VW seeks to avert crisis after CEO demands confidence vote

The VW CEO is unlikely to succeed with his request given current opposition to a contract extension by key stakeholders at the company, two people familiar with the matter. The multi-brand German car and truck maker convened the supervisory board's executive committee to discuss Diess' demands, sources told Reuters on Monday.

Volkswagen, the world's largest vehicle maker by sales, risked a leadership crisis on Tuesday after Chief Executive Herbert Diess demanded a vote of confidence in his reform efforts by asking for an early contract extension. The VW CEO is unlikely to succeed with his request given current opposition to a contract extension by key stakeholders at the company, two people familiar with the matter.

The multi-brand German car and truck maker convened the supervisory board's executive committee to discuss Diess' demands, sources told Reuters on Monday. At the meeting on Tuesday, Diess outlined his vision for the future of the carmaker and the reforms needed for him to be effective, two sources familiar with the matter said.

He urged stakeholders to back him in an effort to break a management deadlock with Volkswagen's labour chiefs. Chairman Hans Dieter Poetsch is seeking to avert a clash by postponing discussions about a contract extension, one of the people familiar with the matter said. "The executive committee will not be pressured into a decision, there is no rush," the person said.

Volkswagen declined to comment. Diess, who defected from BMW in 2015, and helped Volkswagen reform after its diesel scandal with a 73 billion euro ($87 billion) electric vehicle investment plan, has grown frustrated with German labour leaders blocking cost cuts.

The executive committee, headed by Poetsch, includes Wolfgang Porsche and Hans Michel Piech, members of the carmaker's owning families, as well as labour boss Bernd Osterloh. "The families continue to support Diess," a spokesman for Porsche Automobil Holding SE, the company which holds a majority voting stake in Volkswagen said on Tuesday.

Analysts said the potential crisis at Volkswagen highlighted the difficulties of reforming a carmaker where labour representatives control half the seats on the board of directors and local politicians have a 20% voting stake, allowing them to vote down strategic proposals. "The company has some of the most amazing and most global brands, it has the scale to deploy any technology and the innovation power to be an early mover. What it appears 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 always trigger conflicts. Whether there is a new CEO or not, the questions will remain the same, and any VW CEO will need the full backing from VW's largest shareholders, the Porsche families." Volkswagen is worth 77.2 billion euros ($92.4 billion), far below rival Toyota's market value of $155.7 billion and Tesla's $555 billion.

That is despite the fact that Volkswagen sold 10.96 million vehicles last year - the most by any carmaker around the globe - while Toyota came in second with 10.74 million. Tesla sold only 367,500 cars in the same period. Volkswagen Group had 671,205 employees at the end of 2019, compared with 359,542 at Toyota at the end of 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 ahead of expiration. Diess, however, forced the issue after Osterloh stifled his reform efforts.

They included Diess' 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 each individual appointment, the labour leaders insist on approving a "package solution" which is "harmonious", two people familiar with the deliberations said.

Osterloh is also said to oppose an early contract extension for Diess, one of the three sources said. In a post on LinkedIn this week, Osterloh said there was no fight about management appointments because no committee on the supervisory board had been formally consulted about the issue.

Diess, for his part, voiced his frustration in a column in the German daily Handelsblatt published on Friday. "When I took office in Wolfsburg, I had firmly resolved to change the VW system. This meant breaking up old, encrusted structures and making the company more agile and modern," he said.

"Together with many companions with the same level of motivation, I succeeded in doing this in many places, but not in some, especially not yet at our corporate headquarters in Wolfsburg." ($1 = 0.8368 euros)

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