Ed Wallace

Volkswagen’s Game of Thrones Pt. 3

It’s when they’re facing the greatest financial peril that the two Porsche family clans seem to get along best, and 1993 was just such a time. The year did not start well for the Volkswagen Group; massive losses at Porsche dictated a new CEO, Wendelin Wiedeking, while Ferdinand Piech would take the reins at the VW Group. Things were so bad that Piech quickly instituted huge pay cuts and three-day workweeks just to keep his VW workforce intact. He stole a top executive from GM to fill in a weak spot over at Audi; and now he’d set his sights on the man he wanted beside him while he remade Volkswagen into a worldwide automotive powerhouse.

Ignacio Lopez was one of those unique, brilliant and ruthless individuals who comes along from time to time in the automobile industry. His jump to the big time came when he physically tore up parts contracts at GM’s Opel division in the 80s, demanding and getting far lower prices and better quality from parts manufacturers.

GM Chairman Jack Smith liked what he saw in Lopez, liked how quickly he had saved Opel untold millions in parts expense. So he brought him to Detroit where, in 1992, Lopez slashed $1.1 billion from GM’s parts bill; with estimated savings coming in 1993 of another $2.4 billion. Jack Smith gave Lopez full credit for stopping the financial bleeding at GM.

Disastrous Hypocrisy

But General Motors wasn’t the only automobile company that nearly failed in the early 90s as a direct result of the deregulation of large parts of our banking and Savings & Loan systems — which consequently failed — and the ensuing recession. VW’s newly installed CEO Ferdinand Piech also read the business media, and he decided to hire Ignacio Lopez away from GM as his second in command. And he did.

It must have been embarrassing for GM’s Jack Smith, who called a press conference to announce that Lopez was not going to join VW, but would take over as head of GM North America. Instead he had to tell the press Lopez had flown the coop an hour earlier — to Germany.

Lopez had taken a number of his closest GM coworkers with him; later a court would determine that as many as 40 former Opel executives bailed to work with Lopez at VW. But then there was the matter of the GM documents, corporate secrets actually, that Lopez also took with him to VW. That theft would start lawsuits and criminal investigations on two continents.

Things got so bad in the media that Piech tried to legally muzzle Germany’s Der Spiegel from publishing its investigative reports on this fiasco. Four years later, Piech was finally forced to apologize and surrender by forcing Lopez to resign, pay $100 million to GM and agree to purchase $1 billion worth of parts from GM companies over the next seven years. Of course that last part didn’t mean much; VW was already purchasing $300 million worth of parts annually from GM-owned parts suppliers.

But the point is clear. Had Piech hired someone to run VW who in turn had hired a person and, as a result of that hiring, immersed VW in four years of legal hell culminating in a $100 million peace offering to end the litigation, Piech would have fired that CEO. But Piech wasn’t finished doing things that he would have fired anyone else for doing.

The Last Straw

It was Piech, for example, who purchased Rolls-Royce and Bentley — only to discover that the legal rights to the Rolls-Royce name belonged to the Aerospace Company of the same name. And Rolls-Royce Aerospace, famous in its own right, refused Piech the right to use it. They forced him to agree to let BMW assume the rights to Rolls-Royce automobiles and that name, while VW carried on building the Bentley brand.

However, the man who had bested Piech at BMW for Rolls found himself unemployed because of his disastrous purchase of Rover, Land Rover and Mini in 1994. That would be Bernd Pischetsrieder. Well, Piech brought Pischetsrieder on board to take over at Volkswagen in 2000, and here the former head of BMW seemed to have done a fairly decent job.

Most credit Pischetsrieder with moving Audi even further upscale during his tenure, while continuing to improve VW’s quality and working hard to cut billions out of their production costs. But, as they say, that’s where it all falls down. Because to get to the cost structure needed to make VW competitive, one has to anger Volkswagen’s very powerful unions.

Everything seemed to come to a head in 2006, when Piech simply said he was distancing himself from Pischetsrieder; in Germany Piech’s poor opinion could and did end your run at the top of Volkswagen. So in comes Wolfgang Bernhard.

A former bigwig with Mercedes and then Chrysler, Wolfgang — widely believed to be the man who gave us the Chrysler 300 — is young, smart beyond belief, and blessed with Hollywood good looks. And car dealers absolutely love this kid, as they’ve never loved an automobile executive in the history of the car business. Oh, and he simply picks up where Pischetsrieder has been, cutting costs at VW. That’s when Piech says something to the effect that he’s distancing himself from Bernhard — and he, too, is gone.

Martin Winterkorn, the current CEO of VW, replaced him. Winterkorn was also in the process of trying to cut $5.4 billion in structural costs from his company’s expenses when, dare I say it? Piech told Der Spiegel he was distancing himself from Winterkorn. That set off the chain of events that finally ended his career at his family’s firm.

The Walking Dead?

It would be impossible to list all the huge errors in judgment Ferdinand Piech made that cost his company billions of dollars. But in balance, he and the people he brought on board didn’t just save VW, they also made Audi and Porsche what they are today. It is not an overstatement to say that the VW Group is the world’s second largest automobile manufacturer simply because Piech willed it into being. The problem is that, although he never saw his own weaknesses, he could not handle dealing with the weaknesses of the people around him. And so, after a lifetime of huge mistakes and world-changing accomplishments, he was thrown to the curb.

Already he’s complaining about the replacements the board picked to fill the seats he and his wife vacated. He’s threatened to sell his $1.8 billion in stock as an act of vengeance, although that’s really a threat against the rest of the Porsche Piech clan unless they gather and do his bidding one more time. (If a large block of the family’s shares fell into outsiders’ hands, the Porches and Piechs would no longer have 52 percent of the corporate votes.)

When I was an extremely young sales manager, more prone to wear my emotions and frustrations on my sleeve, my boss told me, “You don’t fire people because you simply don’t like them. No one has the right to damage someone else’s life for some personal grievance.” He was right; having the power over someone’s career also gives one a great responsibility, not to end it, but to find ways to advance it. Piech was never taught that lesson.

In the end, Ferdinand Piech died by the same sword he so loved to use on others — on men who actually made far fewer mistakes at VW than he did. But just because the old king has been deposed does not mean he isn’t scheming with his family and knights to try and take the kingdom back one more time.

© Ed Wallace 2015

Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism. He hosts Wheels, 8:00 to 1:00 Saturdays on 570 KLIF AM. E-mail: wheels570@sbcglobal.net; read all of Ed’s work at www.insideautomotive.com.