Interview with Volkswagen CEO 'European Auto Crisis Is an Endurance Test'

The European automobile market is struggling and many manufacturers face falling profits. Volkswagen has suffered too, but CEO Martin Winterkorn notes in an interview with SPIEGEL that profits are still strong. He also defends his salary, which is among the highest in Europe.

SPIEGEL: Mr. Winterkorn, as head of the VW Group, you earned €17,456,206 (about $23 million) in 2011. Based on the current compensation rules, your salary for last year was probably about €20 million. Do you think this is reasonable?

Winterkorn: If I really received €20 million, it would certainly be difficult to explain that to people. No matter how successful the company is, increases in compensation cannot be unlimited. That's why I think the right thing to do is for the supervisory board to change the rules on executive compensation.

SPIEGEL: Why does the VW Group even have rules that make such astronomical salaries possible?

Winterkorn: Our bonuses are not paid on the basis of the next quarterly results, but on long-term criteria: sales and profits, as well as customer and employee satisfaction. There are ambitious goals for everything. At the time, however, no one expected the company to develop in such an outstanding way. Besides, we're a different company today. Porsche, MAN and Scania have now been fully integrated into our balance sheet, which is one reason profits have gone up.

SPIEGEL: You make it sound as if the €17.4 million were some sort of industrial accident. If that's the case, you could have donated a portion of your salary, as former Porsche CEO Wendelin Wiedeking did. Why didn't you do that?

Winterkorn: My fellow board members and I had donated several million euros in the past. You can assume that I do a great deal privately to help people who are not doing well. But I don't make a big deal out of it. Charitable donations alone cannot be the solution. It makes sense for the supervisory board to revise the rules on executive compensation.

SPIEGEL: What does money mean to you? Do you need the millions to buy a yacht or a Picasso, or is the main purpose of your salary to determine your position in the rankings of top managers? You are in first place in Europe.

Winterkorn: Well, I don't own a yacht or a Picasso. If I do treat myself to something once in a while, it's a nice watch. But the bonus also represents the success of the company, for which not only the executives, but also all the employees are responsible. That's why Volkswagen employees in Germany also received a record bonus of €7,500.

SPIEGEL: You're diverting attention away from the €17 million. For a company like VW, it's also very important to be socially accepted. Its executive compensation shouldn't be outside the framework that's generally viewed as acceptable. Don't you see this as a potential threat to Volkswagen's image?

Winterkorn: Of course we have to be careful in this regard. But I'm convinced that things are balanced at VW. We haven't just done well financially in recent years, but we also created about 100,000 new jobs, of which almost 30,000 are in Germany. No one in the company has complained about my compensation. Just ask the members of our works council.

SPIEGEL: There is a simple way to avoid salary excesses: a cap on salaries. It exists at BMW, Adidas, Lufthansa, Daimler and Siemens. Why are you opposed to a cap?

Winterkorn: I can't tell you today whether the new model that the supervisory board is developing will include a fixed upper limit. But the criteria will undoubtedly be set in such a way that salaries do not exceed a certain level. I assume that I will be paid less for 2012 than I received in 2011. And I have a great deal of understanding for that.

SPIEGEL: You personally earned a total of €18,340,726 in 2011. In addition to the position of chief executive at VW, you are also the head of Porsche Automobil Holding SE. You were paid just under a million euros for that side job. How much time did you spend on the position?

Winterkorn: We have an executive board meeting at Porsche SE every week. Of course, I also take that job very seriously.

SPIEGEL: Can't VW expect that, for a salary of €17 million, its CEO will devote his full attention to his main job?

Winterkorn: Take a look at our record performance and your question will answer itself. I am the chief executive of the Volkswagen Group, the chief executive of the Volkswagen brand and head of corporate development, not to mention my positions on the supervisory boards of our Audi, Scania and other subsidiaries. In essence, my job is always to efficiently run this group, with its 12 brands and more than 550,000 employees. It's impossible to put a finger on exactly how much time each individual task requires. Believe me, Volkswagen isn't getting short-changed.

SPIEGEL: And there's certainly plenty to do at Volkswagen at the moment. Apparently sales of your company's most important car, the new Golf, aren't very good. Dealers are already offering high discounts, as if the car they were trying to sell were no longer an entirely fresh product.

Winterkorn: Hold on! The new Golf has gotten off to an excellent start. We already have orders for more than 120,000 vehicles. We've had to schedule extra shifts in Wolfsburg. And according to a current study by Morgan Stanley, Volkswagen offers the smallest price discounts of any European carmaker.

SPIEGEL: You can find dealers on the Internet who are offering the Golf at discounts of more than 18 percent.

Winterkorn: There are a few black sheep that are involved in such nonsense. But I certainly know what's going on out there. Whenever VfL Wolfsburg has a home match, I meet with 10 dealers from the visiting team's city. They tell me how business is going and how satisfied they are with the new Golf. It's often ordered at prices of more than €30,000.

SPIEGEL: The new Mercedes-Benz A Class is a serious challenger for the Golf. It was voted the most popular car in Germany in a survey by the German Automobile Association (ADAC). The Golf came in second. Does that bother you?

Winterkorn: I take a sporting approach to it. When the ADAC began its poll, the A Class had already been on the market for several months, whereas the Golf had just come out 14 days earlier. This meant that people could hardly have seen much of the Golf in the streets. Besides, the most popular car is always the one that sells the most. When it comes to the Golf, we have nothing to worry about in that respect.

SPIEGEL: Nevertheless, the European auto crisis has also reached Volkswagen now. You periodically run four-day workweeks at the Emden plant, where the Passat is built. It's reminiscent of the crisis in the early 1990s. How bad are things for Volkswagen in Europe?

Winterkorn: There is no four-day week in Emden. We merely shut down production on a few days here and there. But you're right. The European auto market is brutally weak at the moment. Many individual markets are at historic lows, such as Italy, France and Spain. And there is no hope of a rapid recovery there, either. Of course, as the number one manufacturer in Europe, that hurts us. Nevertheless, we continue to grow, especially in China, the United States, South America, India and Russia.

SPIEGEL: The VW Group is increasingly serving those markets through local plants. The plants in Germany don't do much for the boom abroad. They produce cars primarily for the European market.

Winterkorn: We don't just ship more than 200,000 cars a year from Germany to China, but also many hundreds of thousands of engines, transmissions, steering systems and axles. This secures jobs here in Germany, and it's one of the reasons why Volkswagen's future hinges more and more on China, Russia, India, the United States and Southeast Asia.

SPIEGEL: The discounts -- not the ones that some black sheep among dealers are offering, but also those offered directly by Volkswagen -- show that VW is under pressure in Europe. Certain Polo models can be had at a discount of €2,780, for the Tiguan the discount is €2,690 while for the Sharan it is €3,210. VW is offering a €3,200 discount for the Transporter Multivan, as well as "an additional €1,000 rebate per child."

Winterkorn: Of course, just like our competitors, we are trying to further strengthen our market position in Europe with special approaches. The crisis here is an endurance test for all manufacturers. But we aren't among those driving the discounts.

SPIEGEL: Competitors like Fiat, Opel and Peugeot are focused heavily on the European market. They are suffering high losses here. Because of its success in growth markets, the VW Group's overall results are very good. This suggests that Volkswagen is trying to force its competitors out of the market with discounts. Fiat CEO Sergio Marchionne said that VW is trying to create a "bloodbath."

Winterkorn: We don't want to push anyone up against the wall. But we also don't have to be ashamed of being successful with our cars. We are benefiting from the fact that we now have a chassis system with which we can produce a wide range of models for our brands on a single technical foundation. These cars look completely different and also drive very differently. But unit costs will decline by 20 percent and the production times will be decreased even further. This gives us the latitude to invest in innovation and new technologies, as well as to make good money with special models.

SPIEGEL: Volkswagen is now also seen as an aggressor in France. L'Express published an article about VW's expansionist policy under the German headline: "Volkswagen über alles" ("Volkswagen above all").

Winterkorn: Yes, I'm aware of that, and it worries me. But look at Italy. The Italians have fantastic brands, like Lancia and Alfa Romeo. More than a million cars a year were being made there 10 years ago, and now it's only 400,000. We can't seriously be held responsible for that decline.

SPIEGEL: In light of the crisis in Europe, can you still achieve your goal of making the VW Group the world's largest automaker by 2018?

Winterkorn: We stand by that target. We have always assumed that growth won't occur primarily in Europe, but in China, Russia and in South and North America. We have to fight even harder there, too. If one of our models does poorly in an auto test in Germany, I'm on the phone right away and want to know what went wrong. We have to demonstrate the same commitment in all other markets, too. It's just as important to eliminate weaknesses there, as well.

SPIEGEL: The so-called low-cost cars, or vehicles for less than €8,000, are a growth segment in these markets. VW has no products in this class. When are you going to change that?

Winterkorn: A definitive decision hasn't been made yet. But what it amounts to is that we will develop a budget car in the price class between €6,000 and €7,000. More than three million cars a year can be sold in this segment in China alone, as well as a million in India. Africa is also a very promising market.

SPIEGEL: Volkswagen can do a lot of things, and yet it hasn't been able to develop a budget car yet. How do you intend to proceed?

Winterkorn: We certainly have to embark on new paths. The basic development will take place in Germany, i.e., to determine what the car will look like and which engines it will have. But then it will be further developed in China with one of our partners, and manufactured starting in 2015.

SPIEGEL: There is also another challenge: the subject of fuel efficiency. The European Union is preparing a legal provision that will limit emissions to a fleet average of only 95 grams of CO2 per kilometer by 2020. That comes to less than four liters of gasoline for every 100 kilometers (about 62 miles per gallon). Can VW do it?

Winterkorn: It's extremely ambitious. But we are accepting the challenge. The VW Group will achieve the 95-gram goal by 2020. However, we expect that electric vehicles and plug-in hybrids will be included in the calculation, as is also the case in the United States and China

SPIEGEL: Your contract runs until 2016, when you'll be 68. Do you intend to extend it once again and retire at 70?

Winterkorn: The job is certainly exhausting. For instance, we recently flew to Detroit to attend the auto show on a Sunday. We continued to Mexico on Monday morning for the opening of our new engine plant. On Tuesday morning, we landed in Wolfsburg for the executive board meeting. That afternoon we flew to Sweden, where we tested some new models. But I also enjoy the job immensely. I'll certainly keep doing it for a while longer, as long as I feel fit. Shaping the next generation of the Golf …

SPIEGEL: … which is expected to hit the market in 2018 …

Winterkorn: … is something I want to be a part of.

SPIEGEL: Mr. Winterkorn, thank you for this interview.

Interview conducted by Dietmar Hawranek and Armin Mahler

Translated from the German by Christopher Sultan
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