Piech departure leaves Volkswagen with a large void to fill

The resignation of Ferdinand Piech, the dominant force at Volkswagen for more than two decades, leaves a void at the top of the German carmaker, comparable to Apple without Steve Jobs. 

Although senior directors became ever more frustrated with the chairman's campaign to topple CEO Martin Winterkorn in recent days, none of them really believed he would walk away from his life's work. 

In the past the chairman has tended to win his battles and always had another trick up his sleeve. Following his resignation, there seems no way back.

"The chances that he again plays a leading role [at VW] are very small and tend towards zero. It is not conceivable that he rejoins the board," says Ferdinand Dudenhoffer, of the Center of Automotive Research at the University of Duisburg-Essen. 

The chairman's duties are supervisory - primarily monitoring strategy and hiring and firing executives - and therefore his departure should have no immediate affect on VW's operations.

Stephan Weil, prime minister of the State of Lower Saxony, which holds 20 per cent of the voting shares, insisted at the weekend that VW's supervisory- and executive boards remained "fully functional".

Yet, from 1993, as CEO and then as chairman from 2002, Mr Piech recast VW from a lossmaking, unproductive volume carmaker into a profitable, global automotive powerhouse.

Without its indomitable leader and abiding personality, VW is no longer the same car company.

Mr Piech's engineering talent and perfectionism drove the carmaker to design complex, technically superior vehicles, often regardless of the cost.

Bernstein Research placed three VW Group vehicles - the 1,001 horsepower Bugatti Veyron, the VW Phaeton (for which VW built a bespoke glass factory in Dresden) and the aluminium Audi A2, on its list of the top 10 lossmaking cars of modern times.

Meanwhile, the now former chairman's desire that VW should surpass Toyota and General Motors as the world's largest carmaker by sales set it on a huge international expansion and acquisition spree. 

VW Group now has more than €200bn in annual revenues and 10.1m vehicle sales, with 118 plants in 31 countries and about 600,000 employees.

VW bought Lamborghini, Bentley and Bugatti in a single year in 1998 and its stable of 12 brands now spans the whole automotive range - from truckmakers Scania and MAN to motorcycle maker Ducati.

To Mr Piech's credit, he developed a platform strategy to share parts across the car brands and drive down costs.

Yet his tendency to pursue vanity projects and disregard for corporate governance norms - he appointed his wife Ursula, a former nanny, to the board - never endeared him to institutional investors. 

There is no natural successor. Martin Winterkorn, VW's 67-year-old chief executive, had been expected to take over from Mr Piech in 2017, when the chairman's contract was due to expire.

But their relationship has been shattered by the leadership battle. Together the Porsche and Piech families control 51 per cent of the voting shares in VW via the Porsche SE holding company. For now he therefore retains a say in the appointment, but it is unclear whether he plans to keep his share in the long term.

His cousin Wolfgang Porsche, head of the Porsche clan and chairman of Porsche, the sports car maker, is far more gregarious than Mr Piech but lacks his ruthless edge and deep operational experience. 

Mr Piech denied a media report earlier this month that his goal was to install his wife as chairperson and, in any case, she has also now resigned from the board.

In 2010, shortly after Porsche came close to insolvency through its attempt to take over the much larger VW, Mr Piech - the grandson of the inventor of the VW Beetle - remarked: "The first generation creates, the second maintains, my generation is the third - normally it is the one that ruins."

VW must ensure this maxim does not now come to pass. Top directors therefore say they would not rush to appoint a new chairman. 

In a highly unusual move, Berthold Huber, an experienced trade unionist, will become interim chairman but Mr Weil, the premier of Lower Saxony, declined to speculate on the identity of the permanent successor.

"We don't want to replace a personnel debate with a new one," he told reporters.

It is conceivable, however, that large shareholders - the Porsche and Piech families, Qatar Investment Authority and Lower Saxony - pick a non-family member to head the board.

Ulrich Hackenberg - the vastly experienced head of technical development across the VW Group - would fit the mould.

Mr Winterkorn's grip on the CEO job is now secure for the time being. He has the full support of the Porsche family and other members of the supervisory board and can expect a contract extension in 2016. 

Although the chairman's reasons for attacking his former protege remain unknown, the CEO has still been weakened by the affair, however.

The leadership battle has shone a light on VW's failings: low margins at the core passenger car brand, its inability to develop a budget car for the Chinese market, and tumbling sales in the US. 

The coming months will present further challenges. China accounts for more than a third of VW vehicle sales but the market has begun to slow. Meanwhile, VW sales in Russia are in freefall.

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There were persistent rumours that Mr Piech wanted to buy a UStruckmakerr (possibly Navistar), or another Italian brand (Alfa Romeo or Ferrari), but acquisitions now look unlikely in the short term.

Arndt Ellinghorst, an analyst at Evercore ISI, says Mr Piech's departure removes "M&A risk" from VW. "The market associated Piech with empire-building," he says.

The leadership battle has served as a reminder to shareholders of the enormous power that the regional government and local employee representatives wield at VW - the latter hold half the seats on the supervisory board.

"The union and the state of Lower Saxony are the big winner of the power struggle at VW," says Mr Dudenhoffer of the University of Duisburg-Essen.

Although VW needs to cut costs, it is unlikely to make any significant cuts to its German workforce - which comprises 45 per cent of the total - now that Mr Piech is gone.

Perhaps the biggest sigh of relief will be breathed by VW's managers. Mr Piech was a hard taskmaster: just a single, pointed sentence was often enough to seal the fate of an underperforming manager.

"It's not possible to take a company to the top by focusing on the highest level of harmony," he said in his autobiography.

Until now this strategy of creative destruction has paid dividends for VW. But at the last Mr Piech's ruthless streak got the better of him and proved that even the mighty patriarch was fallible.

Huber willing to play tough when necessary

In the twilight of his career, Berthold Huber finds himself at the helm of the world's second-largest carmaker, writes Chris Bryant. 

Mr Huber, 65, who stepped down as the head of the IG Metall engineering union in 2013 and is deputy chairman of Volkswagen's supervisory board, has been appointed as interim chairman at the German carmaker and will oversee the company's annual meeting on May 5.

Employee representatives fill half the seats on the supervisory boards of large listed German companies but it is highly unusual for a trade unionist to be chairman.

Mr Huber is a non-divisive figure who has a deep knowledge of VW and his appointment reflects the leadership vacuum on the board following the departure of chairman Ferdinand Piech. 

An intellectual and pragmatist, he won the admiration of the auto industry during the 2008-2009 crisis by calling for a "scrapping subsidy" to incentivise new car purchases. He also oversaw a period of wage increase restraint and instead urged the government to provide short-time working subsidies so companies did not lay-off employees. 

German companies were therefore able to respond quickly when demand recovered in 2010. 

A confidante of German executives including Martin Winterkorn, the VW CEO, Mr Huber is willing to play tough when necessary. 

A former member of the Siemens supervisory board, he did not prevent the ousting of Peter Loscher in 2013, even though the chief had issued a German jobs guarantee. 

The trade unionist was put in a difficult position in 2012 when it was revealed that Mr Winterkorn earned €17.5m in pay and bonuses that year - the highest at a listed German company. VW reformed its pay practices and Mr Huber stood by the CEO.

Additional reporting by Andy Sharman

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