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

November 1, 2007


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.

VW shrugs off leadership shifts but fails to convince its environmental critics

March 11, 2007


Update October 24th, 2007

With the demise of the so-called VW law, The future of VW seems increasingly connected with that of Porsche. Porsche has strengthened its share-ownership of VW and appears to be following a strategy of creating wriggle-room for a takeover bid at a time that is most advantageous to itself.

[Original report follows]

The VW motor giant has shrugged off its leadership shifts of the last year. New chief executive Martin Winterkorn seems to have re-assured financial analysts of the company’s future and of the successful implementation of its restructuring plans. An environmental perspective, however, indicates further challenges ahead.

In an earlier post, I pointed to the organizational instability that accompanies leadership shifts such as those that had befallen auto-giant Volkswagen. The background was the scandal concluding with a criminal conviction for Peter Hartz, formerly head of personnel at the VW corporation, and an influential figure in labour policy changes introduced by the former German chancellor, Gerhard Schröder.

Volkswagen chief executive Bernd Pischetsrieder had stepped down under unclear circumstances, followed by the departure of Wolfgang Bernhard. Mr. Bernhard pushed through plans to cut 20,000 jobs and extend the workweek during the course of 2006. But in the process, he alienated the powerful Volkswagen union, IG Metall, which is also closely allied with Volkswagen’s chairman, Ferdinand Piëch.

The VW preservation society

Meanwhile a long-rumbling legal progress was grinding its way through the German courts. Last month, The advocate general ruled that the so-called “Volkswagen Law” wrongly prevented the free flow of capital. If this is ratified, the company becomes more vulnerable to takeover.

Two stories are emerging

These were the circumstances under which Martin Winterkorn took over in the New Year. Two stories are emerging. The first points to the improved prospects future profits for the company announced this week. The second concerns the wider environmental picture.

A finance success story was more widely reported. In the UK, The BBC, for example, emphasized the good news, in a piece entitled Upbeat forecast lifts VW shares. The piece might have been more credible if it had managed to get the good Dr Winterkorn’s name right.

Meanwhile, Der Spiegel in an extended interview with Dr Winterkorn was addressing a concern that VW was lagging in its efforts to produce its hybrid cars.

A somewhat defensive Dr W denied that the German auto-industry was lagging in applying technology in the interests of the environment, saying it was ‘nothing but clever marketing on the part of our competitors. It has nothing to do with the facts’ .

What sense can we make of the two stories?

First, 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.