VW faces leadership crisis as CEO demands a vote of confidence

FRANKFURT – Volkswagen risked a leadership crisis Tuesday after Chief Executive Herbert Diess forced a vote of confidence in the reform efforts by asking for an earlier contract extension.

The multi-brand car and truck maker is convening its Executive Committee to go over Diess’s interest in anything extension, long before his current term comes to an end in 2023, three sources told Reuters on Monday.

Volkswagen Chairman Hans Dieter Poetsch needs to avert a clash between labor leaders and Diess by postponing discussions about a contract extension, a person familiar with the problem said.

Diess, who defected from BMW in 2021, and helped Volkswagen to reform after its diesel scandal by having an $87 billion electric vehicle investment plan, is continuing to grow frustrated with German labor leaders blocking cost cuts.

The supervisory board’s Executive Committee, that is headed by Poetsch, and includes Wolfgang Porsche and Hans Michel Piech, members of the carmaker’s owning families, in addition to labor boss Bernd Osterloh, is due to meet , the 3 sources told Reuters.

Volkswagen declined to comment.

“The families continue to support Diess,” a spokesman for Porsche Automobil Holding SE, the company which holds a big part voting stake in Volkswagen said on Tuesday.

The meeting comes on your day that Tesla’s CEO Elon Musk is a result of get the Axel Springer award in Berlin for his achievements in engineering, after the electric carmaker chose to develop a factory on the outskirts of the German capital.

Analysts said the Volkswagen committee meeting highlighted the difficulties in reforming a carmaker where labor representatives control half the seats around the board of directors and native politicians possess a 20% voting stake, allowing them to vote down significant strategic reform proposals.

“The company has some of the most amazing and many global brands, it has the scale to deploy any technology and also the innovation capacity to be an early mover. What it seems to be lacking is the right corporate governance,” Bernstein autos analyst Arndt Ellinghorst said in a note late on Monday.

“There should be no illusion, this transformation will invariably trigger conflicts. Whether there is a new CEO or not, the questions will remain exactly the same, and then any VW CEO will require the entire backing from VW’s largest shareholders, the Porsche families.”

Volkswagen is worth $92.4 billion, far below rival Toyota’s market value of $155.7 billion and Tesla’s $555 billion.

And that’s even though Volkswagen sold 10.96 million vehicles this past year – the most by any carmaker on the planet – while Toyota came in second with 10.74 million. Tesla sold only 367,500 cars within the same period.

Analysts say Volkswagen is less capable and has higher costs. Volkswagen Group had 671,205 employees at the end of 2021, compared with 359,542 at Toyota after its fiscal year, and 48,016 at Tesla last year.

Forcing the issue

German companies customarily deliberate contract extensions for management board members only a year in front of expiration. Diess, however, forced the problem after labor leader Bernd Osterloh stifled his reform efforts.

These included Diess’s attempts to install allies Arno Antlitz as chief financial officer and Thomas Schmall as chief procurement officer on the management board, the three sources told Reuters.

Rather than approving every individual appointment, the labor leaders insist upon approving a “package solution” that is “harmonious,” a couple acquainted with the deliberations said.

Osterloh is also believed to oppose an earlier contract extension for Diess, among the three sources said.

In a post on LinkedIn now, Osterloh said there was no fight about management appointments because no committee around the supervisory board had been formally consulted about the issue.

Diess, for his part, voiced his frustration in a column within the German daily Handelsblatt published on Friday.

“When I took office in Wolfsburg, I'd firmly resolved to change the VW system. This meant splitting up old, encrusted structures and making the company more agile and modern,” he said.

“Together with many companions with similar degree of motivation, I succeeded by doing this in many places, but not in some, especially not at our corporate headquarters in Wolfsburg.”