stepped down. Many consider his departure long overdue. But, after his contract was extended until 2012 only six months ago, the timing of the move has surprised even the experts.

Something must have gone wrong in the past six months. In May it looked like Volkswagen CEO Bernd Pischetsrieder was at the pinnacle of his power at the German car maker. Only a few months later, though, the VW boss has been sent on his way. Martin Winterkorn, the head of the company's Audi unit, will take over the helm.

Pischetsrieder, who has been CEO of Volkswagen since 2002, has been steering the company through a major restructuring and recovery after deep losses in 2004 and 2005. Only six months ago, Pischetsrieder's contract was extended to 2012 by the Board of Directors. His decision to step down, announced on Tuesday evening, comes as a shock.

The rise to fame

Pischetsrieder's contract extension was indeed down to the wire. Only weeks earlier, Ferdinand Piëch -- chairman of the Board of Directors -- had thrown Pischetsrieder's leadership into question. In fact, the evening before the company's shareholders gathered in Hamburg, the Board held a stormy meeting in the Hotel Atlantic to determine Pischetsrieder's fate. They emerged in unanimous support of the CEO. Piëch -- who had become Pischetsrieder main opponent -- seemed to have lost power.

Suddenly, what had long been criticisms of the leader became virtues overnight: His indecisiveness and hesitance were suddenly important qualifications to balance the various conflicting interests within the Wolfsburg concern. Experts, confidants and analysts believed in him -- they believed he could forge compromise between unions and employees. No question, the art of compromise was and still is a necessary skill. Of course, compromise is one thing, but ultimately it's about fixing the company's hopelessly weak returns and making VW's other locations internationally competitive. Uncomfortable decisions are necessary -- and they have to be made with a unified and decisive voice.

Pischetsrieder had another trump card up his sleeve: Wolfgang Bernhard, the man in charge of restoring and boosting the VW brand. A man with a reputation of a shrewd corporate reformer and creative manager in the auto industry, Berhard stood by his side. His position seemed to be further bolstered when Porsche bought a stake in VW, bringing Wendelin Wiedeking on board. Wiedeking -- the head of the Stuttgart-based star of the sport car industry -- would from then on have an important say in the business and possibly neutralize the problematic Piëch. The word from inner circles was that Pischetsrieder and Wiedeking got along famously.

A mixed record

Pischetsrieder, though, is suited well for new beginnings, but not for reforms. When he was surprisingly called to head BMW in 1993, nothing could go wrong -- the business basically ran itself. But Pischetsrieder blatantly mismanaged the company, avoiding controversial issues, vital though they may have been. For one, he was too indecisive in reforming British auto manufacturer Rover, which had been a subsidiary of BMW since 1994. When the company eventually fell into crisis, the Board of Directors pulled the emergency brake. Pischetsrieder had to go.

When Piëch anointed Pischetsrieder the new crown prince of VW, he believed the new executive would lead his legacy forward -- not least of which because Piëch considered himself to be one of the only truly benevolent auto industry managers. But that relationship cooled off quickly. Two years passed before Pischetsrieder took measures to steer the chronically underperforming concern back on course. Too long, said his critics. Too long, indeed, said the impatient Chairman of the Board.

Pischetsrieder quickly began to pull strings and consolidate his power within the firm. The intrigues and manoeuvres Pischetsrieder had to weather or ward off would have sent others on their way much sooner. But the Bavarian remained. He watched his back and hoped his patience would pay off.

Then came May and his victory against Piëch's criticisms. But now, only a few months after his triumph, the boss has been sent packing. Pischetsrieder limited himself to the role of a diplomat, who would balance the different power centers within the firm. Power players like Bernhard determined the business agenda, while Pischetsrieder stayed in the background. Still today no clear concept for solving the company's problems seems to exist. Volkswagen's production in Wolfsburg is still more expensive than its competition. Wolfsburg requires 50 hours of labor to produce a VW Golf. The competition makes a similar vehicle in less than half the time.

The fall from grace

Pischetsrieder's short-lived coup went downhill quickly with other questionable decisions. Volkswagen -- the largest shareholder in truck producers MAN and Scania -- favored merging the two companies rather than allowing Scania to pursue its hostile takeover bid for MAN. Pischetsrieder favored putting the two companies together with VW's Brazilian truck business. Problems quickly began to appear: how should the different cultures within the truck manufacturers work together? Pischetsrieder's answer? He created a working group to identify synergies between the firms -- using the assumption that they continue working as they always had.

The chronic lack of imagination also led Wiedeking to become quickly disillusioned. The Porsche boss is, in fact, known for pushing through reforms while spilling as little blood as possible. So, he has sympathy for a leader that tries to negotiate with employee representatives. But Wiedeking also values the ability to act quickly and find creative solutions. Porsche would not be where it is today had Wiedeking followed a policy of standing-by and waiting. It's very telling that Pischetsrieder quickly lost his backing.

Tuesday's resignation -- which comes almost completely out of the blue -- has taken observers and experts by surprise. If for no other reason than the timing.