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... the powerful D 1 sedan, the company's first foray into the luxury market under the VW name. He even seems to have settled on his heir apparent -- Bernd Pischetsrieder, the former boss of BMW and a supremely able executive in his own right. Looks like a job well done.
Pich has already rewarded himself by buying a 102 -foot yacht to sail around the world with his family. The boat is the talk of nautical circles. The gossip is that the $ 15 million yacht, being built by the top-notch Dutch shipyard Jongert, will be one of the most powerful, best designed private vessels ever launched, a fitting tribute to Pich, who is passionate about superbly crafted objects. RAIDERS? And so another corporate chieftain prepares to sail off into the sunset. End of story?
Hardly. In recent weeks, Pich, 64, has not acted like an exec who's winding down, a boss whose company is going from strength to strength. If anything, he's behaving like a CEO in the midst of a full-blown crisis, a corporate hero surrounded by dim-witted underlings and hostile outside forces. Pich has publicly lambasted the management of VW's Audi luxury car division for timid product choices. He has discussed the potential value of spinning off Audi, a potentially huge transaction in the global auto industry.
He has mused aloud that VW needs a major management realignment. Most amazing, he frets that VW could be a takeover candidate, "a tempting worm" to other companies on the prowl. VW officials have even named Ford Motor Co. (F) as a potential suitor. Execs at beleaguered Ford, meanwhile, wonder what the Germans are smoking. "There's another agenda here, " says a senior Ford of Europe manager. If there is another agenda, it's Pich's. Discussing the likelihood of takeovers and restructurings is a classic way to talk up a company's stock price.
Yet many investors are mystified by the idea of Pich as the shareholder's friend. Historically, Pich -- who will not even reveal how much VW stock he owns, although it's believed to be negligible -- has shown scant regard for boosting shareholder value. So wary investors and auto execs wonder whether his talk is a drive to bid up the price and leave in a blaze of glory, which in turn would allow Pich to exert power after retirement. How? After he steps down as boss, Pich wants to be named chairman of VW's supervisory board, a position that must be approved by a majority of shareholders. If he can goose the stock, Pich should be a shoo-in for chairman, a seat that gives him power to influence management and executive appointments.
That could create complications for his successor. "The new CEO will have a big handful of challenges, " says one former board member. "But the one [challenge] that's make-or-break will be managing Pich. " SQUELCH. Pich, by the way, is not talking for this story. Most outsiders don't want to talk on the record about Pich, either. But the question remains: Would the continued presence of Pich be good for VW?
Pich the engineer has always excelled. "He is completely focused on the product. He lives, breathes, loves cars, " says a former manager of VW's vast Wolfsburg assembly plant in Lower Saxony. The VW he has revived is in many ways the legacy of the best of the old Europe. It makes products that are the envy of rivals, employs thousands of workers for life, and enjoys the protection of the government: The state of Lower Saxony owns 18. 6 % of VW.
Pich is close to German Chancellor Gerhard Schrder, who as Prime Minister of Lower Saxony sat on VW's supervisory board. (The Chancellor's office now employs Audi's in its fleet. ) But Pich the executive will bequeath quite a number of problems to the company's next boss. VW, Europe's largest caretaker and the fourth-largest globally in terms of vehicle sales, has long struggled to improve profitability and productivity. The company's ambitious push to drive the brand upmarket risks hurting its existing premium marque, Audi. VW has far too many highly paid workers at its German plants.
Yet politics prevents a radical restructuring. Many outside shareholders, who have seen the stock stagger back down to 1997 levels, distrust the numbers they " re given by the company. Finally, some former execs say Pich cows subordinates, squelching debate at VW's top levels. All these issues loom just as uncertainty is mounting about what will happen next. The supervisory board, which oversees the management board in German companies, is not expected to announce a successor -- probably Pischetsrieder -- until November. Meanwhile, the industry picture is darkening.
Sales are soft in the U. S. , Europe, and South America. The last thing VW needs is a messy transfer of power at the moment it should be building on Pich's gains. Without question, those achievements have been considerable. Volkswagen's four main brands -- VW (VLKAY), Audi, Seat, and Skoda -- have taken 19 % of the European auto market, a gain of some three points in eight years, mostly at the expense of General Motors Corp. (GM) and Ford. Not bad for a company that eight years ago suffered from quality problems and a paucity of hit models.
In South America, VW vehicles account for one-quarter of car sales, and in China, one-half. Pich had a dynastic interest in seeing VW revive. His grandfather Ferdinand Porsche, founder of the sports-car maker, designed the first Beetle in the 1930 s, and his father, Anton Pich, ran the factories during the Third Reich. Anton's son, after working for Porsche, switched to Audi, which he eventually headed, and then moved on to VW itself. Ferdinand Pich certainly doesn't need to work. His clan is worth about $ 4 billion, thanks to its Porsche businesses.
But Pich is driven. Unlike many other auto chiefs, he calls the shots on product design and engineering. And if you work for Dr. Pich, you had better get it right. In Wolfsburg, executives joke that PEP, the acronym for the product development process (Produktentwicklungsprozess) really stands for Pich entscheidet persnlich -- Pich decides himself. And he can do it fast.
He is said to have sketched out the Audi's all-wheel-drive system on the back of an envelope. When Pich isn't drawing up the plans, he's examining them with a gimlet eye. No screaming, of course: That's not the way for Pich, an Austrian blue blood. One former transmission-plant manager said Pich would tour the factory quietly, reviewing production data sheets and zeroing in instantly on any numbers suggesting something was amiss in the manufacturing process. "He's the only person whose very presence on the floor would make my stomach begin to hurt, " says this manager.
Terrifying, yet inspiring. Under Pich's tutelage, VW sweats the small stuff. Check this out, says one rival exec: On VW models, the gap between body panels -- say between the front fender and wheel panel -- has been cut to 1 millimeter. That puts them in a league with the industry's best. Obsession with detail is one reason VW has succeeded so brilliantly in reviving its fortunes in the U. S. , where the VW brand was road kill a decade ago.
Last year, VW and Audi sales in the U. S. jumped 14 %, to 437, 000 units, for a combined 2. 5 % market share. That's up from a microscopic 0. 5 % in 1993. Although VW trails its Japanese rivals, it's the only European mass-market caretaker in the U.
S. The top VW brands in the U. S. are the Jetta, Passat, and the new Beetle, a remake of the humble bug so beloved of ' 60 s youth. Part of VW success lies in its quirky features. At night, the dashboard instruments the driver looks at, such as the speedometer and clock, light up in red, while those the driver touches, such as the radio, are backlit in blue. "It gives the vehicle some soul, which many of VW's competitors lack horribly, " says Wes Brown, a consultant at Next rend Inc. , a Thousand Oaks (Calif. ) auto-research firm.
Delivering the soul stuff is good for prices. A well-equipped Passat can top $ 29, 000 in the U. S. , making it one of the most expensive cars in its segment. In Europe, meanwhile, the $ 15, 300 Golf compact commands a premium of some 20 % over other cars in its class. "Very wealthy people will buy a Golf. You never rub people the wrong way with a Golf, " says Joachim Rebmann, the owner of Autohaus Rebmann, a VW and Audi dealership in Stuttgart. PET PROJECT.
Pich wants to extend the VW magic -- in several directions. On the drawing board is a 21 st century remake of the old VW bus, the chariot of hippiedom in the 1960 s. And in the power category, a $ 35, 000 super Passat will soon be on the autobahn, equipped with an eight-cylinder, W-shaped engine that delivers super acceleration. "They " ve fit a huge engine into a medium-size bay, " says Goldman, Sachs & Co. analyst Max Warburton. Dear to Pich's heart is the D 1, which launches in Europe next spring. This is the first Volkswagen luxury car and the cornerstone of Pich's efforts to move upmarket.
Positioned to compete with the stately Mercedes S-Class in the $ 50, 000 -plus segment, the sleek D 1 recalls the swooping lines of BMW sedans, while the interior is a rich mix of walnut and leather. Pich took an obsessive interest in the D 1 's top engine, a direct-injection diesel-fueled V- 10 monster. And the D 1 is not the only new model for the ruling classes. Pich, who bought the Bentley and Bugatti brands, is preparing a $ 700, 000, 800 -horsepower Bugatti able to go from 0 to 60 mph in four seconds.
This is impressive stuff. So why do many investors have such uneasy feelings about VW? "Shareholders are second-class citizens in this company, " says Simon Waxley, a fund manager at Liverpool Ltd. Partnership, which owns just under 2 % of VW's preferred shares. Strong language -- and this from a guy who sees some value in VW. To the frustration of Waxley and other investors, VW has shown little interest in giving them the data they hunger for. The company does not disclose operating profits, for example, and it's hard to figure out how VW calculates earnings. "It looks like their market dominance is paying off, but I see some investors who are still mistrustful as to whether these are real or pumped-up earnings because of Dr.
Pich's desire to depart on a high note, " says John Lawson, chief car analyst at Schrder Salomon Smith Barney (C). He estimates VW's profit margin was 1. 9 % in 1999, rising to 3. 6 % in 2000. Other analysts think it's even thinner. Investors, meanwhile, are frustrated that VW is not able even to reach its own announced target of a 6. 5 % return on sales. Last year, its return on sales was 4. 1 %.
Investors have long harbored the suspicion that Pich and his top managers care little for the margins. As a result, VW stock has one of the lowest price-earnings ratios in the European auto sector: Based on projected 2002 earnings, it's between 7 and 8, compared with industry averages of 13 to 14, according to Merrill Lynch (MER). Even poor old DaimlerChrysler (DCX) has a p-e of 16. VW's market capitalization of $ 17. 6 billion is a fifth less than BMW's, even though Volkswagen generates more than twice as much revenue. In the second half of 2000, VW's shares rose about 40 %, thanks to a $ 2 billion share buyback, but they have mostly drifted sideways this...
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Research essay sample on Luxury Car Eight Years
