Former BMW exec Herbert Diess took over as VW brand boss on July 1st.
After a bruising internal fight for control of the company, Volkswagen management is putting on a show of solidarity, hoping to calm internal jitters and, it would seem, skeptical analysts and investors.
The once-powerful Chairman Ferdinand Piech was pushed to resign in April in a dispute with his likely successor, CEO Martin Winterkorn. In turn, the chief executive is putting in place a major realignment that will effectively divide VW AG into a series of near-autonomous holding companies.
The biggest will be run by Herbert Diess whom Winterkorn personally poached from rival BMW. In a Q&A published on the company’s internal website, Winterkorn and Diess outlined their plans for the future.
For one thing, Diess said he plans to largely follow the existing strategy already laid out for the Volkswagen brand, noting “We will continue our efficiency program to make Volkswagen fit for the future.”
(VW has big plans for its Tennessee plant. Click Here for more details.)
While the maker’s first-quarter earnings rose 19%, to $3.23 billion, its margins have been short of what analysts and investors have been calling for. Despite cost-cutting described by the German maker as “in the low triple-digits millions,” Parent Volkswagen AG has been seen as having much too bloated a cost structure. It has also been faulted for being slow to respond to changing market trends.
The new plans call for the VW brand, in particular, to bear much of the cost-cutting burden. Winterkorn’s goal is to boost its earnings by 5 billion Euros, or $5.5 billion at current exchange rates, by 2017.
(VW hammered by sudden slump in Chinese car market. Click Here for more.)
The 57-year-old Diess, analysts have suggested, is a good choice to pursue this effort. At BMW, he spent time as head of procurement and purchasing – a job that also included implementing new austerity measures.
Diess, who took his new post on July 1, also made it clear he stands behind Winterkorn’s big push into new technologies, both for powertrain and in-car applications such as autonomous driving. Volkswagen was slow to the party when it came to adding hybrids to its line-up, for one thing, but is now rolling out an array of battery and other advanced drivetrain systems.
“My aim at VW is to not only help shape this change; we want to be in the lead of this exciting development,” Diess told employees in his Q&A.
But even here, he stressed, cost discipline will be critical, noting, “The competition will get harder. To master these challenges, we need a solid financial backbone.”
(VW delivers strong earnings, but there are problems buried in the balance sheet. Click Here for the story.)
While the battle between Winterkorn and Piech has created some serious, ongoing repurcussions, Diess made it abundantly clear he knows who he owes his favors to.
“I highly value Herr Winterkorn. Under his leadership the company and the brand developed greatly,” Diess said in the Q&A. That said, he also acknowledged the powerful role that workers play under the German management system, making it clear that he intends to work closely with “entire Volkswagen team.”
Other sources are reporting that Piech recruited Diess from BMW to replace Winterkorn but that Piech was dismissed before Diess agreed to move to VW.
VW could save billions by eliminating the foolish pet projects such as the Phaeton which is a wonderful car but far too expensive a model to sell with a VW name plate.
Many may recall that once upon a time VW poached a GM executive bean counter to cut costs and it almost ended up destroying the company as quality and customer satisfaction hit the floor. While there are generally always means to cut cost in large organizations, the question is if this is really the right thing to do or would it be better to increase margins via improved customer satisfaction? Customer satisfaction could eliminate sales incentives, reduce warranty costs, reduce marketing costs, etc. for every new conquest sale required to compensate for all of the lost customers who departed due to an unpleasant ownership experience.
Any damn fool can cut cost and damage a business. We see this daily from many major companies. Then they spend more money to try and rebuild the company after their cost cutting hurt the company.