BERLIN -- The party expected to win control of the German state of Lower Saxony will not divest its 20 percent stake in Volkswagen Group.
Industry watchers have long complained about political interference in key decisions at VW aimed at protecting jobs in the automaker's home state at the expense of greater efficiency and profitability.
But Lower Saxony CDU leader Bernd Althusmann said he would not divest the state's VW holding if the right-of-center party wins an election in October, a result which would make him state premier.
He also said the CDU would stand by the 1960 "Volkswagen Law," introduced when the carmaker listed on the stock market, under which Lower Saxony earned a veto right over key decisions such as factory closures, mergers and acquisitions.
Althusmann said there would always be a conflict of interest between Lower Saxony's role as VW's second-biggest shareholder and its focus on preserving the jobs of more than 100,000 people employed by the carmaker in the region.
He said he wanted an independent expert to take one of two seats on the board reserved for Lower Saxony, and to hire more staff at its state office to oversee the carmaker.
"Lower Saxony is obliged to provide sufficient oversight of Volkswagen and manage its stake effectively," he told Reuters in a telephone interview. "That's not happening and we will do what we can to change this."
His comments followed claims at the weekend that the current Social Democrat (SPD) premier Stephan Weil, a member of VW's supervisory board, allowed the company to censor a speech he gave in 2015 about the emissions-cheating scandal that had just erupted.
Making VW 'normal'
Analysts Evercore ISI said VW would become a 'normal' company with contemporary corporate governance if Lower Saxony sold its stake.
"The government's most effective way to help VW and prepare the business for the future would be to liberate the company from excessive political influence," Evercore analyst Arndt Ellinghorst said. "Under the government’s oversight, VW has become too large and inflexible, incubator for some of the most embarrassing corporate scandals."
Ingo Speich, a fund manager at Union Investment which holds about 0.6 percent of VW preference shares, said Lower Saxony's focus on jobs thwarted effective control of management by the supervisory board. "In my view this conflict of interests cannot be resolved," he told Reuters
The state's privileges under the VW law were designed to shield the carmaker from hostile takeovers and to protect jobs. But the threat of the former has ceased to exist given VW's size and because the Porsche-Piech clan has built up a majority stake through its Porsche SE holding company.
Close ties defense
The CDU ran the state government for a decade prior to 2013. Whichever party controls Lower Saxony traditionally cooperates with unions to water down restructuring efforts and safeguard jobs. The state has repeatedly said its close ties with VW have helped both sides for many years, pointing to the company's rise to becoming the world's biggest carmaker.
In 2009, a CDU-led government teamed up with unions on VW's supervisory board to rescue insolvent parts maker Karmann in Osnabrueck, about 190 km (118 miles) west of Wolfsburg, safeguarding 2,000 local jobs. The business logic of the deal was widely criticized by industry experts at the time.
Lower Saxony's Oct. 15 election was triggered by the defection of a Green party member to the CDU, eliminating the SPD-led coalition's one-seat majority. The CDU was pegged at 41 percent in Lower Saxony in a May 27 poll by opinion research institute INSA, compared with 27 percent for the ruling SPD, with the FDP and Greens at 9 percent and 8 percent respectively.
FDP urges sale
The CDU's likely junior coalition partner, the center-right Free Democrats (FDP) urged the sale of Lower Saxony's stake, citing the risk of conflicts of interest weakening the region's oversight of the scandal-hit carmaker.
"The state should completely privatize VW," FDP leader Christian Lindner told the Handelsblatt newspaper in remarks published on Wednesday.
Lower Saxony owns about 59 million shares in VW worth more than 7.6 billion euros as of Tuesday's closing price, according to Thomson Reuters data.