Volkswagen stocks surge as investors bet on post-Piech regime

Volkswagen stock surged more than 4 per cent in early trading on Monday as shareholders bet chairman Ferdinand Piech's resignation will herald improvements in corporate governance and shareholder returns.

The 78-year-old grandson of the inventor of the VW Beetle resigned on Saturday evening with immediate effect after losing a power struggle with key directors. Mr Piech had sought to oust chief executive Martin Winterkorn.

His departure brings the curtain down on a two-decade stewardship of VW, the world's second-largest carmaker by sales. Mr Piech transformed VW since 1993, with revenues having increased by 400 per cent to more than €200bn and market capitalisation more than 27 times higher.

However, the chairman frequently irked minority-investors by pursuing costly deals and engineering projects.

Arndt Ellinghorst, analyst at Evercore ISI, upgraded the shares from hold to buy at the weekend, telling investors that Mr Piech's departure reduced the risk of "additional empire building M&A" and represented an opportunity for VW "to focus on improved capital efficiency".

Max Warburton, an analyst at Bernstein Research, told clients: "[Piech] was far more interested in building the world's fastest cars or most complex engines than paying dividends . . . He may be a legend, but he's hardly been a friend of shareholders, in our view."

It is by no means clear that the post-Piech VW will be more shareholder friendly, however.

The big winners of the leadership dispute were the state of Lower Saxony and employee representatives who together hold 12 of the 20 seats on the supervisory board. Both are strongly motivated to protect German jobs which could make addressing the low labour productivity at VW more difficult. VW's interim chairman is a trade unionist Berthold Huber.

"This latest episode appears to leave the labour unions in a stronger position than ever," Mr Warburton acknowledged.

Much will depend on the identity of the new chairman and whether VW chooses to accelerate a change in the chief executive.

There are also lingering concerns that Mr Piech was unhappy about operational issues such as falling sales in the US and the low margin of the core passenger car brand. VW reports first-quarter earnings on Wednesday.

"Were pure operational issues to blame, or was there a strategic disagreement? Until these questions are answered . . . investors may fear that deeper operational issues could surface," Stuart Pearson at Exane BNP Paribas told clients.

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