Just a stopgap

Truce gives VW time to prepare for post-Piech era

The truce in Volkswagen's boardroom battle gives Europe's largest carmaker time to prepare for life after Ferdinand Piech. A week after the chairman withdrew his support for Chief Executive Martin Winterkorn, the board's steering committee pacified the quarrel. The body, chaired by Piech, said it unanimously backs Winterkorn and even signalled its intention to extend the CEO's contract.

While the ceasefire is welcome, it may not be stable. Both men are larger-than-life characters and masters in Machiavellian strategies. And both may hold a grudge. If a more subtle tussle between chairman and CEO were to continue, it could easily paralyse the highly hierarchical behemoth.

Even if Piech and Winterkorn manage to swallow their pride, business as usual is not a sustainable option for Volkswagen. While the 78-year-old Piech is adamant that the decision about his succession should be postponed until 2017, his poorly explained attack on Winterkorn shows that the ageing patriarch has already become a corporate liability.

Volkswagen cannot afford two years of top management limbo, not when the underperforming VW passenger car brand is in the midst of a crucial cost-cutting programme, truck brands MAN and Scania have to be integrated, and car brand Audi faces intensifying competition.

Moreover, Piech may be an impossible act to follow. The 67-year-old Winterkorn is the most rational choice, if Piech can be persuaded to backpedal. But Volkswagen could be too big to manage, at least in Piech's autocratic style. This industrial empire contains 12 brands, 118 plants in 31 countries and 600,000 employees.

The best approach is not to search for a Piech clone, but to turn Volkswagen into a company that doesn't need superhuman leadership. Possible decisions include spinning out the heavy trucks division and Ducati motor cycles, closing down the loss-making SEAT car brand and accepting that the VW passenger car brand is a niche player in the US market. It also makes sense to divide the remaining marques into just two divisions, volume and premium.

The boardroom support for Winterkorn is a helpful stopgap. Volkswagen's governance challenges run much deeper. The almost 20 per cent discount in the price-earnings ratio relative to better-run rivals Daimler and BMW is well merited.