Ausgabe 29/2005

Scandal at Volkswagen With Prostitutes and Shady Executives, There's No Love Left in this Bug

By , Padma Rao and

Part 4: The Old Boy's Club

The old boys network is alive and well at Volkswagen. VW CEO Bernd Pischetsrieder and Hartz, still a member of the supervisory board, were allegedly unaware that the two politicians had again been added to VW's payroll. From a purely legal standpoint, Viereck and Wendhausen are not permitted to return to VW until their parliamentary terms expire. An employee in the personnel department at VW has admitted that he arranged the contracts with the two politicians -- but at the suggestion of the recently resigned head of VW's general works council, Volkert.

It will be up to Pischetsrieder to clean up the mess at VW if he hopes to avoid coming under pressure himself. His predecessor, Piëch, is already rapidly coming under fire. But in public, Piëch hardly even gives the impression these days that he is still the chairman of VW's supervisory board.

And when the media turn on their cameras and microphones, Wulff appears to be the man in charge. The Christian Democrat sets the tone. He recently suggested that Hartz would not leave the company unscathed. And later, he recommended that the company immediately accept Hartz's resignation offer.

Wulff and supervisory board chairman Piëch are bound together by what one board member calls a "non-relationship" -- hardly the ideal basis for the board to conduct professional crisis management. Nevertheless, though dramatic clashes between senior executives are potentially damaging to the company because of the negative publicity they generate, they also present an opportunity. The beleaguered company can only succeed in turning itself around economically by severing old ties that seem to give a greater priority to personal relationships than economic considerations.

With the hopes that house-cleaning at the top could give a boost to Volkswagen's necessary restructuring, it comes as little surprise that the company's stock has been rising steadily since the first details of the scandal emerged.

For Bernhard, the company's brand group chairman whose job it is to turn the goliath around, the mass exodus of top brass could be a boon.

At a recent management meeting, he announced his plans for revamping VW's marketing approach. For many years, executives tried to position the Volkswagen brand against Mercedes-Benz. But now Toyota is the company's new target, because the Japanese have managed to produce better-quality vehicles at a lower cost.

Bernhard is especially troubled by quality problems, because they drive up warranty costs and further damage the company's image. After analyzing VW's production plants, Bernhard realized that the company's quality strategy was completely incorrect. In these plants, quality is mainly assessed at the end of the assembly line -- after engineers have already corrected any problems in vehicles, often at considerable cost. The high costs of fixing these problems were not taken into account, a practice Bernhard says is "completely unacceptable."

But Bernhard's biggest challenge will be to reduce the company's excess capacity. VW's plant in Brussels is barely surviving. Production of the Golf models built there could easily be transferred to Wolfsburg, thereby utilizing the company's main plant more effectively. Audi currently plans on resuming full production of its A3 model in Ingolstadt and discontinuing partial assembly in Brussels. If these plans materialize, the Brussels plant will quickly become redundant.

Then, of course, there's Volkswagen's problem in the United States. Sales of the Volkswagen brand have been declining in the US for years, and on Wednesday evening, Bernhard was preparing a trip there to assess progress in the company's restructuring of its business in North America.

CEO Pischetsrieder is most likely envious of his colleague -- after all, the headaches in America don't fill the pages of the tabloids like the sex and bribery scandals in Wolfsburg.

Translated from the German by Christopher Sultan

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