“THE SUPERTANKER is picking up speed,” declared Herbert Diess, boss of Volkswagen (VW), presenting future plans to investors and the press on March 12th at the company’s headquarters in Wolfsburg. A fast move by the giant carmaker into electric vehicles (EVs) will become quicker still, he vowed. His promise of 70 new electric models by 2028, rather than 50 as previously pledged, and 22m EVs delivered over the next ten years is the biggest commitment to battery power by any car company. Mr Diess is taking on the tough task of turning a supertanker around.
VW’s investors have long grumbled that its vast bulk has not delivered high profits or helped its share price. Mr Diess wants to raise both. Before the “dieselgate” emissions scandal the firm’s bosses bet on scale. VW made nearly 11m vehicles last year. Putting growth before profits also suited its mighty unions, for which preserving jobs is paramount. As a result, VW disproportionately relies on its two premium brands, Audi and Porsche, for earnings. Productivity at its mass-market brands is woeful, and that in a segment where margins are anyway slender.
Any attempt to change the balance has met with stiff resistance. Workers occupy half the seats on the firm’s supervisory board and can usually count on the state of Lower Saxony, which owns 12% of VW, to back them. The board can block job cuts and other unwelcome changes. Nearly half of VW’s 660,000 employees are in Germany but the company has been unable to shift manufacturing to lower-wage countries, as rival carmakers have done. In 2017 unions successfully opposed the mooted sale of Ducati, a small Italian motorcycle-maker that is hardly core to VW. “Labour dominates the firm,” says Arndt Ellinghorst of Evercore ISI, an equity-research firm, and corporate governance is “a catastrophe”.
Mr Diess arrived from BMW three years ago with a reputation as a cost cutter and took over as boss last year with a mandate from the Porsche and Piëch families, which control just over half the firm’s voting rights, to take on the unions. On March 4th Wolfgang Porsche, spokesman for the families, criticised VW’s “fossilised structures” and bemoaned labour blocking progress. Mr Diess explained his “EV heavy” vision as a broad attempt to cut global emissions of carbon dioxide as well as meeting extremely tough European emissions targets. But it may also provide an excuse to slash the labour force. Mr Diess said lay-offs would be unavoidable as the simpler mechanics of EVs require 30% less “effort” to manufacture than a petrol-powered car.
Another jerk of the supertanker’s tiller that will upset VW’s unions is Mr Diess’s new focus on shareholders. VW is introducing a scheme linking incentives for senior managers to the firm’s share price. Although on March 13th VW postponed plans to spin off its lorry-making division, the company has promised more details on other restrucuring efforts, such as cutting costs and unlocking the firm’s “huge conlgomerate discount”, in the summer.
Tales abound of tensions between Mr Diess and Bernd Osterloh, VW’s pugnacious labour leader. Mr Osterloh has said that management should focus on its mishandling of new emissions tests in Europe, which delayed new models and cost VW €1bn ($1.1bn), rather than changes to the workforce. If Mr Diess is serious about leading the car industry’s charge on electrification, the latter will be unavoidable.
This post was originally posted at https://www.economist.com/business/2019/03/16/vws-newish-boss-is-going-full-steam-ahead-with-electric-cars.