Piech defeated as VW directors rally behind group chief executive

Ferdinand Piech, the chairman of Volkswagen, has suffered a rare boardroom defeat after top directors said chief executive Martin Winterkorn should receive a contract extension.

Following an emergency meeting in Salzburg, VW's steering committee on Friday declared its support for the chief executive, from whom Mr Piech had publicly distanced himself last week.

Mr Winterkorn is the "best possible CEO of Volkswagen", the committee said in a statement, adding that it would recommend to the full board that Mr Winterkorn's contract is renewed in February 2016.

Its support represents an extraordinary victory for Mr Winterkorn, Germany's highest paid chief executive, following days of high drama in which his tenure was called into question.

But it is a stunning reverse for Mr Piech, who turned 78 on Friday, and had set the crisis in motion last week when he said: "I am at a distance to Winterkorn".

In the past, a single remark from the chairman has been enough to seal the fate of top VW executives. On this occasion, however, key stakeholders - including the VW's works council and the local government of Lower Saxony - rallied to Mr Winterkorn's side.

Mr Piech's cousin, Wolfgang Porsche, the chairman of Porsche, also distanced himself from the chairman's remarks.

This left Mr Piech without sufficient boardroom votes to oust the chief executive - an unusual setback for a master tactician and brilliant engineer who has always won his battles in the past.

Together, the Porsche and Piech families control 51 per cent of the voting shares in VW but executive appointments are decided by the 20-member supervisory board. Employees hold half of the board seats and Lower Saxony has two.

Nevertheless, the need for the vote could make a swift return to harmony at the top of VW difficult, and suggest Mr Winterkorn's chances of succeeding Mr Piech as chairman now appear slim.

Arndt Ellinghorst, an analyst at Evercore ISI, told clients: "It seems Piech has lost the battle and an apparent desire for change at the top of VW. What is not clear, however, is whether this puts an end to the war. We suspect Piech does not back down easily."

Mr Winterkorn's predecessor Bernd Pischetsrieder resigned as chief executive of VW in 2006 shortly after Mr Piech said his continued tenure was an "open issue". The chief executive's contract was initially extended but months later Mr Pitschetsrieder was gone.

Mr Winterkorn and Mr Piech must share the same stage at VW's annual meeting in Hanover on May 5.

Mr Winterkorn became chief executive in 2007 and under his leadership VW's revenues have doubled to more than €200bn and net profit has quadrupled. However, VW last year embarked on a €5bn cost-cutting plan because the profit margin of the core passenger car brand is too low. Meanwhile, its sales in the key US market are falling.

Bernd Osterloh, VW's influential works council chief and a member of the steering committee, welcomed Friday's announcement: "We will continue our successful course with Martin Winterkorn. He is the right man [for the job]"

Stephan Weil, the prime minister of Lower Saxony, which holds 20 per cent of the voting shares in VW, said: "We have great trust in the chief executive . . . The discussion over the past week has not been good for VW. With this resolution, [the discussion] should reach an end."

An official at Mr Piech's office in Austria declined to comment, as did VW and a Porsche family representative.

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