Business

Volkswagen's Palace Revolt

After shipping over 11 million diesel-powered vehicles designed to fake meeting emissions standards, Volkswagen now has a new CEO charged with polishing up the tarnished brand. Will this be enough?

Herbert Diess, then CEO of the Volkswagen Passenger Cars brand, faces the media during the Tokyo Motor Show at Tokyo Big Sight on October 28, 2015, in Japan. Photo: Ryosuke Yagi, CC

The manufacturer of such legendary nameplates as Audi, Bentley, Porsche, Ducati, Bugatti, Lamborghini, Skoda, Seat S.A., Scania, and Volkswagen itself has a new boss at the helm. His name is Herbert Diess.

He comes to his position in a quick and surprisingly-quiet move just executed by the Volkswagen board this week, as former Chief Executive Matthias Müller was moved out and Diess moved in.

It is part of a rocky chain of shakeups for the company which started when it was learned the company had intentionally rigged diesel vehicles to pass emissions tests. This was despite that they were actually producing far more emissions than the legal standard. For the company, it meant higher fuel economies, lower costs of production, and a faster time to market.

Then they were caught.

In the end the company was found to have produced over 11 million of the tainted vehicles. Criminal prosecutions, major government and regulatory agency investigations, and accusations of lying at the highest levels of the company were just part of what slammed into Volkswagen as a result. Now, after spending an estimated $25 billion in total from fines, compensation for customers, legal fees and more, VW wants to move on.

Soon after VW admitted the car-rigging three years ago, the company made its first reshuffle by forcing the resignation of Martin Winterkorn. He was the CEO who was in charge when VW made the decisions to build the diesel vehicles with the faked emissions testing ‘feature’. It was never clear how much he may have known during what happened, though much was uncovered later that showed VW had done its best to cover up the trail after the bad news came to light.

He was replaced by a new Chief Executive, Matthias Müller, in September 2015.

With the crisis taking much of the management time and the company’s image badly tarnished, Volkswagen’s sales flat-lined and many new product innovations were delayed. Replacement CEO Müller may have done his best, but the pace of change was too slow for the company to accept.

In parallel, Herbert Diess, formerly a senior executive at BMW AG, was put in charge of the core Volkswagen auto group for the company. With a strong background in cost-cutting and operations, he moved quickly to restructuring the operation. It is now slowly rising again, with new models and increased sales.

As those sales continued to grow and his own personal ‘stock’ rising, Diess reportedly began working with shareholders behind the scenes to push the company’s board to remove Müller and have Diess replace him. He also deftly handled some problems he had created for himself earlier with workers’ representatives on the board. They had been highly critical of some of his restructuring moves at the time, but he managed to win them over sufficiently to secure enough votes to put him in charge.

With Diess in his new role, he will not only be CEO of the company, but will have direct responsibility both for Volkswagen and the Volume car business segment, which includes Skoda and Seat. Based on what he has already done with the Volkswagen area, look for Diess to direct some tough cost-cutting and restructuring for the rest of the company. Also, based on early press on a new all-electric modern version of the legendary “VW micro-bus” from the 1970s, one can also expect some surprises in product innovations.

Despite its woes, Diess is inheriting a company with a strong position in the marketplace. With 10.7 million cars produced in 2017, Volkswagen is the biggest auto maker in the world.