Volkswagen ready to roll behind new leader's ideas

By David McHugh
Associated Press

Volkswagen chief Ferdinand Piech yesterday drove the company's experimental 1-liter car to the annual shareholders meeting in Hamburg, Germany. Piech, who is to be succeeded today by Bernd Pischetsrieder, helped envision the car and bring it to reality. The two-seater can reach a maximum speed of only 72 mph. But what it lacks in speed, it makes up for in efficiency. It gets more than 200 miles per gallon of diesel fuel. Associated Press

The 130-mile trip from VW headquarters in Wolfsburg to Hamburg marked the end of a nine-year run that shook up Europe's largest automaker and left successor Bernd Pischetsrieder with a tough act to follow.

When Piech took over in 1993, the company was losing money. Last year, net profit was $2.59 billion and the stock is at $51.09.

During the test drive of the literally named 1-Liter Auto, designed to get 100 kilometers per liter of fuel — or 239 miles per gallon — Pischetsrieder rode in the back seat.

As of today, he's in the driver's seat, moving into the precarious position of running a company that is thriving but facing strategic issues critical to maintaining its market position. There is ferocious competition for shares of flat markets in Europe and the United States, and that has pushed prices lower. Profits can grow only if costs can be cut using more efficient manufacturing, and market share must be gained with ever-new designs.

Last month, Pischetsrieder announced that slowing sales would depress profits in the first three months of this year, although he didn't give a figure.

"They're facing the same problem everyone else is," said David Cole, director of the Center for Automotive Research in the United States, pointing to the worldwide excess of production capacity over sales. "They are confronted with an industry that has too much capacity worldwide. The competitive environment is going to continue to be a challenge."

Piech is a member of automotive nobility — and ran Volkswagen with an autocratic flair. His grandfather, Ferdinand Porsche, was an early 20th-century auto pioneer and helped plan the factory that later made Beetles; his father, Anton Piech, ran Volkswagen during World War II, when it built military vehicles, and his uncle, Ferry Porsche, founded the high-end sports car maker.

As chief executive, Piech rammed his ideas through even against resistance within his company. He slashed the number of vehicle platforms from 16 to four, cutting costs through extensive sharing of parts among models. He ignored doubters and re-created the 1960s Beetle as the New Beetle, a hit in the key North American market.

He burnished and expanded the company's brands through the 1998 acquisitions of luxury carmakers Rolls-Royce, Lamborghini, and Bugatti, making one massive blunder when BMW bought the rights to the Rolls-Royce name out from under him for only $60 million.

He also hired Pischetsrieder, dumped as chief executive of BMW in 1999 after a failed merger with Britain's Rover. BMW sank $4.1 billion into the company but couldn't turn it around and sold it for a nominal price.

Style is probably one thing that will change under the new boss. Many view Pischetsrieder as more of a team builder than the my-way-or-the-highway Piech — "a transfer to someone more like a coach than a king," Cole said.

Many analysts said they also think Pischetsrieder, though a highly experienced manufacturing engineer, will put new emphasis on marketing.

One reason is the challenge created by Piech's achievement in combining platforms. "European consumers are well aware they can go buy a Skoda Fabia and actually they get a VW Golf," said analyst Graeme Maxton, a principal in the Autopolis analytical firm. "One part of the group is cannibalizing sales from the other part."

The answer, analysts said, is in distinguishing models more clearly, both in how they're made and styled and in how they're marketed — while still sharing as many parts as possible.

If Pischetsrieder wants advice, he won't have far to look. Piech is becoming chairman of the company's oversight board, a powerful panel in German industry that reviews key decisions and appoints the management team.

"My sense is, he's going to still be there in the background," Maxton said. "Not actually in charge, but pulling the strings — if he needs to."