Volkswagen News: Is it Jetta Launch or Jettison Plans?

June 22, 2010

Volkswagen parties in Times Square for the launch of the 2011 Jetta. But is this the biggest story around for the German giant?

Volkswagen went in for a sexy launch of the new Jetta in Times Square this week [June 2010]. The Square was turned into a beer garden for the event, with grass and sand shipped in. I’ve never seen sand as a big feature in beer gardens in Germany, and the music did not quite capture the Oompa Oompa Gemutlichgeit spirit either.

VW chose to launch the car using pop diva Katy Perry. Dressed in a skin-tight, low-cut dress and high heels that kept the cameras clicking, Perry took the stage while three new Jettas — one behind a makeshift moat — remained off on the margins. Perry’s presence might leave some to think the target market for the new Jetta is 14-year-old screaming girls. They certainly packed the square along with twenty- and thirtysomethings who danced and sang along. But Perry was there to generate the party vibe New Yorkers expected and to cast this new Jetta in an urbane, fun and distinctly American light.

American or what?

The attack on the American auto market by incomers has intensified with the shift in public interest away from the older and larger models which once dominated the sector. Toyota, Holda, and Volkswagen are serious players. VW seems inclined to differentiate itself from the Toyota strategy of appearing to make all-American cars for the US market. The brand image on offer in Times Square may be sending mixed messages. In any event, in light of Toyota’s recent problems they may also be signalling ‘we aren’t like those other foreign auto-companies like Toyota’.


Another VW story

But is there another VW story bubbling along? Maybe there is. Far from the glitz of Times Square, rumors are growing that Volkswagen is up to something big with Suzuki. Bikers have been blogging the possibility of something very new on two not four wheels. http://www.automotorblog.com/rumors-from-volkswagen/ . For this community, the story is as sexy as Katy Perry.

According to Dr Thomas Kirchmaier, a distinguished media commentator with long experience of the automotive industry, and Lecturer in Strategy at Manchester Business School “The VW Group is going partiularly strongly in China’

Rumors involves plans for the company to set up a new manufacturing plant in Asia http://www.businessweek.com/news/2010-06-16/volkswagen-plans-significantly-higher-operating-profit-sales.html, and that it its interest in electric cars may be an ‘e-lusion’ and that commitment to all-electric vehicles may be jettisoned.

Or there may be further developments in the dynastic struggle involving the inter-related Porsch and Volkswagen famiies. Leaders we deserve had been noting the possibility of a merger since 2007. The ‘reverse takeover’ occured shortly after State Law was revised, arguably to permit it.

Dr Ferdinand Porsche designed the original Beetle in 1936, and his grandson, Ferdinand Piech, is chairman of VW and the controlling shareholder in Porsche. Wendelin Wiedeking, chief executive of Porsche, is a member of the supervisory board of Volkswagen …In November 2007, rumours suggested that Porsche intended to acquire VW, and incorporate the models under the Porsche brand through a holding company. The powerful unions at Volkswagen sent a signal of discontent, with work stoppages, including 40,000 workers at the main Wolfsburg plant [Wednesday Oct 30th. 2007]

Business Lessons

There are plenty of business lessons here worth reflcting on. They will appeal to corporate strategists, environmentalists, business leaders, marketing executives, petrol heads, and (I almost forgot), teenage fans of Katy Perry.

Acknowledgements

Image of Katy Perry via starpulse


Porsche Volkswagen merger edges forward

August 14, 2009

VW-Logo

The long-awaited merger between Porsche and Volkswagen edges forward. The complexities have additional national features

Mergers tend to reveal and emphasise differences in the cultures of the participating organizations.

A few years ago , I had some personal involvement with a merger between two institutions located close physically and professionally. The outcome for several years was not so much the expected two sub-groups within the new extended organization, but six including two smaller groupings acquired to strengthen the core merger.

Mergers are often said to require around five years for the legacy cultures to settle down, despite attempts by the leadership of the new organisation to establish a shared vision.

In the UK, the diverse cultures of Cadburys and Schweppes remained for at least that long, in an uneasy marriage of the more traditional with the swashbuckling. The two cultures were still recognisable two decades later, and contributed to the logic of CS acquiring the ailing Dr Pepper/Seven Up group, and subsequently demerging the fizzy bits into the wonderfully named Dr Pepper Snapple Group

Porsche Volkswagen makes a classic business case study. I leave its complexities to those more involved in that venerable Business School approach. Here I will concentrate on exploring the map of the merger for its leadership implications.

It promises to be a titanic struggle. The two cultures feature most obviously in the strong brands symbolising the two institutions.

Background

Leaders we deserve has been noting the possibility of a merger since 2007 when Porsche appeared to be the more powerful of the two protagonists.

Dr Ferdinand Porsche designed the original Beetle in 1936, and his grandson, Ferdinand Piech, is chairman of VW and the controlling shareholder in Porsche. Wendelin Wiedeking, chief executive of Porsche, is a member of the supervisory board of Volkswagen …In November 2007, rumours suggested that Porsche intended to acquire VW, and incorporate the models under the Porsche brand through a holding company. The powerful unions at Volkswagen sent a signal of discontent, with work stoppages, including 40,000 workers at the main Wolfsburg plant [Wednesday Oct 30th. 2007]

At the time I commented in the same blogpost

My suspicion is that plans towards securing that dynastic merger are in place. Whether the happy day is near remains to be seen.

There were a few twists and turns to the story over the next two years. A little matter of a deep global recession and financial crisis. Some complex moves involving share acquisitions, and governmental background interventions.

The BBC observed

Over the past year [2008-9] Porsche built up major debts to get a 51% stake in VW, only to fall short of the required 75% when it could not raise more funds. Porsche’s failure to buy VW saw the firm’s former chief executive Wendelin Wiedeking and financial director Holger Haerter resign “with immediate effect” last month [July 2009].
Porsche will now effectively become the 10th brand in the VW family, joining the likes of Audi, Seat and Skoda. However, VW has pledged to maintain Porsche’s “independence”.

Independence

Independence. Ah, yes, in the sense that it has been a ‘friendly’ merger, and not, as the cynical are inclined to say, a bloody takeover.

The Cultural Turn

So what of the two cultures? To an outsider, Volkswagen is more than able to accommodate Porsche as a coherent brand such as it did with Audi. It has done a good job in that respect with Seat and Skoda. On the other hand, it might be that the more local historical rivalries will prove more difficult than those posed with international acquisitions. But even as I write, I see that the notion of merger is becoming blurred into the vocabulary of a takeover.

We will have to wait some time to see how this turns out for the organizational culture of the VW organization.


J P Morgan is always willing to help

March 17, 2008

zinn-and-his-peoples-history.jpg

During the American civil war, John Pierpont Morgan helpfully arranged a deal to buy U.S. rifles and sell them back to the federal government at a whacking personal profit. One hundred and fifty years later the firm founded by J P Morgan has arranged a monster deal acquiring Bear Stearns, aided by Federal money

Several weeks on, J.P. Morgan increases its initial offering for troubled Bear Stearns by 500% to 10$ a share.

I make no claims to being an expert in high finance (or even low finance). I rely on excellent sources of information and insight, but from time to time I find myself out there more as an outsider looking for unexpected parallels between contemporary business life and historical accounts.

It is in such a spirit that I offer an observation on this week’s monumental financial news. The historical aspect as told by Zinn [and summarised in wikipedia] in his quietly revolutionary account is that during the Civil war Morgan

was approached to finance the purchase of antiquated rifles being sold by the army for $3.50 each. Morgan’s partner re-machined them and sold the rifles back to the army for $22 each. The military knew it was buying back its own guns, so the so-called ‘scandal’ turned out to be more about government inefficiency than any chicanery by Morgan (who never even saw the guns and acted only as a lender). Morgan himself, like many wealthy persons, including future Democratic president Grover Cleveland, avoided military service by paying $300 for a substitute.

Back to the present day deal

If B-S had flopped, the entire banking system would have gone into meltdown. B-S credit assets had increasingly been seen as less credible and thus less credit-worthy.
Hence the fire-sale.

Rather than have them declare bankruptcy, the Fed engineered a plan to have JP Morgan “buy” Bear Stearns for $2 per share. A price of $2 per share means the market was too optimistic in the last 14 months when Bear’s stock fell from $169.33 in January 2007 to $30 per share as of Friday’s [March 14th 2008] close.

The Fed smoothed the way for the take-over by cutting its interest rates, and offering other guarantees for inter-bank lending. This is believed to be calming the process of what is becoming known as deleveraging in the globalised financial services industry.

I am reminded of the arms-length fashion in which European governments involve in institutions in the national interest. Specifically, the role of the German Federal States in the matter of Volkswagen effectively protects the company from foreign (i.e. non-German) take-over. EADS is not a state-owned institution, but is thoroughly dependent on wishes of the French and German governments. So much so that it affects the increasingly difficult working relationship between Sarcozy and Merkel.

The bigger picture: Canute reversed?

One financial commentator quoted in the Wall Street Journal suggested we are seeing a case of Canute in reverse. The Fed appears to be acting not by erecting flood defences against an advancing tide, but trying to put up barricades against a retreating one.

In a bear market, as asset prices fall, leverage is reduced. This causes lenders to ask for more collateral on existing loans, and borrowers to sell assets so as to reduce the need for such loans, and for additional collateral … The credit crisis is unfolding as we expected, but more slowly than anticipated, because of the actions taken by central banks (mainly the Fed) and the U.S. government to allay its effects. The wholesale socialization of credit has meant that government and central bank measures account for 70% of new credit since last summer…total credit losses of $1.4 trillion will cause a contraction in world GDP of 2.5 percentage points, or half the current rate of global growth. So the global economy will become a gray, dull world of semi-recession and sticky inflation that will last a long time. Without major policy blunders, however, it won’t be a 1930s-style depression.

Leadership Lessons for the Quick-sands

It is probably of minor significance that Bear Stearns has not shown signs of effective leadership of late. The departure of James Cayne had been seen as finding a scapegoat rather than solving a problem:

Cayne has been pilloried since in news reports as a chief executive more interested in golf outings and bridge tournaments than one working diligently to get his firm out of its problems.

tTaking the wider financial picture, the Canute image may be a suitable and chastening one for those crying for stronger leadership. By someone. By anyone.

Come on Hillary, Barack, John, what might you do differently?

An honest answer might be. ‘A bit here and there.’ Avoid foolish claims of a New Deal or any other relatively quick fix to rescue the world from the global financial quick-sands.

There is a case for transformational change efforts financially and politically. But when in a hole, the sensible course of action is stop digging. In quick-sands, wrongly applied energy just makes things worse.


Is there a Watergate Scandal Emerging at Volkswagen?

February 25, 2008

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Watergate is shorthand for a gradual but remorseless process through which a powerful leader becomes destroyed. Are there parallels in the current scandals at Volkswagen which have resulted in imprisonment for several middle-ranking executives? Will the very top leadership in Germany eventually be brought down?

Earlier this week [February 2008] Klaus Volkert, the former head of Volkswagen’s employee council, was jailed for his role in a corruption scandal.

According to The BBC, Volkert

was found guilty of incitement to breach of trust in the case, which involved employee representatives getting illegal privileges.

We have commented over the last year of the leadership troubles that have been hitting the corporate reputation of Europe’s premier car manufacturer.

I picked up the scent of something of interest, because of a little surge of numbers of visitors to this site searching for news about the VW company. That’s when I came across a Reuters report

Volkswagen supervisory board member Guenter Lenz has resigned his seat, becoming the latest casualty of a scandal involving the use of corporate funds to bribe the carmaker’s senior labour leaders. According to a statement from the Hanover works council, Lenz told employees on Tuesday at a plant staff meeting that he would now resign his board seat and his post as the site’s works council boss after previously ceasing to actively execute his duties. The public prosecutor’s office in Brunswick accuses him of aiding and abetting fraud and partaking in parties with prostitutes paid for out of a VW slush fund. Lenz, who has also resigned from the Lower Saxony state parliament, would accept a court sentence for his wrongdoing, the Hanover works council said.

The scandal has already cost the jobs of VW management board member Peter Hartz, group works council chief Klaus Volkert, as well as a member of the German federal parliament.

An earlier post [updated in October 2007] looked at the history of leadership problems at VW, concluding that
… the financial markets have absorbed the uncertainties regarding VW’s less secure future when and if the Volkswagen protection laws are removed. They are also unshaken by the leadership scandals, and by the risk that VW is falling behind Toyota in the development of its hybrid car range. (Strictly speaking, that is a wider concern for the future success of the German premium automobile marques, VW’s Audi, but even more so, BMW and Mercedes). At least Martin Winterkorn seems to be enjoying a leadership honeymoon.

Martin Winterkorn appears to have been parachuted in as someone untained with earlier scandals.

Back to Watergate

President Nixon’s downfall is now a classic of modern cultural mythology. The great leader is brought low, despite all efforts he made to protect himself.

At first, only the minor players in the drama are attacked. But as each each in turn is weakened, it becomes easier for a more important figure to come under attack. The drama is sustained with the prospect of defeat for the most powerful figure of all.

Forward to Volkswagen

Are we witnessing at Volkswagen a story that is gradually working its way towards the very highest of executives associated with the scandal?

I can only observe that denials are being made. The denials may be a necessary strategy to protect individuals from the hints that are emerging in the press.

Until something more substantial emerges, I shall not be naming names.

Acknowledgement:

Image of Watergate was downloaded from Professor Olsen’s fascinating history site


VW Law. All in the family as Porsch/VW consider wedding plans

November 1, 2007

porsche-model.jpg

Update [Aug 2009]

[This post offers background to the eventual merger between Porsche and Volkswagen. The original post follows ]

No-one was surprised when the so-called VW law was declared illegal. The ruling had been anticipated for a long time by Porsche through skillfully increasing its stake in VW. The stage was set for an official announcement of a merger between two German industrial dynasties which already had close family ties

European commentators had been discussing the merger for some while, as the so-called VW Law was tested in the courts. The general view was that the law contravened EU principles on competition grounds. The possibility of non-German control would encourage a ‘friendly’ takeover, with Porsche a front-running candidate.

There are strong links between the companies

Dr Ferdinand Porsche designed the original Beetle in 1936, and his grandson, Ferdinand Piech, is chairman of VW and the controlling shareholder in Porsche. Wendelin Wiedeking, chief executive of Porsche, is a member of the supervisory board of Volkswagen.

Anticipating the ruling will go against the VW Law after the advisory opinion, fellow German automaker Porsche AG increased its holding in Volkswagen to 31 percent while Lower Saxony raised its number of shares to 20.36 percent. That means the bloc of Porsche and Lower Saxony can now stop any takeover themselves with more than 51 percent combined

Frits Bolkestein was the EC commissioner for the internal market, and had no doubts about the ruling. Writing in The Financial Times, he points to Article 56 of the Treaty on the Economic Community, which states that

“All restrictions on the movement of capital between member states and between member states and third countries shall be prohibited.” This is one of the four fundamental freedoms of the European Union the freedom of movement of capital, movement of goods, services and persons.

Rumors of wars

There is a case for stating that Germany demonstrates an alternative mode of capitalism. The much-lauded strength of its industrial sector is backed by a complex governance system. Funds tend to be provided by banks rather than the financial institutions of the city. News seems to trickle through to the financial press, increasing the proportion of speculative comment over hard facts.

In November 2007, rumors suggest that Porsche intends to acquire VW, and incorporate the models under the Porsche brand through a holding company. VW declines to respond to such rumors. The powerful unions at Volkswagen sent a signal of discontent, with work stoppages, including 40,000 workers at the main Wolfsburg plant on Wednesday October 30th.

What’s going on?

Shares in VW have moved steadily upward this month. News coverage in the rest of Europe has been low. My suspicion is that plans towards securing that dynastic merger are in place. Whether the happy day is near remains to be seen.