VW: Pischetsrieder a mistake?

Author: Christiaan Hetzner

Volkswagen's controversial chairman, Ferdinand Piech, acknowledged on Thursday to making a rare mistake in anointing Bernd Pischetsrieder his successor as chief executive five years ago.

Addressing shareholders who demanded an explanation for the board coup in November that sacked Pischetsrieder, Piech expressed regret for not installing top lieutenant Martin Winterkorn as CEO in 2002 due to their friendship.

"At the time, I hesitated to name someone as my successor who was professionally and personally close to me. I recognised too late that I made the wrong choice, and I endeavored to correct my decision in November," the chairman told investors at their annual meeting.

With the Pischetsrieder era now declared a mistake, Piech signalled that former Audi boss Winterkorn, who became group CEO at the start of this year, would resurrect his long-lost legacy.

"I am certain that after the nine years when I was permitted to successfully work for VW, things will begin again to sharply improve with this year," the 70-year-old explained.

While Piech is widely credited with saving VW in 1993 when he took over as CEO, some investors and analysts have attacked Piech for driving Volkswagen into a ditch in his final years behind the wheel and for his autocratic manner as chairman.

Piech, who is set to be re-elected chairman after silencing his boardroom critics, is seen as responsible for sinking billions into a failed luxury strategy and coddling VW's German organised labour, allowing wages to spiral out of control.

Ultimately Pischetsrieder and his ally Wolfgang Bernhard were forced to restructure the company by slashing labour costs and starting to eliminate 20% of its German staff. They also cleaned up after a bribery scandal they inherited that was spawned by a system of paying off senior labour leaders.

Hermes attack

It was their largely their accomplishments in streamlining a bloated organisation that helped boost underlying operating profit by half last year and convince analysts that a €4bn net improvement in earnings before tax in the four years through 2008 was realistic.

Nevertheless, Piech asserted that the board - half of whose members are labour representatives loyal to him - had concluded Pischetsrieder was incapable of running VW six months after unanimously voting to extend his contract to April 2012.

On Wednesday, the carmaker reported first-quarter operating profit before special items surged nearly 60% to €1.09bn thanks in part to restructuring gains retained from the years of careful financial management.

Although criticism of Piech's job as chairman was tepid compared to last year's AGM, British pension fund Hermes still called upon the minority shareholders to send the chairman a message that his management style was damaging the company.

"We will vote against the re-election of Mr Piech. Due to his conflict of interest, Mr Piech's continued membership on the supervisory board is not in the interest of Volkswagen," Hermes representative Hans-Christoph Hirt said.