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April 12, 2015 01:00 AM

VW board members back Winterkorn after Piech criticism creates crisis

from staff and wire reports
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    Bloomberg
    Piech, pictured, says Winterkorn will not succeed him as VW chairman.

    Volkswagen Chairman Ferdinand Piech faces resistance within the automaker's supervisory board to his criticism of CEO Martin Winterkorn, deepening a leadership crisis at the automaker.

    Piech publicly withdrew his confidence in Winterkorn on Friday but major VW power players including the powerful works council, the state of Lower Saxony and Piech's cousin, Wolfgang Porsche, rallied to Winterkorn's side over the weekend.

    Piech told the German magazine Der Spiegel in an interview published Friday that he was keeping himself "at a distance" from the CEO and that Winterkorn will not succeed him as chairman.

    Piech appears isolated after the works council, Lower Saxony and Wolfgang Porsche supported Winterkorn. Porsche, chairman of Porsche SE, which owns the majority of Volkswagen's common stock, described his cousin's comments as a "private opinion" that was not coordinated with the rest of the family. The state of Lower Saxony, where VW is based and which owns a fifth of VW's voting shares, as well as the carmaker's labor leader, issued statements backing Winterkorn.

    Piech, 77, and Winterkorn, 67, have worked closely together for decades and Winterkorn has long been seen by insiders as Piech's successor as VW chairman. A senior labor representative said Piech had criticized Winterkorn at past board meetings, particularly with regard to the weak U.S. operations, according to Reuters. VW's $1 billion U.S. plant in Chattanooga has been underutilized for more than a year after demand dried up for the locally-built Passat sedan, a model that Winterkorn had personally lobbied for, a company source said.

    Management succession

    Equity researchers Evercore ISI said Piech may be setting the pace for management succession ahead of VW's annual meeting on May 5. "It will not be easy to shape a new management team VW after almost 35 years of Piech/Winterkorn," Evercore ISI said in an investors note.

    Daniel Schwarz, a Frankfurt-based analyst at Commerzbank, said in a note that Winterkorn's position is "weaker" now, even if Piech can't muster the board votes to fire him.

    The supervisory board's steering committee will meet this week to discuss the leadership crisis, a company source said, without being more specific.

    Winterkorn, who has been at the helm of VW since 2007, let it be known on Saturday that he will fight for his job. The CEO feels emboldened by support from strong allies, two sources at VW told Reuters. He is determined to prove that his strategy will keep VW competitive in the long run, Bloomberg also reported, citing people familiar with his thinking.

    Exactly how the power struggle will play out is dependent upon the 20-member supervisory board, which in Germany oversees company strategy and appoints top management.

    Winterkorn has a powerful ally in works council chief Bernd Osterloh, who sits on the board. The 10 employee representatives on the board historically have voted as one block to maximize their power. The backing of worker representatives was crucial to Piech's ousting of previous CEO Bernd Pischetsrieder in 2006.

    "We have a clear position which remains unchanged. With Dr. Winterkorn we have one of the most successful automotive managers on board," Osterloh said in a statement Friday. "If it was up to us, we would extend his contract beyond 2016," the statement said, adding that it was in the interests of Volkswagen to focus on its core business rather than questioning the company's leadership.

    The state of Lower Saxony has two board seats. State Prime Minister Stephan Weil was "unpleasantly surprised" by the Spiegel report, state government spokesman Michael Juerdens said Saturday, declining to give further details on Lower Saxony's view of the matter.

    "We appreciate the work of Chief Executive Officer Martin Winterkorn very much," Olaf Lies, the state's economy minister, told Germany's Bild am Sonntag newspaper. The public shareholder is taking "a very calm view" of Piech's announcement "in view of the majority powers on the supervisory board," Lies said.

    Removing Winterkorn, whose term expires next year, would be difficult for Piech because doing so requires being able to show that the CEO has steered the carmaker in a direction that has greatly harmed it, according to the company's articles of incorporation. If workers and Lower Saxony team up to support Winterkorn, Piech would in any case not have enough votes to remove him under the complex voting rules required to do so.

    The holding company Porsche Automobil SE, owned by the Porsche and Piech families, controls 51 percent of VW common stock. The Porsche family has two members on VW's supervisory board. Piech's side of the family has three seats. Piech has run the board since 2002 when he stepped up from his post as VW chief executive.

    Taken together, the board backers who emerged for Winterkorn over the weekend would have a 14-seat majority and could easily prevent Piech from trying to remove the CEO.

    The smooth transfer of VW's leadership to Winterkorn that many expected in 2017 now seems unlikely but Winterkorn is in a position of strength after bringing VW to the cusp of snatching the global sales crown from Toyota Motor -- a goal he may achieve as early as this year.

    Reuters and Bloomberg contributed to this report

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