HAMBURG -- Volkswagen Group risked a leadership crisis on Tuesday after CEO Herbert Diess forced a vote of confidence in his reform efforts by asking for an early contract extension.
VW is convening its executive committee to discuss Diess' demand for the contract extension, more than a year before his current term comes to an end in 2023, three sources told Reuters on Monday.
Diess defected from BMW in 2015 and helped VW to reform after its diesel scandal with a 73 billion euro ($87 billion) electric vehicle investment plan. He has grown frustrated with German labor leaders blocking cost cuts.
The executive committee of VW Group's supervisory board was due to meet on Tuesday, the three sources told Reuters. The committee is headed by VW Group Chairman Hans Dieter Poetsch, and includes Wolfgang Porsche and Hans Michel Piech, members of the automaker's owning families, as well as union boss Bernd Osterloh.
"The families continue to support Diess," a spokesman for Porsche Automobil Holding SE, the company that holds a majority voting stake in VW, said on Tuesday.
Poetsch is seeking to avert a clash between labor leaders and Diess by postponing discussions about a contract extension, a person familiar with the matter said.
Analysts said the meeting highlighted the difficulties in reforming an automaker where labor representatives control half the seats on the board of directors and local politicians have a 20 percent voting stake, allowing them to vote down significant strategic reform proposals.
"The company has some of the most amazing and most global brands, it has the scale to deploy any technology and the innovation power to be an early mover. What it appears to be lacking is the right corporate governance," Bernstein autos analyst Arndt Ellinghorst said. "There should be no illusion, this transformation will always trigger conflicts. Whether there is a new CEO or not, the questions will remain the same, and any VW CEO will need the full backing from VW's largest shareholders, the Porsche families," he said in a note to investors on Monday.
VW Group is worth 77.2 billion euros, far below rival Toyota, which enjoys a $155.7 billion valuation, and Tesla's $555 billion.
And that's despite the fact that VW sold 10.96 million vehicles last year -- the most by any automaker in the world -- while Toyota came in second with 10.74 million. Tesla sold only 367,500 cars in the same period.
Analysts say that's because VW is less efficient and has higher costs. VW Group had 671,205 employees at the end of 2019, well above the 359,542 staff at Toyota at the end of its fiscal year, and the 48,016 workers at Tesla last year.
German companies customarily deliberate contract extensions for management board members only a year ahead of expiration. Diess, however, forced the issue after Osterloh stifled his reform efforts.
These included installing two allies, Arno Antlitz as chief financial officer and Thomas Schmall as chief procurement officer, on the management board, the three sources told Reuters.
Rather than approving each individual appointment, the labor leaders insist on approving a "package solution" that is "harmonious," two people familiar with the deliberations said.
Osterloh is also said to oppose an early contract extension for Diess, one of the three sources said.
In a post on LinkedIn this week, Osterloh said there was no fight about management appointments because no committee on the supervisory board had been formally consulted about the issue.
Diess, for his part, voiced his frustration in a column in the German business daily Handelsblatt published on Friday.
"When I took office in Wolfsburg, I had firmly resolved to change the VW system. This meant breaking up old, encrusted structures and making the company more agile and modern," he said.