VW Case - Part C

Volkswagen über alles
Part C: May 15, 2015 — Relief, euphoria, or else?
For sure the news received by Martin Winterkorn from Volkswagen Group of America,
the US subsidiary, became worrying. EPA and CARB, the certifying bodies for the US
and California respectively, were threatening to refuse their green light for selling 2.0 l
“clean diesel” next model-year cars of all VW brands73.
However, the Volkswagen CEO could also savour the moment. Never had he held so
much power. Not only was Martin Winterkorn one of the best-paid CEO in Germany,
with a package of over 15 million euros74, but he had freed himself from the influence
of his mentor Dr. Ferdinand Piëch.
Reasons for pride

Since 2014, cars under the Volkswagen and Audi brands were running with an
enhanced 2.0 l engine. The EA-288 far outperformed the “miracle” EA-A89. It was
more powerful – 150 HP instead of 140 – and had a better torque for swifter
acceleration. From an industrial standpoint, the EA-288 now fitted neatly with the
modular platforms strategy.
Naturally the new range of cars complied simultaneously with European (Euro 4
through 6) and American (Tier II) pollution regulations. As financial analysts
complained about Volkswagen AG’s low profitability compared to rivals, substantial
economies of scale were expected.75 In fact, net profit had increased by 20% in 2014
over 2013 at 10,8 billion euros.
Revenue was at a record high, passing the 200 billion-euro mark. And for the first time
in history, Volkswagen sold more than 10 million cars in the world, close to 900,000 of
which in North America.76
Chart 4. Volkswagen AG Performance 2010-2014
At a distance 12 250
Thus the way the 10 200
Volkswagen group, its 8
150
10 brands combined, 6
executed the plans 100
4
provided Martin
50
Winterkorn with 2
abundant reasons for 0 0
pride, perhaps 2010 2011 2012 2013 2014
euphoria. He could Revenue (€bn, right scale)
also pride himself in Production (m cars, left scale)
Part C:
73 United States District Court, Eastern district of Michigan, & Southern division, 2017
74
Volkswagen AG, 2014
75
Dieselnet.com - “news: Volkswagen introducing new EA288 diesel engine.” [Online]. Available:
https://www.dieselnet.com/news/2013/08vw.php
76
Volkswagen AG, 2014
Solvay Brussels School of Economics & Management — Baillet Latour Chair on Error Management 16
the way he had outmanoeuvred Ferdinand Piëch over the last few weeks.
The feud of the two strongmen of Volkswagen had culminated in early April, when
Chairman Piëch had dropped a bombshell in the Spiegel newsmagazine. “I am at a
distance from Winterkorn”, Piëch, now 78, said.
Martin Winterkorn knew what it meant. Chairman Piëch undercut the legitimacy of his
former protégé by a challenge in public he wouldn’t bother to elaborate on, probably
because he was tired of him, his aspiration for more autonomy and his potential
ambitions as a successor. Winterkorn couldn’t be surprised. In the past, Piëch had
gotten rid of at least two CEOs, including Pischetsrieder in 2006, in approximately the
same way, by questioning them personally in the media. Chairman Piëch is an “expert
in corporate defenestration”, a columnist commented in the Financial Times.77
But this time was different. In part thanks to the performance he had achieved,
Winterkorn had secured enough support from other members of the supervisory board.
He could feel confident. Piëch’s public outbreak of distrust was met coldly by other
stakeholders. Wolfgang Porsche, chairman of the supervisory board at Porsche SE,
commented that his cousin’s statement was only a “personal opinion, whose content and
substance was not agreed with the family”. Bernd Osterloh, chief representative of
employees in the supervisory board where, according to German law, labour holds half
the seats, expressed his support to CEO Winterkorn. The Land of Lower Saxony was on
the same line.
Sigh of relief
It all ended after just a couple of weeks. On April 25, Ferdinand Piëch resigned from the
supervisory board of Volkswagen AG along with his wife Ursula.78 Directors
recognized Martin Winterkorn as the “best possible CEO of Volkswagen” 79 and
suggested his mandate be renewed for the next three years. In early May, the
shareholders general meeting acknowledged the Piëchs’ departure, elected two new
directors representing Porsche SE, and named an employee representative chairman ad
interim. For now Winterkorn could have a sigh of relief.
Yet there was this situation in North America. What did it mean? Was there possibly
more than met the eye? How come Volkswagen could not convince the environment
agencies? What might be the source of the issue? Was it inside VW? Then how could he
not know about it? The top management had set up task forces on the topic. What else
could Martin Winterkorn do?
End of Part C
77
Milne, 2015
78
Bryant, 2015c; Volkswagen AG, 2015
79
Bryant, 2015a
Solvay Brussels School of Economics & Management — Baillet Latour Chair on Error Management 17

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Volkswagen über alles

Part C: May 15, 2015 — Relief, euphoria, or else?

Reasons for pride

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