Volkswagen Management Turmoil Won’t Help Coronavirus Recovery

As if Volkswagen didn’t have enough problems as it attempts to extricate itself from the coronavirus morass, the issue of its unsatisfactory system governance is rearing up again.

CEO Herbert Diess lost his other job as head of VW brand this week after a boardroom scuffle when he was forced to apologise over an accusation he made against fellow board members over a leak of crucial information.

Investors have long worried that VW is held back by its weird, and unwieldy, management structure, where unions control half the votes on the 20-seat supervisory board. The balance is held by the state of Lower Saxony with two seats and often they side with the unions.

Diess was replaced as head of the VW brand by Ralf Brandstaetter. Diess apparently apologized at a supervisory board meeting this week for saying it had leaked news of software failings which had delayed the introduction of its first vehicle designed from the ground up to be electric, the ID.3. There were also problems under Diess’s watch from a video perceived as being racist, and problems with the launch of the latest version of the best selling little family car the Golf 8.

VW was able to say this was in fact good news, because Diess could now concentrate all his efforts on his job of leading the entire operation, including brands like Audi, Porsche, Bentley, Lamborghini, SEAT and Skoda.

Professor Ferdinand Dudenhoeffer, director of Germany’s Center for Automotive Research (CAR) said the unions moved against Diess, who is in the middle of a big program to cut costs in Germany.

No room for union revolts

“In a very challenging time, VW has its own leadership crisis while transforming itself into an electric car company and the global crisis triggered by the coronavirus require all management strength and should not leave room for works council revolts,” Dudenhoeffer said.

Reuters Breaking Views column said the decision for Diess to give up the VW brand job made sense.

“That’s arguably the right decision. There may be a subtext to the spat. Diess has provoked unions, which account for half the supervisory board seats, because he wants deep job cuts as the carmaker prepares to launch its first mass-market electric vehicle – the ID3 – to compete against Tesla’s Models 3 and Y,” Breaking Views columnist Christopher Thompson said.

“But if Diess succeeds in hitting his ambitious target of selling three million e-cars by 2025 – one-fifth of VW’s projected total sales – then the company will probably need fewer industrial engineers as it switches away from internal combustion engines,” Thompson said.

That ambitious target for electric car sales for 2025 is looking less and less likely, as top forecasters insist the global sales figure is likely to be closer to 11% than 20%.

Investor despair

VW’s has made strong profits, despite paying huge sums because of the dieselgate scandal. Investors have long despaired of the company’s future because competitors have structures more conducive to efficient working.  

For instance, Toyota of Japan sells roughly the same amount of vehicles globally as VW, with a workforce about half the size.

CAR’s Dudenhoeffer doesn’t expect much progress on the management front.

“The world’s largest carmaker (VW) is going into another self-inflicted crisis. The causes are an over-powerful works council, poor cost competitiveness in the VW plants in Lower Saxony (Wolfsburg), and a weird corporate constitution,” Dudenhoeffer said.