VW CEO The Misadventures of Matthias Müller

A disastrous trip across the Atlantic gave VW’s embattled boss a black eye, less than four months into the job. But he remains under the protection of company patriarch Ferdinand Piëch – for now.
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It took just over half a year for Volkswagen Chief Executive Matthias Müller to complete the inglorious journey from hero to goat. It remains to be seen whether he can correct his missteps.

In his hour of triumph, on June 14, 2015, he donned a gray racing suit. Tears of joy streamed down his face as Mr. Müller, then head of Volkswagen-subsidiary Porsche, celebrated an emotional victory with his team after 24 hours on the racetrack at Le Mans, the world’s most grueling car race held in the French countryside.

It was on this day, at the latest, that VW’s big shareholders tapped Mr. Müller for future greatness. After all, in the eyes of cousins Wolfgang Porsche, 72, und Ferdinand Piëch, 78, who controled Europe's largest automaker at the time, the 24-hour race was something of a character test. Whoever succeeds at Le Mans must have what it takes to lead one of the world’s largest and most storied car companies.

It was Mr. Piëch, the one-time Porsche employee and later head of VW, who wrote an important chapter of automotive history on this track in 1970, when the Austrian engineer seized the wheel of his Porsche 917 – nobody else would – and proved the unconventional sports car before a crowd of skeptics. In the process, he gave birth to the Porsche mythos.

But success in Le Mans, as Volkswagen’s dynastic shareholders so painfully learned since anointing Mr. Müller as group savior last September at the onset of VW’s global emissions-rigging scandal, has nothing to do with the leadership needed to steer the world’s No. 2 carmaker out of its biggest crisis.

Today, there is little left of last summer’s radiating hero of Le Mans.

Plagued by a series of minor faux pas and major gaffes, Mr. Müller’s short stint as chief executive has been a classic false start. Supervisory board members are increasingly discontent, and speculation in Germany is rife over just how much longer the 62-year-old Mr. Müller can hold onto his job.

His blunders reached a crescendo on January 10 on the eve of the Detroit Auto Show. Mr. Müller’s mission was to help VW turn the corner on the “Dieselgate” scandal, restore lost trust and, above all, diffuse a precipitous standoff with environmental agencies in the United States – a standoff VW will never win.

 

 

But instead of helping Volkswagen turn the corner, Mr. Müller crashed and burned. It was his first trip to America since U.S. environmental regulators on September 18 publicly accused the carmaker of installing software to cheat emissions testing on nearly half-a-million diesel cars in the United States. Since then, that number has grown to more than 600,000 in America, and up to 11 million worldwide, as the scope of Volkswagen’s machinations unfolds.

Looking exhausted before a crowd of several hundred journalists at Fishbone’s restaurant – the same location where predecessor Martin Winterkorn a year earlier fantasized that VW would soon race past Toyota to become the world’s No. 1 automaker – Mr. Müller did not rise to the occasion. He fell – hard.

In choppy English, he delivered a long, emotionless apology, reading stoically from a piece of paper. Seldom did Mr. Müller lift his empty gaze to make eye contact with those listening. He radiated insecurity, but never humility – precisely what Americans were expecting from him.

As if Mr. Müller’s prepared remarks weren't disastrous enough, the situation only got worse. Reporters surrounded him, firing question after question.

“Someone should have pulled the embattled Mr. Müller out of there,” a member of his entourage later reflected. But determined to master the moment, the head of Europe’s largest industrial enterprise forged ahead with a patter of unconvincing public relations jargon.

Plagued by faux pas and gaffes, Mr. Müller’s short stint as CEO has been a classic false start. Supervisory board members are increasingly discontent, and speculation is rife over just how much longer he can hold onto his job.

It was in this hectic atmosphere that Mr. Müller gave his fateful interview to U.S. broadcaster National Public Radio. Relatively unknown in Germany, NPR is probably the most respected radio broadcaster in America.

What millions of Americans, including astonished environmental regulators, heard Mr. Müller tell NPR during their Monday commute was that Volkswagen actually “didn’t lie.” The company’s software designed to evade emissions standards was a "technical,'' rather than ethical problem, he claimed.

A follow-up interview with NPR that same day failed to undo the damage.

Erik Gordon, a business professor at the University of Michigan, said Mr. Müller’s initial comments came across as “condescending” to NPR listeners, and not completely genuine when he attempted to revise them.

The botched interview unleashed a wave of criticism in newspapers. With anger and pain, Mr. Müller read almost every article. Just months earlier, he had taken on the task of restructuring his beleaguered employer, re-engineering its culture and developing a strategy for the future.

 

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But the gap between his goals and reality is immense.

The debacle in Detroit was a harsh setback for VW's recovery and Mr. Müller knows he made a huge mistake. “That shouldn’t have happened,” he has regrettably admitted to close confidantes.

The public relations mishap was not the only disappointment of the trip.

The Californian regulator CARB, a sister organization of the Environmental Protection Agency, a few days later rejected VW’s recall plan, forcing it back to the drawing board. The EPA in a statement agreed to the assessment of the Californian regulator.

Upon landing in the United States, Mr. Müller thought he had a relatively inexpensive technical solution in hand in the form of a newly-developed catalytic converter that could be installed on most of the affected vehicles.

The upshot for Volkswagen was that it would only have to buy back a small percentage of vehicles in the United States, which he announced in Detroit.

But that was the wishful thinking of an engineer overlooking the obvious. For Americans, it’s about more than just a technical solution. It’s about breaking the law, ethics and trust. There, a perpetrator doesn't simply appear in court; he bows, as other high-profile cases involving defective products have shown.

A more appropriate reaction from Mr. Müller would have been something on par with Toyota boss Akio Toyoda, who wept at a 2010 congressional hearing over quality control problems that led to a recall of 8.5 million vehicles.

“I myself, as well as Toyota, am not perfect,” said Mr. Toyoda at the hearing. “Quite frankly, I fear the pace at which we have grown may have been too quick.”

Upon landing in the United States, Mr. Müller thought he had a relatively inexpensive technical solution in hand in the form of a newly developed catalytic converter that could be installed on most of the affected vehicles.

The genuflection by the Toyota CEO is in sharp contrast with the actions the VW CEO, who in December said: “I don’t believe I will fall on my knees. I will appear self-confidently.”

But Volkswagen’s technical plan for the U.S. recall faced long odds regardless of Mr. Müller's lack of tact, or his inability to read the cultural warning signs.

“Even if Volkswagen had the solution, U.S. agencies are going to vet this thoroughly,” said a person involved with the proceeding, who declined to be named.

Not only diesel technology and Volkswagen are on trial either. U.S. regulators are under pressure to hold the German company’s feet to the fire after being deceived by it for many years – in part because of their own lax supervision.

In the wake of Mr. Müller’s trans-Atlantic public relations belly flop, members of VW’s supervisory board are questioning whether he is the right man for the difficult job at hand.

Several have complained privately to Handelsblatt about his poor crisis management skills. Germany’s Manager Magazin, a weekly, reported without citing its source that Mr. Piëch, the VW patriarch, may be trying to fill a power vacuum at Volkswagen headquarters in Wolfsburg.

 

VW CEO Matthias Müller reportedly was forced to apologize to his board this week for a disastrous public relations trip to the United States, where he was criticized for seeking to minimize the German automaker's role in a global emissions-rigging scandal.

 

Mr. Piëch met last week with Tesla founder Elon Musk -- supposedly to speak about the future of the auto industry.

Serious questions are clouding Mr. Müller's future as VW CEO.

By picking Mr. Müller to save the company, did VW’s supervisory board select someone who was not up to the task? Was the jump from head of subsidiary Porsche to the entire Volkswagen empire too much to ask, like going from mayor to chancellor? Are Volkswagen’s big shareholders, the Porsche and Piëch families, still behind him?

Without a clear direction from the top, a power struggle has erupted in Wolfsburg between Mr. Müller and VW labor chief Bernd Osterloh, who is blocking changes not in the interest of VW's powerful union workforce.

VW's unions wield unusually strong influence at Volkswagen because their interests are typically backed by the state of Lower Saxony, where Wolfsburg is based, which holds a direct 20-percent ownership stake in the automaker.

Despite attempts by European lawmakers in Brussels to force Germany to roll back its so-called "VW Law'' and end the government's holding, Germany has beaten back the foray from the European Commission.

But now, ironically, the country is paying for the decision through the loss of image and sales generated by VW's "Dieselgate'' scandal, which studies have shown is beginning to tarnish the quality of German manufacturing in general.

Already with a weakened hand, Mr. Müller is struggling to keep the unions in check.

But even he, the chief executive, may lack the power to do so.

 

VW Car Sales Moderate Effect-01

 

Last week, Mr. Osterloh openly opposed Mr. Müller’s plan to appoint Louis Freeh, the former head of the U.S. Federal Bureau of Investigation, as a troubleshooter for the German automaker in the United States.

Mr. Freeh, who has a reputation as an above-board, honest protector of the public, helped Daimler emerge relatively unscathed from a bribery scandal in the United States. But its unclear whether VW will get to use his talents.

Battling VW’s works council just for the right to do so – something no U.S. CEO would ever have to do – will cost Mr. Müller time and energy.

German business and political leaders, meanwhile, publicly express deep concerns about Volkswagen’s precarious predicament. But the Social Democrats, junior partners in Angela Merkel's ruling coalition, are fearful of alienating their labor base, which is already shrinking as jobs go abroad.

German businesses inside and outside the auto sector are getting worried.

“Everyone who is observing naturally has general concerns over how VW is going to emerge from this crisis,” according to the Federation of German Industries, the country’s top trade association, known by its German acronym BDI. The entire German business community, according to BDI, must take an interest in ensuring the situation doesn't spin out of control.

Daimler Chief Executive Dieter Zetsche is also on edge. As a rule, Mr. Zetsche does not criticize his rivals. But at the company’s New Year’s party in Berlin, he said, “With the VW affair, unfortunately there’s nothing else for us to do.” The scandal is impacting the entire German auto sector.

After the VW scandal, one executive at a big German auto parts maker said, investments in diesel technology no longer make sense because diesel no longer has a future. “Dieselgate is accelerating the transition to electric mobility – and Germany is not prepared for that,” the person said, requesting anonymity because he works in the industry.

Many German auto parts makers are deeply entwined with the fate of Volkswagen since they fill their factories with orders from VW and its Audi, Skoda, Seat and Porsche brands. Volkswagen is the largest customer of major German companies such as Thyssen-Krupp, Continental and Bosch.

 

 

VW’s impact, however, stretches far beyond Germany’s borders. The company sustains entire regions in Eastern Europe and employs thousands in Russia, Brazil and China.

This explains the breadth of concern about the future of the company, which is bracing for an enormous financial blow. No one knows exactly how much VW’s transgressions will cost the company.

Maximum penalties levied by U.S. authorities could run up to $50 billion. On top of that are unknown sums VW may pay to car buyers and investors taking the company to court, and the costs associated with fixing around 11 million cars around the world and additional fines.

After hearing media speculation about possible penalties in the range of $90 billion, a shocked Chancellor Merkel picked up the phone and called Mr. Müller. He told her the number was pure speculation and VW was not facing an existential crisis, government sources told Handelsblatt.

But he did concede to the daunting technical challenges ahead.

For now at least – despite internal company strife, public relations blunders and questions over his ability to navigate the company out of its crisis – Mr. Müller will remain at the helm of a firm where he built a career over four decades, starting as a machinist at Audi.

During a recent meeting of supervisory board on Tuesday, there was no discussion of replacing Mr. Müller after only 120 days as chief executive. Instead, under the watchful protection of Mr. Piëch, Mr. Müller is being given the opportunity to learn from his mistakes.

Like the Legend of Le Mans himself, Mr. Müller has “gasoline in his blood.” But if he’s going to lead VW out of its crisis, he is going to have to better anticipate curves ahead, and improve his navigational skills to keep Germany's biggest industrial company on the road.

 

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Sven Afhüppe, Martin Buchenau, Hans-Jürgen Jakobs, Martin Murphy and Christian Schnell wrote this article. Mr. Afhüppe is editor in chief of Handelsblatt. Astrid Dörner, Markus Fasse and Klaus Stratmann also contributed to this article. To reach the main author: [email protected]