Piech (l), Winterkorn and German Chancellor Angela Merkel in more harmonious times (Photo: VW)
The resignation of Ferdinand Piech late Saturday as chairman of the Volkswagen Group's supervisory board doesn't just mark the endÂ of a tumultuous and expansionistÂ chapter in the history of Europe's largest carmaker. It also highlights some of the mega-issues VW and the entire auto industry face as they prepare for a radically different era of personal mobility.
Piech, a brilliant engineer and grandson of Â Ferdinand Porsche, who designed the first Volkswagen Beetle , oversaw a major expansion drive as CEO of VW between 1993 and 2002. And when he left to become head of the group's supervisory board, he continued to exert a strong influence over just about every aspect of the company's operations. He could do so because the Piech and Porsche families, through their ownership of the Porsche Group, also controlled a majority stake in VW.
In the past two weeks, Piech, who is used to getting his way, withdrew his support of VW CEO Martin Winterkorn, a former protege who has, on the whole, been successful in growing the VW business and putting the carmaker on track to become the biggest in the world. Press reports say Piech's main concerns were the relatively low profitability of the core VW brand, the company's failure to get traction in the important US market, and Winterkorn's slow progress in launching a low-cost brand that could help VW in developing markets.
But Piech apparently failed to get the agreement of other family members and other VW shareholders, who all felt Winterkorn was the right man to continue at the helm of VW - at least for a while longer.
The Piech-Winterkorn dispute highlights the difficult relationship family owners - or controlling family shareholders - often have with those who manage the day-to-day operations of their companies. Those relationships seldom work when the big shareholders getÂ too involved. That's why the Ford family letsÂ Ford Motor be run by independent professionals. That's also why the Agnelli family gives Sergio Marchionne free rein to map out the global strategy ofÂ Fiat-Chrysler. And that's why the Quandt family is hardly ever heard from when it comes to the strategic decisions made by premium car maker BMW.
At Volkswagen Group, however, Piech was never away. He told me once when I approached him at a car show around 2006 that he couldn't comment on some VW development. "I'm retired," he said. Nothing was farther from the truth. In 2007, Piech was instrumental in ousting VW CEO Bernd Pischetsrieder and replacing him with Audi CEO and long-term associate Martin Winterkorn.
Regardless of how the Porsche-Piech family will now redefine its involvement in VW's affairs, the most recent events focus attention on the viability of the carmaker'sÂ strategic orientation.
Can a car brandÂ such as VW continue to be successful, with a lot of relatively expensive manufacturing taking placeÂ in Germany and a sales strategy that assumes people will pay a premium for an exceptionally well-built mass-market vehicle? The answer to that question is unclear, especially with more carmakers building perfectly good vehiclesÂ in low-cost countries and the quality of those cars rising across the board.
The criticism leveled at VW for its failure to make inroads in the US market is correct. The US Â is too big to ignore and the market'sÂ recent strong performance would have provided a nice counterweight to sluggishÂ sales growth elsewhere for any car company. But VW's problems also underscore the challenges faced by any companyÂ in pursuing geographical diversification. You can't be strong in all markets.
Whether or not VW should develop an ultra-low-cost vehicle is another key question. The VW philosophy is not ideal for such a venture; the engineering focus on quality stands in the way of efforts to design and manufacture as cheaply as possible. In the volume market, VW operates the Skoda and Seat brands, but Skodas, though they cost less than VWs, are quality vehicles that command standard prices. Seat, which is much less successful commercially, also doesn't really build low-cost cars.
Does multi-brand work?
The final question the VW Group faces is whether its multi-brand approach to carmaking will work in the new mobility world.Â VW has 12 brands to manage at a time when the transformation of the industry involves electrification, car-sharing, a focus on connectivity, the digitization of retail and general customer relations and the prospect ofÂ new non-traditional competitors becoming a more serious challenge. Think Tesla, Google, Apple.
In addition, VW is battling General Motors for supremacy in China, the world's fastest growing big market.Â That's a handful of issues, one as urgent as the other. Is 12 brands too many at a time when VW needs to urgently address how it will reposition its vehicles - and the entire company - in an era of new mobility?
Thus, the latest developments in Wolfsburg, which mark the departure of Piech from a key VW decision-making role, isn't just about family involvement in a company holding and it isn't just about Â Volkswagen. They firmlyÂ put the spotlight on the huge issues the industry as a whole faces.
The common wisdom in the car industry is that only scale can lead to the kind of economies needed to make any kind of profit.Â The Volkswagen Group boosted new car sales 4.9 percent in 2014 to 10.14 million vehicles. It has a good chance of becoming the world's biggest auto maker this year,Â surpassing Toyota and GM. But the dynamics of car-making are changing and, especially if electric vehicles become a bigger sales factor, strategies that have worked well in the past may not do so in the future.
Take new players. "The barrier to entry is much lower when you launch an electric vehicle than when you develop a car with an internal combustion engine," said Celso Guiotoko, CIO of Renault and Nissan. 'When you digitize, you lower the hurdles. Just look at the number of parts you need for an electric vehicle; it's half of what you need for a traditional car."
VW and other traditional brands need be on the alert for this new competition. They also need to rethink their product mix, their manufacturing footprint, their prioritization of connectivity and their global ambitions. In short: Everything is up for reviewÂ as Automotive 4.0 begins to take shape. Ferdinand Piech, in his own way, has focused attention on the need for car companies to embrace change and transform their business.
-By Arjen Bongard
(Arjen Bongard is editor-in-chief of automotiveIT international)