Volkswagen Prepares to Replace CEO -- WSJ

By William Boston 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (April 11, 2018).

BERLIN -- Volkswagen AG's supervisory board is expected to vote on Friday to replace Chief Executive Matthias Müller with VW brand chief Herbert Diess, according to people familiar with the situation, a surprising shake-up after the German auto maker endured a crisis that cost it billions of dollars.

Mr. Müller, who formerly ran Volkswagen's sports-car marque, Porsche AG, became CEO in September 2015 in the wake of the disclosure in the U.S. that the company had rigged millions of diesel-powered cars to cheat on emissions tests.

The appointment of Mr. Diess, a former BMW AG executive, would mark an unexpected turn of events for Mr. Müller, who has been credited with steering the world's biggest car maker by sales through the emissions crisis, accelerating its efforts to develop electric and self-driving vehicles, and returning it to robust profits. His contract at Volkswagen, which is listed but partially state-owned, isn't due to expire until 2020.

Mr. Diess, who is 59 years old, has been running the Volkswagen brand, the company's biggest business by sales, since 2015, having been hired shortly before the diesel scandal exploded. Passed over for the chief executive job at BMW, he was recruited by Ferdinand Piech, a former Volkswagen CEO and grandson of Beetle inventor Ferdinand Porsche.

Mr. Müller's departure didn't appear to have been triggered by a specific incident or deep dissatisfaction with his performance, according to people familiar with the situation. Indeed, at any other company, he would likely be celebrated for boosting the company's share price by more than half since his appointment.

The stock closed 4.5% higher at EUR171.58 ($211.44) in Frankfurt on Tuesday, outperforming the DAX index of German blue chips.

But Volkswagen isn't just any other company, controlled as it is by a distinctive trio of stakeholders. The heirs to Ferdinand Porsche and the German state of Lower Saxony together hold more than 70% of the company's voting stock, while the IG Metall trade union has 10 seats on its board of directors.

The ability of management to put its stamp on the company is limited, given the Porsche clan's drive to maintain control even at the expense of profits, and the shared interests of Lower Saxony and IG Metall to protect the nearly 250,000 Volkswagen jobs in Germany, more than one-third of the auto maker's global workforce.

Other German industrial groups, including rival auto maker Daimler AG and electrical-engineering giant Siemens AG, have begun to overhaul longstanding corporate structures. They are breaking out individual businesses to give them more autonomy, making them more flexible and potentially more attractive for investors.

Volkswagen, by contrast, is difficult to streamline because of the entrenched interests of its controlling stakeholders, said Ingo Speich, a fund manager at Union Investment, one of Germany largest investment funds. "Volkswagen needs more flexible structures, but the family is just interested in maintaining the status quo," he said.

Volkswagen's board of directors chose the ultimate insider when it tapped Mr. Müller to lead the company out of the diesel crisis. At the time he was CEO of Porsche, having risen through the ranks at Volkswagen and its subsidiaries after starting his automotive career as an intern at Audi AG.

As part of Volkswagen's recovery, Mr. Müller pushed a radical move into electric cars. The strategy was opposed by many long-serving Volkswagen executives and engineers, but appeared to have the backing of the board of directors.

Over the past few months, however, Mr. Müller appears to have lost the trust of the controlling Porsche and Piech families, according to the people familiar with the situation.

In an interview with The Wall Street Journal last year, Mr. Müller spoke openly about selling the Ducati motorcycle brand without the blessings of the controlling families, according to one of the people.

Mr. Müller also said about EUR20 billion ($24.65 billion) of Volkswagen's EUR231 billion in annual revenue came from businesses no longer considered essential and up for disposal, upsetting the company's core stakeholders.

Mr. Müller is known for his strong opinions and candid speech, which has irritated some members of the controlling families. Last year, for example, he broke from the German auto industry in advocating an end to tax subsidies for diesel cars and a shift in government funding toward development of electric vehicles, angering the Porsche and Piech clans.

"Let's put it this way, you could say that sparks flew," said one of the people close to the families.

Mr. Müller, who turns 65 this year, has also grown increasingly frustrated with the slow progress of change at the company and being forced to play Whac-A-Mole as new scandals pop up, according to the people.

One of the people said Mr. Müller was deeply frustrated when it emerged earlier this year that Volkswagen had been party to research that involved putting test monkeys in a chamber and forcing them to inhale diesel fumes.

In the end, Mr. Müller and the powers that be at Volkswagen might simply have agreed it was time for a change, according to people familiar with the situation.

Earlier Tuesday, Volkswagen said it was considering changes to its senior-management structure, including possible changes to Mr. Müller's position and responsibilities, adding that the chief executive "showed his general willingness to contribute to the changes." In its short statement, the German car maker said the review might not lead to actual changes in management structure or personnel.

Write to William Boston at [e-mail]

(END) Dow Jones Newswires

April 11, 2018 02:47 ET (06:47 GMT)

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