Ageing Piech maintains iron grip on Volkswagen

BERLIN Mon Apr 16, 2012 12:36pm BST

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BERLIN (Reuters) - For those who don't know him well, Ferdinand Piech's recent retreat from the limelight might be seen as a sign the Volkswagen (VOWG_p.DE) chairman was preparing to step back from leading the car-maker that aspires to be the world's biggest.

Piech didn't show up at the Detroit motor show in January and shunned the media last month at the VW group night in Geneva, an annual fixture in his calendar where Europe's largest carmaker traditionally boasts about its new products.

But even after 18 years at the helm of VW, nine of which as chief executive officer, it's wrong to assume the mastermind of VW's global expansion is tired of his work, in poor health, or on his way out, officials at the company said, although they chose not to explain his absences.

Instead, the canny strategist is expected to receive shareholder backing for a third term as chairman at the annual general meeting on Thursday, two days after he turns 75. If Piech serves out the five-year period, the balding Austrian will become the oldest-ever chairman of a listed German company.

"Piech is still the undisputed leader of VW," Helmut Becker, a former chief economist at Bayerische Motoren Werke (BMWG.DE) who now runs a consulting business in Munich, told Reuters. "He has his finger in every pie that VW management bakes."

It was Piech who spearheaded VW's expansion to an eleven-brand entity that makes everything from fuel-efficient city cars to 40-tonne trucks. When he was CEO, VW bought ultra-luxury nameplates Bugatti, Bentley and Lamborghini and integrated the mass-market Seat and Skoda brands.

And the buying spree isn't over yet. VW's luxury division Audi is expected to announce the purchase of motorcycle company Ducati ahead of the AGM. Piech, himself a Ducati owner, has long coveted the Italian company for its expertise in design and light engines.

Buying Ducati raises the VW brand portfolio to twelve, a number that Piech - who has a dozen children from four relationships - said in 2009 would be the perfect size for the VW group.

But for some analysts, the Ducati deal is a risky sideshow that reinforces the view of Piech as a stubborn leader who is sometimes driven by whims that defy industrial logic and which even his fellow managers don't understand.

One of his most disputed decisions was the development of a flagship sedan called the Phaeton at a cost of more than 1 billion euros ($1.3 billion) to take the VW brand upscale.

The Phaeton's lavish plant in Dresden, Germany, operated below capacity for years and the model was withdrawn from the United States in 2006 after the car failed to meet sales targets.

"If I want to achieve something, I face up to the problem and pull things through, without paying attention to what happens around me," Piech wrote in his book "Auto.Biographie" published in 2002.

FROM LOSS TO PROFIT

A grandson of Ferdinand Porsche, the founder of the sports-car maker who developed the Beetle under a 1934 contract with the Nazis, Piech took the reins at Audi in 1988 before he joined the parent company.

He developed the brand's pioneering Quattro all-wheel drive technology which helped Audi overcome its image as a maker of bland vehicles like the Fox coupe and 100 sedan, paving the way for the Ingolstadt-based manufacturer to rival BMW and Mercedes-Benz (DAIGn.DE) for the world's luxury-market crown.

When he became CEO of VW in 1993, the company was losing money, prompting Piech to cut pay and working hours at German plants, and streamline production by sharing parts among models and brands. The steps helped turn a loss of about 1 billion euros into a 2.6 billion-euro profit in 2002 when Piech was elected chairman.

"Piech's strategic foresight, his persistence and technical talent have proved absolutely invaluable for VW's success," said Arndt Ellinghorst, an analyst at Credit Suisse in London. "He knows better than anyone else how VW ticks."

One of Piech's biggest victories may have been turning the tables on Porsche (PSHG_p.DE) in the sports-car maker's botched takeover of VW in 2009. Piech initially backed the plan, though changed sides as Porsche's financing unravelled, opening the door for VW to acquire 49.9 percent of the Stuttgart-based company.

Porsche's holding company, controlled by the Porsche and Piech families, holds a majority of VW common stock. VW, in turn, is now aiming to buy the remaining 50.1 percent of Porsche's automaking business after abandoning a planned merger.

The takeover battle exposed Piech as a ruthless figure.

He publicly damaged the reputation of Porsche CEO Wendelin Wiedeking, whom he had hired in 1993 against the will of the families, and chief financial officer Holger Haerter.

The two executives, who opposed selling Porsche's automotive unit to VW, quit after being accused of racking up debt at the sports-car maker by using share options to pile up VW stock.

Another executive ousted by Piech was his handpicked successor as VW CEO, Bernd Pischetsrieder, who pulled the Phaeton from the United States and disagreed with Piech over the use of a holding in truck maker Scania (SCVb.ST).

"It's not possible to take a company to the top by focusing on the highest level of harmony," Piech wrote in his autobiography. "My desire for harmony is limited."

Piech, who as a student preferred to sit in the back of the classroom and avoid attracting attention, said in his book that in the three decades he spent at VW the company doctor was the only person he allowed to call him by his first name.

WINTERKORN

Pischetsrieder's departure in December 2006 opened the way at VW for Martin Winterkorn, who worked closely with Piech at Audi in the 1980s.

Under Winterkorn's leadership, VW pushed ahead with global expansion, took controlling stakes in Scania and fellow truck maker MAN (MANG.DE) and is now combining with Porsche. Group profit surged by more than half last year to 11.3 billion euros as vehicle sales rose 14.3 percent to a record 8.16 million units.

VW surpassed Toyota Motor Corp (7203.T) as the world's second biggest car maker and wants to clinch the top spot, currently held by General Motors (GM.N), no later than 2018.

"Piech and Winterkorn complement each other perfectly and are an ideal leadership pair for VW, particularly in increasingly difficult times," Joerg Bode, VW board member and economy minister of Lower Saxony, the company's second biggest shareholder, told Reuters.

Ellinghorst of Credit Suisse said focusing power around Piech and Winterkorn has for years been a formula for success at VW, though the car maker's next generation of leaders should push for more openness in management once the two patriarchs resign. Filling their shoes won't be easy, he said.

VW increased its workforce by a quarter to more than 500,000 people last year and its rapidly growing size requires changes in decision-making structures, said Ellinghorst. It's important to develop potential heirs to avoid a vacuum.

Possible candidates to replace Winterkorn, who could take over from Piech as chairman after his contract ends in December 2016, include Karl-Thomas Neumann, head of VW's China operations and a former CEO of parts-supplier Continental (CONG.DE), and Winfried Vahland, the chief of Skoda, according to Ellinghorst.

Despite his more immediate ambitions, there are however signs that Piech is preparing for a time when he will no longer be so active.

He placed his holdings in two trusts in 2010 to prevent his heirs from disbanding the auto empire. VW shareholders will also be asked this week to elect Piech's younger wife Ursula, already deputy head of the trusts, to the supervisory board.

The former BMW chief economist Becker believes Piech could wait until 2017, when he is 80, before ceding the chairmanship.

"VW should then be the world's biggest car maker," Becker said. "Piech's vision of an all-embracing automotive group has de facto come true. I couldn't think of a better moment for him to go." ($1 = 0.7651 euros)

(Reporting By Andreas Cremer; Editing by Noah Barkin and Giles Elgood)

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