VW: Pig in a Poke? by Jim Burt (1/21/2002)
DETROIT—Shall we praise Dr. Ferdinand Piëch as he retires as chairman of Volkswagen AG, or bury him? I say we praise him.
Piëch is a throwback in so many ways. He isn’t just a car man. He is a car mogul. How can you not respect a man with something over $1 billion (who knows how much?) of personal wealth who can also fix your car. In fact, there isn’t anything Piëch couldn’t tell you about your car whether it is a Volkswagen, Audi, Porsche, Dodge or Daewoo.
Volkswagen of America chief Gerd Klauss tells a story about Piëch leading a group of Volkswagen executives through a battery of vehicle endurance tests in the desert. It’s blazing hot — well over 100 degrees. Guys twenty years younger are falling down, while Piëch has got his head under the hood peering at a broiling engine.
Can you imagine GM’s Rick Wagoner or Bill Ford doing that?
When Piëch ascended to the top job at VW in 1993, the company was in seriously bad shape, losing over $1 billion. The red ink was flowing like oil out of a busted oil pan. Quality was in the toilet. Golfs were costing well over their selling price to build because of the extensive handwork that had to be done after coming off the line in order to meet minimum quality standards.
Quality at the Mexican plant was so bad, Volkswagen of America boss Bill Young refused to take delivery on any of the Jettas and Golfs coming off the line.
VW was practically out of business in the United States, selling only Passats, Eurovans and Corrados.
The company was, in fact, months away from joining Fiat, Peugeot, Renault and numerous others in the “we can’t make it here” club of companies who gave up distribution in America.
Piëch cleaned house, and crawled under the hood.
Since 1993, VW has not only recovered. It is thriving. In the U.S., the company is almost as big as it was in 1970. He authorized the New Beetle, something predecessor Carl Hahn never would have done. You may not like the New Beetle, and think it is already over with. But the publicity from Concept One and the hoopla about the New Beetle’s introduction kept the company breathing until a decent Jetta and Passat could be built. And shall we discuss the Audi product renaissance?
Audi still has some quality issues to answer for, and a service-challenged dealer body. But the product is sensational. Who is responsible for that? Piëch.
Last year, Volkswagen earned $2.59 billion, and the stock is at $51.09, an increase of nine and half times including a stock split. It’s not as good as BMW, but VW is not BMW.
Critiques from afar
People say Piëch went too far in slashing vehicle platforms from 16 to four, and for initiating a strategy that will leave his successor, Bernd Pischetsrieder, with a $40,000 Passat W8, a $70,000 Phaeton, plus Bentley, Bugatti and Lamborghini to sell. Critics say he turned a blind eye to market conditions, and instead has been busy doing nothing more than fulfilling his own picture of what the car company should look like before he dies.
All of that is true, but I’m not sure he should be so harshly criticized for it.
Pischetsrieder probably wouldn’t have initiated the building of the D1 or the W8. And I know he wouldn’t have slapped names as ridiculous as Phaeton on the D1 or Touareg on the forthcoming SUV. But if anyone in this business can actually make those impulses of Piech’s payoff, it’s Pischetsrieder.
Piëch has two great legacies: bringing VW back from the brink of disaster through his canny product development eye, and an autocratic bullying style that sent the weaker VW executives who had run things into the ground into hiding, and choosing Pischetsrieder.
It takes a clever CEO to hire a guy who humiliated him on a world stage, such as when Pischetsrieder, while at BMW, outmaneuvered Rolls-Royce from Piëch, and left him with Bentley and Cosworth for his $600 million.
Talk about buying a pie and finding out you only got the crust.
Not a bad legacy
When Piëch took over Volkswagen AG, the house had become a leaky tent in a thunderstorm. He quickly built shelter that the company could live with — competent and decently built, fun-to-drive Volkswagens, Skodas and Seats, and even better Audis.
Okay, there were flaws. But what the products lacked in quality, they made up for in pizzazz, the kind of pizzazz and panache that General Motors, Ford, Honda and Toyota all envy. Their cars may hold up better, but most of Piech’s cars drive better. And for a significant percentage of the population, style and fun are winning out over sensible shoes.
I know plenty of Volkswagen staffers who grew weary of Piëch long ago. Projects like D1 and W8, Lambo and Bugatti sucked up money that could have been poured into quality improvements, two SUVs instead of one, a truck, a Microbus. Even a New Beetle Cabrio that didn’t take five years to develop. That’s all true.
But had Piëch not come along, they wouldn’t have a company in the U.S. about which to complain.
Piëch is a scary sonofagun. High-ranking executives from around the world making good livings have been reduced to whining puppies on Piech’s infamous driving trips. He takes executives to remote pockets of the globe and drives the heck out of VWs, Audi, Skodas, Bentleys, Seats, as well as competing makes. Each man is expected to see the things wrong with the vehicles that Piëch sees, and then make sure they get fixed.
Say the wrong thing on these trips, and you might get a wire that Piëch has killed your dog. Don’t fix the problem, and you are out of a job.
People point to his enormous wealth as the reason he is this way; that he thinks the money gives him license to abuse people and lead in this manner. That may be partly true. But if he couldn’t tear down a Passat before your eyes and put it back together, I suspect he wouldn’t be so confident about getting away with it.
His tyrannical style is probably no longer useful. And so, Piech’s time has passed.
Gerald Greenwald, former vice chairman of Chrysler and chairman emeritus of United Airlines recently told me, “Managing your way out of trouble is easy. It’s managing success that is awfully hard.”
Piëch did a splendid job of managing the company out of the fire. And he chose arguably the perfect man to manage its success.
Not a bad legacy at all.