KEY POINTS:
Europe's largest car-making empire has quietly been taken into dynastic hands. A fortnight ago, 70 members of the Porsche and Piech clan voted to consolidate Porsche and its 31 per cent stake in Volkswagen within a new European company, taking Volkswagen back under clan control.
This is the
triumph of Ferdinand Piech, the 70-year-old grandson of Ferdinand Porsche, creator of the Volkswagen Beetle.
While most great dynasties decay, Piech has recreated and grown the family empire.
Piech and two Porsche directors, Wendelin Wiedeking and Holger Harter, now dominate the Volkswagen supervisory board, controlling both Europe's most profitable sports car maker and its largest car manufacturer. Wiedeking and Harter also head the new company, Porsche Holding.
Through Volkswagen, they not only oversee marques such as VW, Audi, Seat, Skoda, Bugatti, Bentley and Lamborghini but are poised to create Europe's largest truck maker when the merger of Germany's MAN with Swedish rival Scania is concluded. The clan also owns Europe's largest car dealership, selling Porsche and Volkswagen cars in 20 countries. The family empire employs 500,000 people with sales of ¬$150 billion ($262 billion).
Piech has claimed the three great loves of his life are "Volkswagen, family, money". He has not fared badly.
He now aims to turn Volkswagen into a European challenger to Toyota as the world's largest car manufacturer, with similar product quality.
A sporty, wiry Austrian who sails and skis, Piech is known for his determination and ambition. Reports suggest he drives senior managers to despair; one complained in a letter to the Volkswagen board about "a man with psychopathic characteristics".
He is credited with the sacking of 34 company directors - a record of sorts. The public dismantling of Bernd Pischetsrieder, his successor as VW executive chairman, was just one.
Piech has himself admitted: "You don't win battles by being friendly."
Like his grandfather, who persuaded Adolf Hitler of the value of a mass-production German car, Piech is a car-obsessed engineer and perfectionist. His career led from Porsche via Audi to Volkswagen, where he was appointed executive chairman in 1993, becoming head of its supervisory board in 2002.
At every stage, he has been a hands-on maker of cars. He has also deployed his power ruthlessly to rebuild the post-war family business in which his father led the first Volkswagen factory, his mother ran the car dealership and his uncle headed the Porsche factory.
Piech vehemently denies he is driven by dynastic considerations, although family looms large. He has 12 children by four different women - two to whom he was married, two to whom, as he says, he was "connected". He openly mocks the many groups of heirs who passively control much of modern German business, often only bothering about dividends. Despite his own inheritance, including a 10 per cent stake in Porsche, Piech is a workaholic seen at every motor show - an engineer's engineer. This has enabled him to expand his own and his family's fortunes vastly, thanks not least to the transformation of Porsche achieved under Wiedeking, widely seen as Piech's right-hand man.
The British pension fund Hermes has criticised Porsche's ¬$5 billion investment in Volkswagen, making the company bid-proof. Wiedeking admitted the purchase was "so that Volkswagen remains Volkswagen".
In other words, in the hands of the Piech-Porsche clan.
Hans-Christoph Hirt of Hermes slams the move: "Mr Piech has not acted according to his role as representative of all shareholders."
Along with other institutional investors, Hirt claims that Piech, as a leading Porsche shareholder, should not lead the Volkswagen supervisory board due to the conflict of interest.
Volkswagen has underperformed under Piech's leadership. Without Porsche's intervention, it was a prime candidate for a profitable break-up. Together, the State of Lower Saxony and Porsche have a 51 per cent blocking majority.
This does not mean that Volks-wagen can or will stand still. Wiedeking and his Porsche colleagues have to address the many problems left unsolved by Piech.
"The cost structures within Volkswagen are not yet right," Wiedeking admitted recently. It is a key problem; the company's German plants make little or no money. Wolfsburg production workers recently had their working week increased from 28.8 hours to 33 hours.
This should ensure that the Golf, one of Europe's best-selling cars, is not built at a loss. But more change is needed.
Piech has been an assiduous friend to the unions, which returned the favour by giving his career a power base. Shareholders were ignored in favour of great engineering and an expensive workforce. But this so-called "system Piech" ran out of control. Peter Hartz, a Volkswagen director extremely close to Piech, was recently found guilty of bribing union leaders and politicians.
Accountants do not impress Piech. He once said: "Engineers can be accountants but accountants can never be engineers. Our managers need to be both."
This love of engineering has seen Volkswagen collect costly trophy marques - such as Lamborghini, Bentley and Bugatti - and ignore the margins of its core business.
Vital products and markets, such as the US, have been neglected. The Phaeton, built in a spectacular glass-sided factory in Dresden, was a pet Piech project. It seemed he dreamed of Volkswagen matching Mercedes. That vision has not convinced car buyers. Yet when Pischetsrieder tried to stop it, his departure became certain.
Many leading shareholders were worried to see Pischetsrieder, the affable ex-head of BMW, leave Volkswagen. But they have little power.
Small shareholders, however, admire Piech for keeping Volkswagen secure from a takeover bid.
For Porsche, the Volkswagen investment has been a huge success, as Peter Schmidt of analysts Automotive Industry Data says: "Porsche acquired one of the most undervalued assets in the business and has announced record profits of ¬2.1 billion with incomparable profit margins. You may say that Piech has an abrasive manner but he is an incredibly brainy guy."
Georg Sturzer, automotive analyst at HypoVereinsbank in Munich, comments: "Volkswagen shares have risen by 140 per cent since Porsche bought its stake. Both groups of shareholders can be pleased and look forward to a stronger, more competitive company in two to three years. But there is a conflict of interests between shareholders now that Volkswagen can now only be acquired by Porsche."
Quite so. The Porsche-Piech clan has already worked its own breathtaking takeover.
- INDEPENDENT
