Austerity Ahead VW Steers Toward Structural Change

After winning a power struggle with his former mentor, Ferdinand Piëch, Volkswagen chief executive Martin Winterkorn must now fine-tune the carmaker's growth strategy.
Ready for change.

It seems Martin Winterkorn hasn't stopped talking since winning the grueling clash with Mr. Piëch, the former supervisory board chairman.

He has spoken with shareholders, portraying himself as a hands-on manager.

And he has spoken at length with the group's top executives.

At a meeting in Wolfsburg last week, Mr. Winterkorn told them how he intended to address the major changes facing the company by becoming still faster, more efficient and flexible.

It's time for us to refine our leadership model and reorganize structures and responsibilities to some extent. martin winterkorn, VW chief executive

The restructuring program, to be finalized by October, will effect the top management consisting of about 5,000 people worldwide. "It's time for us to refine our leadership model and reorganize structures and responsibilities to some extent," Mr. Winterkorn said.

The soon-to-be-launched commercial vehicle holding company could serve as a blueprint for a new type of organization. Under the new scheme, the division will combine the truck brands Scania, MAN and VW in South America, employing a matrix structure to coordinate management activities.

If, for instance, Scania planned to build a new engine, it would consult the holding company's managment and the head of Scania would be placed in charge of development. The developers would be required to report to the member of the holding company's management board assigned to Scania, who would ensure that the engine could also be used in other trucks within the group. The idea is to shift the focus away from the brand and toward the entire company.

Insiders believe that  while the model can't be directly transferred to the automobile brands, certain combinations could improve management of the group as a whole. For instance, high-volume brands VW, Skoda and SEAT could be bundled into one unit, with Audi, Porsche and luxury brands Bugatti and Lamborghini bundled into another. This would further reduce the brands' independence.

Reforming VW's board of management is urgently needed. It includes senior executives in charge of finance, human resources, purchasing and sales, as well as the manager responsible for China, the head of the Audi and Porsche brands and the member overseeing the commercial vehicles division.

"There is no clear structure," said the supervisory board chairman of a company listed on Germany's benchmark DAX index, who asked to remain anonymous.

The new structure is likely to trim the current nine-member board.

Reforms are indispensible if Mr. Winterkorn hopes to turn the company, with close to 600,000 employees, into a more agile and profitable operation. The VW Group already is trying to reduce costs with its "Future Tracks" program, which is already in place. Cost savings with the core VW brand alone will amount to €5 billion, or $5.6 billion. Insiders say that the group as a whole could trim up to €10 billion in costs.

It isn't just a matter of cutting costs, but also of how to approach problems in the future. One example is the decline in sales of core brand VW in the United States.

Critics say that VW has misjudged the U.S. market. But this is only partly true, given that the Porsche and Audi brands have been very successful there. VW's problems could perhaps be corrected more quickly through better coordination among the individual brands.

 

WTB 2014

 

Martin Murphy covers the automotive industry for Handelsblatt. To contact the author: [email protected]