Ruffled feathers: how VW fell out of love with Herbert Diess


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When Volkswagen’s archrival Herbert Diess, Elon Musk, parked his electric cars on the German group’s lawn, building a plant just 200km from its historic headquarters in Wolfsburg, the reaction from the Bavarian chief was warmer than many expected.

Publicly, Diess told anyone who would listen that Tesla was “leading the way” and “benefiting the industry.” He was lavish in praising Musk’s accomplishments, even inviting the world’s richest man to give a lecture to a hall full of VW executives and trying to imitate his use of social media. Privately, Diess joked that he wished Musk had moved his plant “100km closer” to VW’s home so workers could see the American company on the horizon.

Although Diess had earned a reputation for gaffe, these provocations were deliberate. “He felt like if he was fluffing his feathers, he was moving in the right direction,” Bernstein analyst Daniel Röska says of the manager’s attempt to turn a company tainted by the diesel emissions scandal into a vibrant electric power pioneer. “It was sort of an all-or-nothing strategy.

Those efforts were abruptly halted on Friday when, at the request of the Porsche-Piech clan, who remain VW’s largest shareholders, the company’s supervisory board held an extraordinary meeting and agreed to release Diess almost immediately, hours after the chief executive went on a summer holiday.

In addition to the automotive world, Diess became famous for a series of public errors. In 2019, he told the BBC he was “not aware” of the detention camps in China’s Xinjiang region and continued to defend VW’s presence there. He was forced to apologize for using the phrase “EBIT macht frei” at a corporate event, referring to profit promotion but echoing a Nazi slogan.

Earlier this year, he sparked outrage in Ukraine by saying that Europe should seek talks with Russia. This opinion is not uncommon in corporate Germany, but rarely voiced in the international arena.

Back at home, Diess gained notoriety for other internal issues — notably his run-ins with VW’s powerful works council, which represents 60,000 employees in Wolfsburg and much of the additional 230,000 employees in Germany. He angered the organization, which has effective control of the supervisory board through a loose alliance with the state of Lower Saxony, VW’s second-largest shareholder, by suggesting that the group has 30,000 surplus employees in the country.

Selfie posted by Diess on Twitter posing with Tesla’s Elon Musk and VW iD3 © Herbert Diess/Twitter

Last year, he also noted that while it took VW about 30 hours to produce an electric car, Tesla employees completed it in just 10 hours, a figure disputed by unions.

Such clashes have left Diess with several bruises in his four years in office, including being relieved of direct responsibility for the group’s biggest brand, the VW marque, in 2020 and from his role as head of VW’s China business last year.

“He made decisions without being sentimental about the feelings of his colleagues,” said a person close to the executive. But Diess believed the combat approach was “the only way to move VW forward” and secure the group’s future, the source added.

Diess’ accomplishments, including launching VW’s first dedicated electric vehicles as part of a €52 billion technology rollout, enabled him to secure an early contract extension from the supervisory board last year.

“There has always been a mixed picture,” said one person familiar with the supervisory board’s decisions. Until recently, the source added, Diess’ management skills had “more strengths than weaknesses.”

But on Friday, all members of the 20-seat council voted to expel Diess, and the 63-year-old was not given a chance to defend his position. He was informed of the upcoming decision in just a couple of days, according to one person familiar with the events.

Neither the company, nor the unions, nor the shareholders publicly confirmed why Diess’s position was suddenly declared untenable. But works council boss Daniela Cavallo complained that VW’s software division, for which Diess had taken personal responsibility, was not working properly, forcing premium VW brands Audi and Porsche to rely on their own systems while they waited for the technology to power the entire groups will work. overtake.

More importantly, Cavallo pointed to VW’s weak performance in China, which has been the company’s growth engine for decades and by far its largest and most profitable market. VW’s new electric vehicles, the ID range, did not sell as well in Asia as the company had hoped, in part, Cavallo argued, due to an inability to cater to local consumer preferences, such as having karaoke machines in the car.

Porsche’s Oliver Blume to replace Diess as VW chief executive © REUTERS

In recent weeks, the Porsche-Piech family has come to the conclusion that renewing Diess’s contract was a “mistake,” according to one person close to the shareholders.

Speaking to workers last month, the automotive boss took a more conciliatory tone, telling employees he believes VW will overtake Tesla in global electric vehicle sales by 2025, and pointing to Musk’s recent difficulty getting factories to run at full capacity. But “we started to realize that he hadn’t really changed,” the person added.

The board concluded that Diess’ designated successor, Porsche chief executive Oliver Blume, was “perhaps a more complete manager, [able to look] to the operational side of the business,” added a person close to the supervisory board. The 54-year-old has the added advantage of being born near Wolfsburg and spent his career in the VW group, unlike Diess, who moved from BMW in 2015.

Wolfgang Porsche and Hans Michel Piech, speaking on behalf of the Porsche-Piech family, say that Blume has enjoyed their “expressed trust over many years”. He oversaw Porsche’s electric Taycan, which is now more popular than the legendary 911, they added.

However, Blume’s appointment threatens to derail a long-awaited listing of the Porsche brand – the most profitable in the VW stable – later this year. Blume, who will retain his role at Porsche in Stuttgart despite taking over Wolfsburg’s top job from September, will be forced to split his time between running the world’s second-biggest automaker and preparing for what is likely to be the biggest public listing in Germany. in decades.

Such an arrangement goes against VW’s stated goal of a partial offering to give Porsche more “entrepreneurial freedom,” Bernstein’s Röska said.

“If you are trying to give Porsche AG more independence…. . this move does just the opposite,” adding to worries about the VW group’s tangled corporate governance structure, Röska said.

Nor will there be a fresh start in Wolfsburg, where day-to-day management of VW will be in charge of CFO Arno Antlitz, a former McKinsey consultant who was appointed COO and was linked to Diess on the need for aggressive cost cutting at the group’s German facilities.

Late Friday night, Diess tweeted a photo of himself smiling contentedly next to a VW electric minivan. Earlier in a LinkedIn post, he stressed that VW’s recent difficulties stemmed in part from events far beyond Wolfsburg, citing semiconductor shortages, other supply issues and rising raw material and energy prices.

But even more favorable economic circumstances did not protect his predecessors from VW’s scattered influencers. Diss is the fourth boss in a row to not serve out his contract.

“This company has too many different interests,” said a person close to the outgoing CEO. “It’s a registered company, but it’s largely in private hands.”

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