Blood Feud Behind the Scenes of Volkswagen's Dynastic Battle

Six words recently inflamed a decades-long battle between the two families behind Volkswagen and Porsche. It underscored how dangerous the dynasty has become for Germany's largest carmaker and how the company threatens to grow out of touch.

By and

  Volkswagen, the world's second largest automobile manufacturer, has recently been the subject of a paralyzing family feud.
REUTERS

Volkswagen, the world's second largest automobile manufacturer, has recently been the subject of a paralyzing family feud.


It all began with six cruel little words. Six words that Ferdinand Piëch, the chairman of the Volkswagen Group, one of Germany's largest and best-known companies, had told in the hopes of undermining one of his most high-profile colleagues, VW CEO Martin Winterkorn.

Piëch had skewered many men with his words over the course of his career -- but in this case, he got far more than he had bargained for. He set off a battle that pitted family member against family member, tore apart the leadership of the world's second largest automobile manufacturer, and, in the process, set the German automobile industry into turmoil. It became the climax of a decades-long family drama -- power struggles over inheritances, women and long-festering wounds.

Together with Martin Winterkorn, Piëch had transformed VW into a global conglomerate with 600,000 employees and 12 brands, including Audi, Porsche, Seat, Škoda and Lamborghini. The two were tough as iron and fastidious, like two alpha bulls. But when it was all over, at 5:30 p.m. on Saturday, April 25, Ferdinand Piëch was no longer on Volkswagen's board of directors.

That afternoon, as Piëch sat in the passenger seat of a red Audi in the parking lot of the Braunschweig-Wolfsburg airport, located near VW's global headquarters, everything was over -- at least for now. He let himself be driven away by his wife Ursula. Volkswagen's company planes take off and land at that airport. But Piëch doesn't like flying. He only feels safe in a car.

It began on April 10, when Piëch made a phone call to SPIEGEL. He had heard that the magazine was planning to publish a story about Volkswagen. The article was about Piëch's criticisms of Winterkorn and his plan to have his wife succeed him as the head of the corporation's supervisory board. Piëch wanted to comment on the story, but he was calling too late: the magazine had already been sent to the printer.

Piëch was telephoning to protect his wife. He was afraid that someone from the family wanted to damage her by giving away information, and thereby thwart her. He said: "the right people" should head the supervisory and management boards -- "and those people are not family members, they are also not my wife." With that, he hoped to end the discussion around Ursula Piëch.

'I'm Distancing Myself from Winterkorn'

But during the same conversation, he also spoke of the CEO and uttered the six words that would change Volkswagen: "I'm distancing myself from Winterkorn."

Shortly after 2 p.m., an employee with Volkswagen's PR department called Winterkorn's office and told an assistant to print out the SPIEGEL ONLINE article that had been published in response to Piëch's call and immediately place it on her boss's desk.

Upon reading it, Winterkorn was more hurt than he had been in a long time. He repeatedly said: "What's with that? I can't even believe it." He didn't even consider calling Piëch, and ruminated for two hours.

Volkswagen CEO Martin Winterkorn: More hurt than he had been in some time.
REUTERS

Volkswagen CEO Martin Winterkorn: More hurt than he had been in some time.

A number of German media outlets picked up Piëch's quotes. They were being read and repeated by Volkswagen employees and shareholders alike, who had now learned that the company's two most powerful men were at war with each another. They knew that Volkswagen was spinning into a crisis.

What could be done? Several members of Volkswagen's supervisory board tried to disarm the statement by spinning it -- but for this to work, they needed Piëch's cooperation. On Saturday and Sunday, he received a lot of visitors, some of whom suggested he explain that the chairman of the supervisory board needs to keep his distance from the Volkswagen CEO in order to be able to provide sufficient oversight over him. This would render his previous statement self-evident, suggesting that distance was being used as a principle of corporate organization. But Piëch didn't go along with it. He wanted to let his words mean what people had inferred: that Piëch no longer trusted Winterkorn. The media quickly began to speculate that CEO Winterkorn would soon be ousted.

Crisis Meeting

On Monday, the three employee representatives who are members of the supervisory board's executive committee -- Berthold Huber, Bernd Osterloh and Stephan Wolf -- met to discuss the situation. They suggested holding a special meeting of the executive committee. Piëch agreed, and sent out the invitations.

The members of the executive committee included Piëch, Huber, Osterloh and Wolf. The other members are Stephan Weil, governor of the state of Lower Saxony, which owns 20 percent of Volkswagen -- and Wolfgang Porsche, who, like Piëch, is a grandson of Ferdinand Porsche, who designed the VW Beetle.

Shortly after noon on April 16, a Thursday, two VW company planes landed at the airport in Salzburg, where the Porsche and Piëch families are based. In the airport's pilot room, Weil, Huber, Osterloh, Wolf and Porsche briefly discussed their goals for the meeting. Firstly: to repair the damage to Winterkorn. Secondly: to take Piëch to task, but to continue working with him as the chairman. They then drove to Piëch's modest office.

The meeting started off well. Piëch said he had not "intended what the press coverage made out of this." The six men were sitting in a conference room. The seventh, CEO Martin Winterkorn, was sitting outside, like a student waiting for the results of a parent-teacher conference.

Inside, Huber presented his critique: Staff and the management were rattled, and if the employee representatives hadn't prevented them, there would have been demonstrations in favor of Winterkorn. Piëch's words, he said, had invited speculation about the VW CEO's capacity to act. Winterkorn's authority, Huber claimed, had been damaged and the supervisory board had also been denigrated. He said problems needed to be discussed at the board level. Otherwise it looked as though the chairman didn't "give a hoot about the board."

Huber knows Piëch very well: Both men served on Audi's supervisory board and he had frequently backed Piëch up when he was attacked. Now he was accusing the chairman of having seriously damaged the company.

'Do You Want My Resignation?'

The others were extremely curious to see how Piëch would react: The patriarch was not used to being so strongly attacked, and he was feared for his coldness and hardness.

He said: "You are right on every point."

The atmosphere became more relaxed. Only one more step, and the company would once again be at peace. The five had prepared the draft of a joint statement. Winterkorn, it stated, is the "best possible" CEO, and his contract should be extended again in February 2016.

All right, Piëch said. But he then asked for a small addition: That the executive committee recommend that Ferdinand Piëch once again be elected chairman of the supervisory board when his contract expires in April 2017.

Some were surprised, others shocked. Piëch said he would leave them alone for a moment to discuss it in peace and then exited the room.

It was typical Piëch: Pushed into the defensive, he was going on the attack, and getting something for himself out of it in the process. It had happened before.

But this time something had changed. He had gotten older. He had played this game many times and the others were tired of it. And aside from Piëch, Winterkorn was the most powerful person in the company. The five discussed the situation and then summoned Piëch back into the room.

It was Governor Weil's turn to talk: Under no circumstances would Piëch's sentence be added to the statement. To this, Piëch reportedly answered: "Do you want my resignation? If you would like that, then I will resign today. But I have to say, if that's the case I will sell my shares."

'The Issue Will Have To Be Addressed'

Piëch was angry with his cousin. He believed Wolfgang Porsche was scheming against his wife, Ursula and that he would prefer to push her out of the supervisory board completely. He accused Winterkorn of having similar ambitions. Whoever wanted to take a stand against Ursula, however, would have to deal with him.

Piëch also accused Porsche of having demanded his resignation. Porsche said: "That's not true, Ferdinand. You asked me if I want that, and I just said: At some point the issue will have to be addressed."

The five of them reassured Piëch that they wanted to work together with him until the end of his term and asked him to mull things over one more time. Then the meeting ended without the group reaching a resolution.

Piëch then told Winterkorn that he wasn't blaming him for Volkswagen's weak returns or for the mismanagement on the American market. The primary issue was one of atmosphere: Piëch felt like he wasn't being sufficiently included in decision-making. He also openly suspected that someone was collecting information about him. There were questions about how Winterkorn knew about his meeting schedules. Was somebody spying on the chairman of the supervisory board?

Graphic: The Winterkorn Era at Volkswagen
DER SPIEGEL

Graphic: The Winterkorn Era at Volkswagen

Winterkorn was perplexed. He couldn't do much about Piëch's reproaches, he told Osterloh afterwards, and the two flew back to VW headquarters in Wolfsburg, Germany.

The next day -- April 17, a Friday -- Piëch said that the text could be prepared without his addition. It was his birthday. A bitter day.

That same day, journalists were told on the quiet that Piëch was no longer entirely in control of himself.

But Piëch wouldn't be Piëch if he accepted all this without a fight. On Wednesday, April 22, the family met in Stuttgart, and Piëch continued to vituperate against Winterkorn. But this time, unlike in earlier conflicts, he didn't succeed in persuading people that his position was the right one.

A Decision to Oust Piëch

Then came the next shock for the other members of the executive committee. They heard that Piëch had told the head of Porsche, Matthias Müller, he should prepare to become chairman of VW's supervisory board.

Phone calls ensued -- between Osterloh, Weil, Huber and Wolfgang Porsche. By then, they had had enough and they wanted to oust Piëch. The executive committee was set to meet again and Piëch was prepared to invite all members except for one: his cousin. He said he would no longer sit at the same table as him. Huber, deputy chairman of the supervisory board, then said he would invite him.

A new date was set: Saturday, April 25. The meeting was to take place in a symbolic location, Braunschweig. It suggested a new balance of power this time, because it meant Piëch would have to travel.

Osterloh, Weil, Huber and Porsche had done their homework before the meeting. They had affirmed that at least 14 of Volkswagen's 20 supervisory board members would vote out Piëch: the 10 employee representatives, the two representatives of Lower Saxony, Ferdinand Oliver Porsche and Wolfgang Porsche. This would make up the two-thirds majority required by law.

Several conference rooms were reserved at the airport in Braunschweig -- for the employee representatives, for the Porsches, for the Piëchs. People regularly shuttled between the rooms. Piëch was faced with a threatening message: If he didn't resign, he would be voted out. He declined to fight one more time. After over two hours, Piëch didn't just announce his resignation, he also announced that of his wife.

Until their joint resignation from the supervisory board, Ferdinand Piëch and his wife Ursula, pictured here in Hamburg in 2012, had been powerful forces at Volkswagen.
DPA

Until their joint resignation from the supervisory board, Ferdinand Piëch and his wife Ursula, pictured here in Hamburg in 2012, had been powerful forces at Volkswagen.

With that, the family alliance that had led Porsche and Volkswagen was blown apart, with a long, fairy tale history reaching its nadir. It began in 1934, when a brilliant design engineer developed an affordable "People's Car" for the Nazis. This led to the creation of the Volkswagen company in Wolfsburg, which sold 21 million of the hunchback car's successors, under the name "Beetle." The design engineer's name was Ferdinand Porsche. His son Ferry later developed the flatter, stronger hunchback-shaped car that became the Porsche 356, a sports car, and led to the 911, another global success.

Two German car companies emerged from the Porsche family: Volkswagen and Porsche. Originally, they remained separate companies.

Ferdinand Porsche had two kids, Louise and Ferry. They once supposedly beat each other up so badly at a party that the other guests went home. Louise would later marry Anton Piëch, bringing the Piëch name into the family. They had four children, one of them named Ferdinand, the one who would later try to push out Winterkorn. Her brother also had four children, one of whom was Wolfgang, the one who later face off against his cousin in defense of Winterkorn.

They grew up together on the Schüttgut estate, the family farm near Zell am See in Austria. Ferdinand Piëch described this period to Stern magazine in 2008: "I was of course jealous of my little brother and of Wolfgang, who were five and six years younger. When they went to school they were driven in a car, and we had to walk three kilometers on foot. We didn't have any friends there."

Ferdinand Porsche had divided up his legacy equally between the two children. Ferry concentrated on Porsche, the sports-car manufacturer in Stuttgart, and Louise focused on Porsche Holding in Salzburg, a company that primarily imports cars, including Volkswagen. But they stayed in the same parent company.

In 1970, the ten shareholders -- Louise and Ferry and their eight children -- got along so poorly that they met with experts in group-dynamics at Schüttgut. It didn't help. "We fought like crazy," Ferdinand Piëch recollected in his German-language memoir, "Auto. Biography".

Graphic: The Porsche-Piëch Clan and Its Holdings
DER SPIEGEL

Graphic: The Porsche-Piëch Clan and Its Holdings

In the summer of 1972, Piëch, who was married with five kids, visited Marlene Porsche, the wife of his cousin Gerd Porsche, while traveling through Turin. Something sparked between them and soon the two were a couple. As a result of Gerd and Marlene's divorce, the Porsche branch of the family lost five percent of its shares in the company. Piëch didn't marry Marlene, but had two children with her, and then two others from "another connection," and then there was the nanny, Ursula Plasser, who finally replaced Marlene Porsche and married Piëch. They had three more kids, for a total of twelve.

Wolfgang Porsche had four children with two women. A famous quote of Piëch's is: "I don't like coming in second."

Ferdinand Piëch became the leader of the Piëchs, and Wolgang Porsche became the leader of the Porsches. The one was a technician, the other a businessman. Piëch worked as an engineer at Porsche, became the head of Audi, and then CEO of the Volkswagen Group. Wolgang Porsche became the chairman of the supervisory board of Porsche. Even today, he still sits in the same office as his father, with the same furniture.

The Porsches and the Piëchs own all of the common shares of Porsche Automobil Holding SE. That company, in turn, owns 50.7 percent of the Volkswagen Group's common shares. The holding is the result of the takeover battle between Porsche and VW.

It is commonly said that Volkswagen, a giant, ultimately swallowed Porsche, an attacking dwarf. But in truth, Volkswagen acquired sports-car manufacturer Porsche, and as part of that acquisition the Porsche and Piëch families ascended to become Volkswagen's most powerful shareholders. In that sense, they won the battle.

Wolfgang Porsche may not radiate the same kind of frostiness as his cousin, Ferdinand Piëch, but he does have his own way of showing the world where things stand in their relationship. He almost never mentions him by name. He refers to Ferdinand as "my cousin" or, more recently, "F." He's also used the term, "the name we will not mention." The implication: a Porsche is a truer Porsche than a Piëch.

  Wolfgang Porsche seldom refers to his cousin Ferdinand Piëch by name: The implication being that a person with the Porsche name is a more authentic Porsche than a Piëch could be.
DPA

Wolfgang Porsche seldom refers to his cousin Ferdinand Piëch by name: The implication being that a person with the Porsche name is a more authentic Porsche than a Piëch could be.

When the two attend the same events -- like the VW Group Night at the annual Geneva Motor Show -- they avoid each other. Piëch hangs out in the stands, where he is surrounded by journalists. Porsche, for his part, tends to be a bit more on the margins, surrounded by fewer people. When, one time, he sauntered over to the Piëchs, he greeted former Formula One race driver Hans-Joachim Stuck, whose hair had been shaved for an operation, by saying, "Man, that's a haircut my cousin would get."

Like his siblings, Wolfgang Porsche attended a Waldorf school, known more for its touchy-feeliness than its discipline. Piëch, for his part, went to what he liked to call the "boarding school for toughening up." Piëch used to disparage his relatives by saying they learned "handicrafts, crocheting and singing."

In September 2008, Piëch moved to preempt the others Porsches and Piëchs on the supervisory board. The VW worker's council was trying to push through a motion that would require its approval for future joint projects between Porsche and Audi. The motion would have made it more difficult for Porsche to access Audi technologies. The families had been firmly against the idea. Ultimately, Piëch abstained from voting, giving the employee representatives the majority.

Wolfgang Porsche and other family members were so angry that they wanted to kick Piëch off the supervisory board. The family convened a meeting, but Piëch didn't attend. He also didn't get in touch by phone. Time passed by and the anger subsided. Piëch survived. That may in part explain why he thought the Porsches would also cave in 2015.

A Family with a Communication Problem

This is a family with a communication problem. Indeed, Wolfgang Porsche can sometimes be heard complaining that his cousin "F. doesn't say anything." He laments a lack of information and coordination.

Piëch only has one true confidant, his wife Ursula, who goes by "Uschi". When he attends motor shows, he always appears with her at his side. He also takes care of her. In Paris one time, Ursula Piëch wore a blue blazer and gold jewelry when she stepped into a futuristic VW XL1 concept car. It's a very low-riding car and getting in and out isn't easy -- especially if you're wearing a skirt. Cameras were everywhere. Piëch beckoned over to one of his colleagues, who put the turntable the car was parked on into motion, enabling Ursula Piëch to get out on the other side without being noticed.

He is her protector and patron. But this also demands her absolute loyalty, even after his death.

Standing at a table at the Geneva Motor Show in 2011, Piëch provided some information about his heirs. Most of his wealth has been placed in two foundations. All his 12 children are to be beneficiaries, but the deciding votes will be held by his wife and one of his children. "I'm just not sure which one," he said.

He has placed one condition on Ursula Piëch. She loses her status if she leaves her husband or remarries after his death.

When asked to explain why he had done this, Piëch offered, "A new husband would also mean new influence in the marriage and I would like to spare the company that. That's why I have made sure that she can only maintain that strong position as long as she is unbound." What it really means, though, is that she is totally bound to Ferdinand Piëch.

A Time of Transition

People have been listening for signs of Piëch passing the baton for some time, but now the family's fourth generation is pushing to assume power. The company is already teeming with Porsches and Piëchs, 33 in total. Some already have seats in the company's supervisory boards -- with Ferdinand Oliver Porsche at VW and Porsche, and Christian Porsche at truck-maker Scania. Others will follow.

Has there been any fundamental or important shift? In an interview, Daniell Porsche said, there are "a few Piëchs who send their children to Waldorf schools and Porsches who send their children to normal schools." That helps. Some in the new generation are doing what the alpha males in the older generation didn't succeed in: They not only talk to each other, but also discuss how they want to deal with their inheritance. The atmosphere isn't bad. "The only things left are the old conflicts that originate from the parents," Daniell Porsche says.

Indeed, it is a time of transition, and these times can often be turbulent. Volkswagen itself is in need of renewal, and not just in terms of its supervisory board. Piëch's departure marks not only the end of the Piëch system. It also means that the company and its many brands can no longer be iron-fistedly run two men at the head of the management and supervisory boards. Indeed, Wintercorn will only be half as strong without Piëch. And that's unlikely to be enough to keep brands that are seeking greater independence from the mother ship under control -- especially successful units like Škoda, Audi and Porsche.

The supervisory boards have tasked Winterkorn with creating a new structure for the company. He has been asked to create a group containing several brands -- with Audi, Bentley, Lamborghini and Porsche, for example, gathered into a luxury division; and Volkswagen, Škoda and Seat lumped together for the core business. Winterkorn will have no choice but to give the heads of these divisions greater autonomy. He will no longer be able to personally test each model in the heat of Africa and the cold of the Arctic Circle before it reaches the market and then order changes. He will have to focus on the bigger picture, on strategy. A new way of thinking is needed.

Here's just one example of the kind of old thinking that will no longer fly. At the VW Group Night at the Geneva Motor Show at the beginning of June, all the company's units presented their cars in a former warehouse building. The music thumped, there was laser lighting and the managers of each unit drove their latest models onto the stage. Mathias Müller of Porsche arrived in a Cayman Gt4, which has 385 horsepower and can accelerate to a speed of 100 kilometers per hour (62 miles per hour) in four seconds; Rupert Stadler of Audi entered in an R3, which has 610 horsepower and can do the same in 3.2 seconds; Stephan Winkelmann of Laborghini, came in an Aventador Superveloce, which has 750 horsepower and can reach 100 kilometers per hour in 2.8 seconds. It was a classic example of boys with their toys -- who had the biggest, longest and strongest?

An Outmoded World

That's the world in which Winterkorn and Piëch live. But it's no longer a world that younger people can identify with. Attitudes toward cars have changed. Many people no longer care about horsepower and speed. They care about zero-emissions automobiles -- and right now BMW (i3) and Tesla (Model S) offer the most exciting electric cars on the market. Plenty of people no longer even want to own their automobile. For them, there's Car2go from Daimler, which offers car sharing in 29 cities around the world. So far, Volkswagen has done very little in the new world of mobility.

Piëch has often blamed this on Winterkorn, but it is also one of his own failures. A technology enthusiast like him ought to have embraced and promoted technologies like lightweight design, and electric and fuel-cell engines. Instead Bugatti, a part of the VW Group, developed an even faster car. The next Bugatti will be an absolutely full-blooded super sports car -- stronger and faster, unit head Wolfgang Dürheimer said as he announced the car in Geneva. The car has 1,200 horsepower can reach speeds of over 400 kilometers (almost 250 miles) per hour. Does the insanity never stop?

The Bugatti Veyron: A sign that Volkswagen Group is out of touch with contemporary times?
Bugatti

The Bugatti Veyron: A sign that Volkswagen Group is out of touch with contemporary times?

Winterkorn will have to introduce the shift. If he handles this well, he can depart the company in a year as a man who survived an attack by a seemingly invincible Ferdinand Piëch and took the company down a new path. But it won't be enough to ensure a strong future for himself at the company.

The End of the Super Egos

Winterkorn survived, but he didn't win. The company's super egos no longer fit with the times.

In any case, there are some managers on the supervisory board who have made a good impression in the current battle. They include VW works council representatives Huber and Osterloh, and Weil, the governor of Lower Saxony. They have proven themselves to be adept crisis managers and have disproven the notion that labor unions and politicians can only be harmful to companies. The influence of families as deeply torn by infighting as the Piëchs and the Porsches presents a greater danger.

The fact that Piëch has stepped down in no way means that he will no longer have influence. Indeed, his threat to sell his shares is already creating turbulence. But his shares are worth less than many speculate. Piëch currently holds 13 percent of the common shares in Porsche Automobile Holding. The mass-circulation daily Bild recently estimated he could raise €21 billion by selling them, but the real figure is only about €1.8 billion.

That relatively low price may not keep Piëch from selling. He's more likely to be bothered by having to first offer his shares to the rest of the family -- to whom he would reportedly be required to sell them at a 25 percent discount compared to market prices. That would require him to not hold a grudge, which, of course, is something he's not very good at.

Conflict Likely to Continue

It's more likely that Piëch will remain a major shareholder in the family holding and that he will find ways to exercise his influence. The latest fight is over the replacements for Piëch and his wife Ursula on the supervisory board.

Wolfgang Porsche nominated two women from the families' fourth generation: Julia Kuhn-Piëch, a real estate broker, and Louise Kiesling who is active in the fashion industry. They have already been appointed by the company and confirmed by a court. Last week, it indeed appeared that Wolfgang Porsche had won.

But had he?

On Thursday morning at 9:40 a.m., Ferdinand Piëch sent an email to Lower Saxony Governor Weil, his brother Hans Michel Piëch and Wolfgang Porsche. In it, he made a counterproposal for board members to replace him: Brigitte Ederer, the former head of human resources at Siemens, and Wolfgang Reitzle, former head of German multinational firm Linde and a former chairman of BMW.

On Friday, VW workers backed Porsche's suggested new board members, meaning the only way for Piëch to thwart the decision would be to challenge it in court. But the episode did demonstrate that Piëch isn't giving up. The family drama may continue for some time to come.

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