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http://www.nytimes.com/2004/08/29/business/yourmoney/29vw.html
Behind VW's Wheel, With Brick Walls Ahead
By MARK LANDLER
Published: August 29, 2004
FRANKFURT
THE most famous thing that Bernd Pischetsrieder has ever done with a car, he readily acknowledges, is to crash it. In 1995, Mr. Pischetsrieder, then the chairman of BMW, took his company's McLaren F1 - an exotic $1 million sports car - home for the weekend. Driving on a serpentine road in the Bavarian countryside with two passengers, he lost control of the car, which rolled over several times and came to rest in a field. His companions had only minor injuries, but the McLaren was wrecked.
Mr. Pischetsrieder would never condone reckless driving, of course, but he is all for taking chances on the job. "If you don't take risks in our business, you better resign immediately," said Mr. Pischetsrieder, 56, who is now taking the risk of his career as the chairman of Germany's largest carmaker, Volkswagen.
To say Volkswagen is heading for a crash only modestly exaggerates the gravity of its problems: plummeting profits; eroding market share in the United States; new headwinds in China, its fastest-growing market; and the troubled introduction of the latest Golf, its linchpin model. All of those have conspired to make Mr. Pischetsrieder's first two years at the company a bone-jarring ride.
Next month, he will face off against Volkswagen's powerful union in what people here predict will be an epic confrontation. The company wants to freeze the wages of 103,000 workers and make its factories more efficient by loosening its notoriously rigid work rules. The union, demanding job security and a 4 percent pay raise, is girding for war.
"Whether there will be a battle or not, I don't know," Mr. Pischetsrieder said in a recent interview. "One thing is for sure. If we want to have 30 percent lower wage costs in six years, we have to start now."
A courtly man whose goatee and trademark Cuban cigar lend him an old-world panache, he seems an improbable choice to guide Volkswagen through these nasty times. Some people wonder whether his tenure is destined to end the way his last job did: he was ousted from BMW in 1999, after making a ruinous acquisition of the British carmaker Rover.
"People in the industry are starting to ask whether there is a Pischetsrieder curse," said Graeme Maxton, an analyst at Autopolis, an industry consulting firm in London. Under his predecessor, Mr. Maxton noted, Volkswagen rode a booming global economy to rich profits. Then, after Mr. Pischetsrieder took over from Ferdinand K. Piëch in April 2002, "the bottom fell out of the car market, China slowed down and the new models didn't work."
"My belief is that he was handed something of a poisoned chalice," Mr. Maxton added.
Mr. Pischetsrieder is diplomatic about Mr. Piëch, a brilliant, driven engineer who is credited with pulling the carmaker out of its last major crisis in the 1990's. He remains enormously influential as the chairman of the company's supervisory board.
Still, Mr. Pischetsrieder has begun to distance himself from his predecessor's autocratic style and some of his decisions - particularly a costly campaign to vault Volkswagen into the luxury market with the $75,000 Phaeton. "If you want to establish a brand in a high-price segment, the last thing you would do is to do it with a saloon," he said, using the British word for a sedan. Owners of luxury sedans like those from Mercedes or BMW, he said, are unlikely to trade for one from the maker of the Beetle.
Mr. Pischetsrieder delivers this critique with a twinkle in his eye and the hint of a British accent - a legacy, former associates say, of his days as BMW's representative in South Africa. In an industry not known for its savoir-faire, he has earned the reputation of being a man of culture.
ROBERT A. LUTZ, the vice chairman of General Motors, who once negotiated a joint venture with Mr. Pischetsrieder to produce engines, said his balanced personality has been a stabilizing force for VW, which is based in Wolfsburg, Germany. "You need to be a car guy to create great, compelling cars," Mr. Lutz said. "But you also need the financial acumen of a responsible executive to know when it's time to stop. He has that balance."
So far, Mr. Pischetsrieder has been busy just coping with the extravagant legacy of Mr. Piëch, at a time when extravagance has gone out of fashion. In March, he announced a plan to double Volkswagen's cost-cutting target to 4 billion euros ($4.84 billion) by 2005, which would involve cutting 5,000 jobs. He dismissed the head of sales and marketing, Robert Büchelhofer, in an attempt to stem eroding sales.
A mechanical engineer who prides himself on seeing the parking lot as well as the cars, Mr. Pischetsrieder has delegated decision-making in a company that used to be run almost like the boss's personal fief. He does not blame Mr. Piëch for his command-and-control style, he said, because Volkswagen needed drastic action when he took over. "You cannot care about product life cycles when you dearly need a new Golf and a new Passat simultaneously," he said. (Mr. Piëch declined a request for an interview.)
To be sure, Volkswagen's problems result from more than its own missteps. The auto market has slumped worldwide in the last few years, nowhere more than in Volkswagen's home country. Car sales in Germany fell 7 percent in July, versus the same month last year. Registrations of cars made by Volkswagen, which include Audi and Seat, fell 14 percent.
Volkswagen has been hobbled further by the rise of the euro against the dollar, which has hurt its sales in the United States and other markets pegged to the dollar. The company aggravated its trouble by not hedging its currency exposure until after other German carmakers did.
In China, where Volkswagen has long been the dominant foreign player, its franchise is coming under attack, as General Motors, DaimlerChrysler and other rivals ramp up production. In June, G.M. for the first time sold more cars in China than Volkswagen did, forcing VW to cut its prices. "Volkswagen in China is like Ford Motor was in the United States in the 1920's," said Garel Rhys, director of the automotive industry research group at Cardiff University in Wales. "In 1920, Ford had 65 percent of the U.S. market. By 1929, G.M. had passed them by."
Historical parallels like that would give most auto executives heartburn. But if Mr. Pischetsrieder is feeling the burden of all these troubles, he isn't showing it. Puffing serenely on his aged Partagas, he said Volkswagen had bottomed out in the first quarter this year.
In July, the company cut its projected operating profit for 2004 to 1.9 billion euros, before extraordinary charges, from an earlier forecast of 2.5 billion euros. Mr. Pischetsrieder said that Volkswagen might beat the reduced target, but that he expected little improvement this year or early next year.
Volkswagen's problems are most apparent in the disappointing introduction of its new Golf. Responding to criticism that the latest version of this old favorite was too pricey, Volkswagen has thrown in free air-conditioning. It sold 278,000 of the cars in the first half of the year, making the Golf again Europe's best-selling model - a title it lost briefly to the Peugeot 206.
Having tamped down expectations, Mr. Pischetsrieder can turn to the business of retooling Volkswagen, a far-flung empire with 336,000 employees, 45 assembly plants in 18 countries and $104 billion in annual sales. In addition to VW and Audi, its brands range from the proletarian Skoda to the rarefied Bentley, Lamborghini and Bugatti, the latest model of which costs $1 million and has a 1,001-horsepower engine.
Expanding Volkswagen into every niche had been one of Mr. Piëch's dreams. A descendant of the Porsche sports-car family, he focused obsessively on creating cars. That revived Volkswagen in the 1990's, when it had gotten a rap for dreary products and dubious workmanship.
But Mr. Piëch's fleet of cars eventually created problems. Volkswagen, analysts say, now has too many models in the same price range. His strategy of sharing platforms and components from Volkswagen with its sisters, Seat and Skoda, blurred the image of the individual brands. Mr. Piëch's product drive also came at the expense of sales and marketing. In the United States, Volkswagen has been hit with accusations of poor quality and erratic service on the part of its dealers. "We have some excellent dealers; we have some lousy dealers," Mr. Pischetsrieder said.
Most of all, Volkswagen's attempt to burnish its brand name - it means "people's car" in German - has been too expensive. To showcase the Phaeton, it built a $180 million assembly plant in Dresden, with shimmering glass walls, Canadian maple floors and a circular central foyer.
SALES of the Phaeton have been dismal on both sides of the Atlantic. To reduce the head-to-head competition with luxury sedans from Mercedes and BMW, Volkswagen may overhauling the car to make it more of a cross between a station wagon and a coupe. The Phaeton may be flawed, Mr. Pischetsrieder said, but the strategy is still sound. Volkswagen's upscale sport utility vehicle, the Touareg, has been a success. "The point is whether you can get an expensive car with a Volkswagen logo into the garage of a wealthy man or woman," he said. "The worst thing that can happen is that we get the product wrong."
At BMW, Mr. Pischetsrieder faced the opposite challenge. To expand into the mass market, he bought the struggling Rover, which made the Land Rover, the MG sports car and the fabled Mini, for $1.2 billion.
Mr. Pischetsrieder even had a personal tie to the Mini. His Greek-born granduncle, Sir Alec Issigonis, had designed the car. That did not save his investment, however. Rover continued to bleed money, becoming known as "the English Patient." In February 1999, Mr. Pischetsrieder lost his job. In a bittersweet coda, BMW held on to the Mini, reintroducing the car and turning it into a hip, retro brand.
People who know Mr. Pischetsrieder say the Rover experience shows both strength and weakness. He has great instincts about cars, they say, but his methodical style can let problems fester. "He is a very relaxed guy," said Ferdinand Dudenhöffer, director of the Center for Automotive Research in Gelsenkirchen. "But he takes things step by step, which can be time-consuming."
It was Mr. Pischetsrieder's credentials as a "car guy" that drew him to Mr. Piëch. The two had become acquainted while traveling with the former chancellor, Helmut Kohl. Alphabetical seating on the plane meant they found themselves next to each other.
Mr. Pischetsrieder's latest moves, however, have little to do with new models. In April, he announced a 2 billion euro deal in which Volkswagen will join investors from the Persian Gulf region to buy a Dutch fleet management company, LeasePlan. The acquisition, he said, would give Volkswagen another channel to customers. That is important, he said, in a time of diminishing brand loyalty and powerful nationwide auto dealers.
Yet the deal's most intriguing implications lie elsewhere: Volkswagen hopes to finance the purchase by selling shares to an investment fund linked to the government of Abu Dhabi, one of the seven states in the United Arab Emirates. That could make it the company's second- or third-largest shareholder, after the state of Lower Saxony and Brandes Investment Partners, an asset-management firm based in San Diego.
Mr. Pischetsrieder, still negotiating the stock price, said he would welcome Abu Dhabi as a stable investor. He prefers "long-term investors to hedge funds," he said, adding that someday, Volkswagen might even move truck production to the gulf region.
Analysts said the emergence of Abu Dhabi as a major shareholder would give the management of Volkswagen more independence from Lower Saxony. The state owns 18.2 percent of the company's shares, giving it the power to block a takeover and other major decisions.
Lower Saxony's influence is likely to be felt most in the labor negotiations. Though many officials privately applaud Volkswagen's efforts to extract a more flexible contract from the unions, they would cringe at the prospect of Volkswagen shutting down a major plant in Germany.
Mr. Pischetsrieder said he did not plan to issue sweeping threats to move production to Central Europe. Volkswagen already produces the Touareg at a giant plant in Bratislava, the capital of Slovakia, and its Audi roadster at a plant in Hungary. Persuading the rank-and-file to accept a two-year wage freeze may be more difficult. The chief negotiator for the IG Metall union, Hartmut Meine, dismissed Volkswagen's stance as exaggerated and unrealistic. "I am a strong negotiating partner," Mr. Meine said. "If there is no compromise, I am certainly in a position to call a strike."
Such rancor is almost unheard of at BMW, a smaller company with generally harmonious labor relations. Some outsiders wonder whether Mr. Pischetsrieder, having spent 26 years in those cozy confines, was temperamentally suited to make the leap to a big, messy company like Volkswagen.
The way he sees it, though, he can bring the best of BMW to Volkswagen. He knows he is part of an elite fraternity - executives who have had the chance to run not one but two major auto companies. "I didn't find anything here that I didn't know about," Mr. Pischetsrieder said, stubbing out his cigar as he headed back to Wolfsburg. "If there is anyone to blame, it would be myself."
Behind VW's Wheel, With Brick Walls Ahead
By MARK LANDLER
Published: August 29, 2004
FRANKFURT
THE most famous thing that Bernd Pischetsrieder has ever done with a car, he readily acknowledges, is to crash it. In 1995, Mr. Pischetsrieder, then the chairman of BMW, took his company's McLaren F1 - an exotic $1 million sports car - home for the weekend. Driving on a serpentine road in the Bavarian countryside with two passengers, he lost control of the car, which rolled over several times and came to rest in a field. His companions had only minor injuries, but the McLaren was wrecked.
Mr. Pischetsrieder would never condone reckless driving, of course, but he is all for taking chances on the job. "If you don't take risks in our business, you better resign immediately," said Mr. Pischetsrieder, 56, who is now taking the risk of his career as the chairman of Germany's largest carmaker, Volkswagen.
To say Volkswagen is heading for a crash only modestly exaggerates the gravity of its problems: plummeting profits; eroding market share in the United States; new headwinds in China, its fastest-growing market; and the troubled introduction of the latest Golf, its linchpin model. All of those have conspired to make Mr. Pischetsrieder's first two years at the company a bone-jarring ride.
Next month, he will face off against Volkswagen's powerful union in what people here predict will be an epic confrontation. The company wants to freeze the wages of 103,000 workers and make its factories more efficient by loosening its notoriously rigid work rules. The union, demanding job security and a 4 percent pay raise, is girding for war.
"Whether there will be a battle or not, I don't know," Mr. Pischetsrieder said in a recent interview. "One thing is for sure. If we want to have 30 percent lower wage costs in six years, we have to start now."
A courtly man whose goatee and trademark Cuban cigar lend him an old-world panache, he seems an improbable choice to guide Volkswagen through these nasty times. Some people wonder whether his tenure is destined to end the way his last job did: he was ousted from BMW in 1999, after making a ruinous acquisition of the British carmaker Rover.
"People in the industry are starting to ask whether there is a Pischetsrieder curse," said Graeme Maxton, an analyst at Autopolis, an industry consulting firm in London. Under his predecessor, Mr. Maxton noted, Volkswagen rode a booming global economy to rich profits. Then, after Mr. Pischetsrieder took over from Ferdinand K. Piëch in April 2002, "the bottom fell out of the car market, China slowed down and the new models didn't work."
"My belief is that he was handed something of a poisoned chalice," Mr. Maxton added.
Mr. Pischetsrieder is diplomatic about Mr. Piëch, a brilliant, driven engineer who is credited with pulling the carmaker out of its last major crisis in the 1990's. He remains enormously influential as the chairman of the company's supervisory board.
Still, Mr. Pischetsrieder has begun to distance himself from his predecessor's autocratic style and some of his decisions - particularly a costly campaign to vault Volkswagen into the luxury market with the $75,000 Phaeton. "If you want to establish a brand in a high-price segment, the last thing you would do is to do it with a saloon," he said, using the British word for a sedan. Owners of luxury sedans like those from Mercedes or BMW, he said, are unlikely to trade for one from the maker of the Beetle.
Mr. Pischetsrieder delivers this critique with a twinkle in his eye and the hint of a British accent - a legacy, former associates say, of his days as BMW's representative in South Africa. In an industry not known for its savoir-faire, he has earned the reputation of being a man of culture.
ROBERT A. LUTZ, the vice chairman of General Motors, who once negotiated a joint venture with Mr. Pischetsrieder to produce engines, said his balanced personality has been a stabilizing force for VW, which is based in Wolfsburg, Germany. "You need to be a car guy to create great, compelling cars," Mr. Lutz said. "But you also need the financial acumen of a responsible executive to know when it's time to stop. He has that balance."
So far, Mr. Pischetsrieder has been busy just coping with the extravagant legacy of Mr. Piëch, at a time when extravagance has gone out of fashion. In March, he announced a plan to double Volkswagen's cost-cutting target to 4 billion euros ($4.84 billion) by 2005, which would involve cutting 5,000 jobs. He dismissed the head of sales and marketing, Robert Büchelhofer, in an attempt to stem eroding sales.
A mechanical engineer who prides himself on seeing the parking lot as well as the cars, Mr. Pischetsrieder has delegated decision-making in a company that used to be run almost like the boss's personal fief. He does not blame Mr. Piëch for his command-and-control style, he said, because Volkswagen needed drastic action when he took over. "You cannot care about product life cycles when you dearly need a new Golf and a new Passat simultaneously," he said. (Mr. Piëch declined a request for an interview.)
To be sure, Volkswagen's problems result from more than its own missteps. The auto market has slumped worldwide in the last few years, nowhere more than in Volkswagen's home country. Car sales in Germany fell 7 percent in July, versus the same month last year. Registrations of cars made by Volkswagen, which include Audi and Seat, fell 14 percent.
Volkswagen has been hobbled further by the rise of the euro against the dollar, which has hurt its sales in the United States and other markets pegged to the dollar. The company aggravated its trouble by not hedging its currency exposure until after other German carmakers did.
In China, where Volkswagen has long been the dominant foreign player, its franchise is coming under attack, as General Motors, DaimlerChrysler and other rivals ramp up production. In June, G.M. for the first time sold more cars in China than Volkswagen did, forcing VW to cut its prices. "Volkswagen in China is like Ford Motor was in the United States in the 1920's," said Garel Rhys, director of the automotive industry research group at Cardiff University in Wales. "In 1920, Ford had 65 percent of the U.S. market. By 1929, G.M. had passed them by."
Historical parallels like that would give most auto executives heartburn. But if Mr. Pischetsrieder is feeling the burden of all these troubles, he isn't showing it. Puffing serenely on his aged Partagas, he said Volkswagen had bottomed out in the first quarter this year.
In July, the company cut its projected operating profit for 2004 to 1.9 billion euros, before extraordinary charges, from an earlier forecast of 2.5 billion euros. Mr. Pischetsrieder said that Volkswagen might beat the reduced target, but that he expected little improvement this year or early next year.
Volkswagen's problems are most apparent in the disappointing introduction of its new Golf. Responding to criticism that the latest version of this old favorite was too pricey, Volkswagen has thrown in free air-conditioning. It sold 278,000 of the cars in the first half of the year, making the Golf again Europe's best-selling model - a title it lost briefly to the Peugeot 206.
Having tamped down expectations, Mr. Pischetsrieder can turn to the business of retooling Volkswagen, a far-flung empire with 336,000 employees, 45 assembly plants in 18 countries and $104 billion in annual sales. In addition to VW and Audi, its brands range from the proletarian Skoda to the rarefied Bentley, Lamborghini and Bugatti, the latest model of which costs $1 million and has a 1,001-horsepower engine.
Expanding Volkswagen into every niche had been one of Mr. Piëch's dreams. A descendant of the Porsche sports-car family, he focused obsessively on creating cars. That revived Volkswagen in the 1990's, when it had gotten a rap for dreary products and dubious workmanship.
But Mr. Piëch's fleet of cars eventually created problems. Volkswagen, analysts say, now has too many models in the same price range. His strategy of sharing platforms and components from Volkswagen with its sisters, Seat and Skoda, blurred the image of the individual brands. Mr. Piëch's product drive also came at the expense of sales and marketing. In the United States, Volkswagen has been hit with accusations of poor quality and erratic service on the part of its dealers. "We have some excellent dealers; we have some lousy dealers," Mr. Pischetsrieder said.
Most of all, Volkswagen's attempt to burnish its brand name - it means "people's car" in German - has been too expensive. To showcase the Phaeton, it built a $180 million assembly plant in Dresden, with shimmering glass walls, Canadian maple floors and a circular central foyer.
SALES of the Phaeton have been dismal on both sides of the Atlantic. To reduce the head-to-head competition with luxury sedans from Mercedes and BMW, Volkswagen may overhauling the car to make it more of a cross between a station wagon and a coupe. The Phaeton may be flawed, Mr. Pischetsrieder said, but the strategy is still sound. Volkswagen's upscale sport utility vehicle, the Touareg, has been a success. "The point is whether you can get an expensive car with a Volkswagen logo into the garage of a wealthy man or woman," he said. "The worst thing that can happen is that we get the product wrong."
At BMW, Mr. Pischetsrieder faced the opposite challenge. To expand into the mass market, he bought the struggling Rover, which made the Land Rover, the MG sports car and the fabled Mini, for $1.2 billion.
Mr. Pischetsrieder even had a personal tie to the Mini. His Greek-born granduncle, Sir Alec Issigonis, had designed the car. That did not save his investment, however. Rover continued to bleed money, becoming known as "the English Patient." In February 1999, Mr. Pischetsrieder lost his job. In a bittersweet coda, BMW held on to the Mini, reintroducing the car and turning it into a hip, retro brand.
People who know Mr. Pischetsrieder say the Rover experience shows both strength and weakness. He has great instincts about cars, they say, but his methodical style can let problems fester. "He is a very relaxed guy," said Ferdinand Dudenhöffer, director of the Center for Automotive Research in Gelsenkirchen. "But he takes things step by step, which can be time-consuming."
It was Mr. Pischetsrieder's credentials as a "car guy" that drew him to Mr. Piëch. The two had become acquainted while traveling with the former chancellor, Helmut Kohl. Alphabetical seating on the plane meant they found themselves next to each other.
Mr. Pischetsrieder's latest moves, however, have little to do with new models. In April, he announced a 2 billion euro deal in which Volkswagen will join investors from the Persian Gulf region to buy a Dutch fleet management company, LeasePlan. The acquisition, he said, would give Volkswagen another channel to customers. That is important, he said, in a time of diminishing brand loyalty and powerful nationwide auto dealers.
Yet the deal's most intriguing implications lie elsewhere: Volkswagen hopes to finance the purchase by selling shares to an investment fund linked to the government of Abu Dhabi, one of the seven states in the United Arab Emirates. That could make it the company's second- or third-largest shareholder, after the state of Lower Saxony and Brandes Investment Partners, an asset-management firm based in San Diego.
Mr. Pischetsrieder, still negotiating the stock price, said he would welcome Abu Dhabi as a stable investor. He prefers "long-term investors to hedge funds," he said, adding that someday, Volkswagen might even move truck production to the gulf region.
Analysts said the emergence of Abu Dhabi as a major shareholder would give the management of Volkswagen more independence from Lower Saxony. The state owns 18.2 percent of the company's shares, giving it the power to block a takeover and other major decisions.
Lower Saxony's influence is likely to be felt most in the labor negotiations. Though many officials privately applaud Volkswagen's efforts to extract a more flexible contract from the unions, they would cringe at the prospect of Volkswagen shutting down a major plant in Germany.
Mr. Pischetsrieder said he did not plan to issue sweeping threats to move production to Central Europe. Volkswagen already produces the Touareg at a giant plant in Bratislava, the capital of Slovakia, and its Audi roadster at a plant in Hungary. Persuading the rank-and-file to accept a two-year wage freeze may be more difficult. The chief negotiator for the IG Metall union, Hartmut Meine, dismissed Volkswagen's stance as exaggerated and unrealistic. "I am a strong negotiating partner," Mr. Meine said. "If there is no compromise, I am certainly in a position to call a strike."
Such rancor is almost unheard of at BMW, a smaller company with generally harmonious labor relations. Some outsiders wonder whether Mr. Pischetsrieder, having spent 26 years in those cozy confines, was temperamentally suited to make the leap to a big, messy company like Volkswagen.
The way he sees it, though, he can bring the best of BMW to Volkswagen. He knows he is part of an elite fraternity - executives who have had the chance to run not one but two major auto companies. "I didn't find anything here that I didn't know about," Mr. Pischetsrieder said, stubbing out his cigar as he headed back to Wolfsburg. "If there is anyone to blame, it would be myself."
