Clans, Executives Sharpen Knives Backstage at Porsche and VW

By Dietmar Hawranek

In the new Volkswagen empire, Ferdinand Piëch appears to be pulling the strings. Behind the scenes, though, everyone is fighting everyone at Porsche and VW: board members, senior executives and the two powerful family clans.

Ferdinand Piëch hasn't seemed this relaxed and pleased in a long time. It's the VW Group's evening at the Geneva Auto Show, and Piëch is sitting in the first row as the cars roll in on the stage in front of him. They include a 200-horsepower VW Scirocco, a 500-horsepower Audi R8 V12 TDI, a 530-horsepower Bentley Brooklands, a 560-horsepower Lamborghini Gallardo and a 1,001-horsepower Bugatti Veyron. Piëch is beaming, almost as if his 12 children were marching across the stage.

This is his world, and these are his cars. Most of all, this is his company, or at least part of it is. And this Monday, March 3, is his day.

Just that morning in Stockholm, VW had acquired the majority of voting rights in Swedish truck manufacturer Scania. The VW Group now has something that Piëch has been pursuing for close to a decade: a product line ranging from small cars to luxury sedans to 40-ton trucks. That afternoon, Porsche announced in Stuttgart that it was acquiring the majority of the VW Group.

Piëch is pleasant and friendly, even to those with the most annoying questions. He remains at the event until midnight, making one thing clear to everyone: that the deal is done.

A new automotive giant has been created. It includes eight car brands (Porsche, SEAT, Skoda, VW, Audi, Lamborghini, Bentley and Bugatti) and holdings in Scania and German truckmaker MAN. It is now the world's fourth-largest automotive group. And all of this is now headed by the Porsche and Piëch families, which hold all common stock in Porsche and thus control the new empire.

But it isn't easy to keep up this façade of domestic bliss, not even for an evening. It quickly becomes obvious that the new horsepower empire is more like a warzone than a cozy family living room at the moment. Piëch's supposed one-man show is everything but a solo effort. In fact, it's a place where everyone is fighting everyone else. The situation on the battlefield is confusing, and the outcome of the power struggle is completely open.

First, labor representatives at VW and Porsche are arguing over how many seats they should hold on the supervisory board and works council of the new auto company. Meanwhile, Bernd Osterloh, the chairman of the VW works council, is firing off shots at Porsche CEO Wendelin Wiedeking. Porsche co-owner Piëch has also taken up a position against Wiedeking. Insiders say that Piëch is even considering ousting Wiedeking as head of the Porsche unit.

Piëch's cousin Wolfgang Porsche and his family, for their part, are defending the Porsche CEO, leading to clashes between the two families of owners, the Porsches and Piëchs. At VW, it seems, there is trouble at every level: among employees, in management and in the two clans.

The disputes revolve around animosities, influence and power, but also around the direction which the new auto giant will take in the future.

Should it focus on building exciting cars and make profits a secondary concern? This would be roughly the approach favored by the company's works council (which represents the interests of employees), Chairman Ferdinand Piëch, who is an enthusiastic automobile engineer and VW CEO Martin Winterkorn.

Or should the group seek high returns and, to this end, build decent cars? This is the position taken by Porsche CEO Wiedeking and the Porsche family.

Piëch and Winterkorn set the tone at the VW reception in Geneva. The VW CEO had flown to Sweden that morning to inform senior executives and employee representatives at Scania that VW had bought the majority of shares in the Swedish truckmaker. In several meetings prior to that, Winterkorn had managed to convince the Swedes that they would be driving into a safe future with VW.

That evening in Geneva, Winterkorn reiterated: "The people are what's important in a takeover," and that losing the people means losing the company. "It's all about the people," he said.

He was talking about VW and Scania, but it sounded like an attack on Porsche. If there is anything that can be held against the sports car maker based in Stuttgart's Zuffenhausen district, it is that Porsche, when it acquired a major stake in VW, did not take people sufficiently into account -- from labor representatives to senior executives.

The manner in which Porsche CEO Wiedeking began firing off questions at VW managers after becoming a member of its supervisory board was far from appreciated at VW headquarters in the north central German city of Wolfsburg. According to one member of the VW board, Wiedeking treated them like schoolboys at board meetings.

Although Winterkorn has not criticized Wiedeking openly, the head of VW has made no secret of his conviction that things will have to change within the new group's top management board. Wiedeking heads the Porsche division and Chief Financial Officer Holger Härter is his deputy. But Winterkorn and another executive, who runs the truck business, ought to be represented on the Porsche board. Ought to be.

Arrangements like this are a source of friction within VW management. To Wolfburg executives, it seems obsious that VW should assume the leadership role -- with Porsche serving as its eighth car brand. But the VW-Porsche deal isn't even a merger between equals, like the former alliance between Daimler and Chrysler. From the standpoint of executives in Wolfsburg, things are far worse: Porsche, a small company, has taken over the big VW Group. The tail has the audacity to wag the dog.

In this situation, the Porsche CEO would be well advised to exercise discretion. Wiedeking has many strengths, but sensitivity in dealing with managers is not one of them.

Meanwhile, VW board members have a tendency to overlook the fact that the deal was only possible because VW, as a company with sagging profits, was a cheap buy, while Porsche, as the world's most profitable carmaker, had no difficulty securing the financing for the takeover. VW management itself is responsible for the situation in which it now finds itself. Nevertheless, everyone in Wolfsburg has bristled at the new pecking order.