full text of vw article

[Shaun Mullen]

Internet site sign-ups are the way of the world, but for the sign-up 
phobic, here is the full text of the N.Y. Times article on VW's plight. 
 For the full-text phobic, here's a summary of the article: VW, blinded 
by the haze of Cuban cigar smoke, ignored two of the most basic tenet in 
the car business -- it's cyclical, stupid, and don't try to make 
yourself into something you're not capable of being, stupid.  Pretty 
stupid, eh?

Shaun Mullen
Newark, DE


August 29, 2004
Behind VW's Wheel, With Brick Walls Ahead
By Mark Landler

FRANKFURT -- The most famous thing that Bernd Pischetsrieder has ever 
done with a car, he readily acknowledges, is to crash it. In 1995, Mr. 
Pischetsrieder, then the chairman of BMW, took his company's McLaren F1 
- an exotic $1 million sports car - home for the weekend. Driving on a 
serpentine road in the Bavarian countryside with two passengers, he lost 
control of the car, which rolled over several times and came to rest in 
a field. His companions had only minor injuries, but the McLaren was 
wrecked.
Mr. Pischetsrieder would never condone reckless driving, of course, but 
he is all for taking chances on the job. "If you don't take risks in our 
business, you better resign immediately," said Mr. Pischetsrieder, 56, 
who is now taking the risk of his career as the chairman of Germany's 
largest carmaker, Volkswagen.
To say Volkswagen is heading for a crash only modestly exaggerates the 
gravity of its problems: plummeting profits; eroding market share in the 
United States; new headwinds in China, its fastest-growing market; and 
the troubled introduction of the latest Golf, its linchpin model. All of 
those have conspired to make Mr. Pischetsrieder's first two years at the 
company a bone-jarring ride.
Next month, he will face off against Volkswagen's powerful union in what 
people here predict will be an epic confrontation. The company wants to 
freeze the wages of 103,000 workers and make its factories more 
efficient by loosening its notoriously rigid work rules. The union, 
demanding job security and a 4 percent pay raise, is girding for war.
"Whether there will be a battle or not, I don't know," Mr. 
Pischetsrieder said in a recent interview. "One thing is for sure. If we 
want to have 30 percent lower wage costs in six years, we have to start 
now."
A courtly man whose goatee and trademark Cuban cigar lend him an 
old-world panache, he seems an improbable choice to guide Volkswagen 
through these nasty times. Some people wonder whether his tenure is 
destined to end the way his last job did: he was ousted from BMW in 
1999, after making a ruinous acquisition of the British carmaker Rover.
"People in the industry are starting to ask whether there is a 
Pischetsrieder curse," said Graeme Maxton, an analyst at Autopolis, an 
industry consulting firm in London. Under his predecessor, Mr. Maxton 
noted, Volkswagen rode a booming global economy to rich profits. Then, 
after Mr. Pischetsrieder took over from Ferdinand K. Piëch in April 
2002, "the bottom fell out of the car market, China slowed down and the 
new models didn't work."
"My belief is that he was handed something of a poisoned chalice," Mr. 
Maxton added.
Mr. Pischetsrieder is diplomatic about Mr. Piëch, a brilliant, driven 
engineer who is credited with pulling the carmaker out of its last major 
crisis in the 1990's. He remains enormously influential as the chairman 
of the company's supervisory board.
Still, Mr. Pischetsrieder has begun to distance himself from his 
predecessor's autocratic style and some of his decisions - particularly 
a costly campaign to vault Volkswagen into the luxury market with the 
$75,000 Phaeton. "If you want to establish a brand in a high-price 
segment, the last thing you would do is to do it with a saloon," he 
said, using the British word for a sedan. Owners of luxury sedans like 
those from Mercedes or BMW, he said, are unlikely to trade for one from 
the maker of the Beetle.
Mr. Pischetsrieder delivers this critique with a twinkle in his eye and 
the hint of a British accent - a legacy, former associates say, of his 
days as BMW's representative in South Africa. In an industry not known 
for its savoir-faire, he has earned the reputation of being a man of 
culture.
Robert A. Lutz, the vice chairman of General Motors, who once negotiated 
a joint venture with Mr. Pischetsrieder to produce engines, said his 
balanced personality has been a stabilizing force for VW, which is based 
in Wolfsburg, Germany. "You need to be a car guy to create great, 
compelling cars," Mr. Lutz said. "But you also need the financial acumen 
of a responsible executive to know when it's time to stop. He has that 
balance."
So far, Mr. Pischetsrieder has been busy just coping with the 
extravagant legacy of Mr. Piëch, at a time when extravagance has gone 
out of fashion. In March, he announced a plan to double Volkswagen's 
cost-cutting target to 4 billion euros ($4.84 billion) by 2005, which 
would involve cutting 5,000 jobs. He dismissed the head of sales and 
marketing, Robert Büchelhofer, in an attempt to stem eroding sales.
A mechanical engineer who prides himself on seeing the parking lot as 
well as the cars, Mr. Pischetsrieder has delegated decision-making in a 
company that used to be run almost like the boss's personal fief. He 
does not blame Mr. Piëch for his command-and-control style, he said, 
because Volkswagen needed drastic action when he took over. "You cannot 
care about product life cycles when you dearly need a new Golf and a new 
Passat simultaneously," he said. (Mr. Piëch declined a request for an 
interview.)
To be sure, Volkswagen's problems result from more than its own 
missteps. The auto market has slumped worldwide in the last few years, 
nowhere more than in Volkswagen's home country. Car sales in Germany 
fell 7 percent in July, versus the same month last year. Registrations 
of cars made by Volkswagen, which include Audi and Seat, fell 14 percent.
Volkswagen has been hobbled further by the rise of the euro against the 
dollar, which has hurt its sales in the United States and other markets 
pegged to the dollar. The company aggravated its trouble by not hedging 
its currency exposure until after other German carmakers did.
In China, where Volkswagen has long been the dominant foreign player, 
its franchise is coming under attack, as General Motors, DaimlerChrysler 
and other rivals ramp up production. In June, G.M. for the first time 
sold more cars in China than Volkswagen did, forcing VW to cut its 
prices. "Volkswagen in China is like Ford Motor was in the United States 
in the 1920's," said Garel Rhys, director of the automotive industry 
research group at Cardiff University in Wales. "In 1920, Ford had 65 
percent of the U.S. market. By 1929, G.M. had passed them by."
Historical parallels like that would give most auto executives 
heartburn. But if Mr. Pischetsrieder is feeling the burden of all these 
troubles, he isn't showing it. Puffing serenely on his aged Partagas, he 
said Volkswagen had bottomed out in the first quarter this year.
In July, the company cut its projected operating profit for 2004 to 1.9 
billion euros, before extraordinary charges, from an earlier forecast of 
2.5 billion euros. Mr. Pischetsrieder said that Volkswagen might beat 
the reduced target, but that he expected little improvement this year or 
early next year.
Volkswagen's problems are most apparent in the disappointing 
introduction of its new Golf. Responding to criticism that the latest 
version of this old favorite was too pricey, Volkswagen has thrown in 
free air-conditioning. It sold 278,000 of the cars in the first half of 
the year, making the Golf again Europe's best-selling model - a title it 
lost briefly to the Peugeot 206.
Having tamped down expectations, Mr. Pischetsrieder can turn to the 
business of retooling Volkswagen, a far-flung empire with 336,000 
employees, 45 assembly plants in 18 countries and $104 billion in annual 
sales. In addition to VW and Audi, its brands range from the proletarian 
Skoda to the rarefied Bentley, Lamborghini and Bugatti, the latest model 
of which costs $1 million and has a 1,001-horsepower engine.
Expanding Volkswagen into every niche had been one of Mr. Piëch's 
dreams. A descendant of the Porsche sports-car family, he focused 
obsessively on creating cars. That revived Volkswagen in the 1990's, 
when it had gotten a rap for dreary products and dubious workmanship.
But Mr. Piëch's fleet of cars eventually created problems. Volkswagen, 
analysts say, now has too many models in the same price range. His 
strategy of sharing platforms and components from Volkswagen with its 
sisters, Seat and Skoda, blurred the image of the individual brands. Mr. 
Piëch's product drive also came at the expense of sales and marketing. 
In the United States, Volkswagen has been hit with accusations of poor 
quality and erratic service on the part of its dealers. "We have some 
excellent dealers; we have some lousy dealers," Mr. Pischetsrieder said.
Most of all, Volkswagen's attempt to burnish its brand name - it means 
"people's car" in German - has been too expensive. To showcase the 
Phaeton, it built a $180 million assembly plant in Dresden, with 
shimmering glass walls, Canadian maple floors and a circular central foyer.
SALES of the Phaeton have been dismal on both sides of the Atlantic. To 
reduce the head-to-head competition with luxury sedans from Mercedes and 
BMW, Volkswagen may overhauling the car to make it more of a cross 
between a station wagon and a coupe. The Phaeton may be flawed, Mr. 
Pischetsrieder said, but the strategy is still sound. Volkswagen's 
upscale sport utility vehicle, the Touareg, has been a success. "The 
point is whether you can get an expensive car with a Volkswagen logo 
into the garage of a wealthy man or woman," he said. "The worst thing 
that can happen is that we get the product wrong."
At BMW, Mr. Pischetsrieder faced the opposite challenge. To expand into 
the mass market, he bought the struggling Rover, which made the Land 
Rover, the MG sports car and the fabled Mini, for $1.2 billion.
Mr. Pischetsrieder even had a personal tie to the Mini. His Greek-born 
granduncle, Sir Alec Issigonis, had designed the car. That did not save 
his investment, however. Rover continued to bleed money, becoming known 
as "the English Patient." In February 1999, Mr. Pischetsrieder lost his 
job. In a bittersweet coda, BMW held on to the Mini, reintroducing the 
car and turning it into a hip, retro brand.
People who know Mr. Pischetsrieder say the Rover experience shows both 
strength and weakness. He has great instincts about cars, they say, but 
his methodical style can let problems fester. "He is a very relaxed 
guy," said Ferdinand Dudenhöffer, director of the Center for Automotive 
Research in Gelsenkirchen. "But he takes things step by step, which can 
be time-consuming."
It was Mr. Pischetsrieder's credentials as a "car guy" that drew him to 
Mr. Piëch. The two had become acquainted while traveling with the former 
chancellor, Helmut Kohl. Alphabetical seating on the plane meant they 
found themselves next to each other.
Mr. Pischetsrieder's latest moves, however, have little to do with new 
models. In April, he announced a 2 billion euro deal in which Volkswagen 
will join investors from the Persian Gulf region to buy a Dutch fleet 
management company, LeasePlan. The acquisition, he said, would give 
Volkswagen another channel to customers. That is important, he said, in 
a time of diminishing brand loyalty and powerful nationwide auto dealers.
Yet the deal's most intriguing implications lie elsewhere: Volkswagen 
hopes to finance the purchase by selling shares to an investment fund 
linked to the government of Abu Dhabi, one of the seven states in the 
United Arab Emirates. That could make it the company's second- or 
third-largest shareholder, after the state of Lower Saxony and Brandes 
Investment Partners, an asset-management firm based in San Diego.
Mr. Pischetsrieder, still negotiating the stock price, said he would 
welcome Abu Dhabi as a stable investor. He prefers "long-term investors 
to hedge funds," he said, adding that someday, Volkswagen might even 
move truck production to the gulf region.
Analysts said the emergence of Abu Dhabi as a major shareholder would 
give the management of Volkswagen more independence from Lower Saxony. 
The state owns 18.2 percent of the company's shares, giving it the power 
to block a takeover and other major decisions.
Lower Saxony's influence is likely to be felt most in the labor 
negotiations. Though many officials privately applaud Volkswagen's 
efforts to extract a more flexible contract from the unions, they would 
cringe at the prospect of Volkswagen shutting down a major plant in Germany.
Mr. Pischetsrieder said he did not plan to issue sweeping threats to 
move production to Central Europe. Volkswagen already produces the 
Touareg at a giant plant in Bratislava, the capital of Slovakia, and its 
Audi roadster at a plant in Hungary. Persuading the rank-and-file to 
accept a two-year wage freeze may be more difficult. The chief 
negotiator for the IG Metall union, Hartmut Meine, dismissed 
Volkswagen's stance as exaggerated and unrealistic. "I am a strong 
negotiating partner," Mr. Meine said. "If there is no compromise, I am 
certainly in a position to call a strike."
Such rancor is almost unheard of at BMW, a smaller company with 
generally harmonious labor relations. Some outsiders wonder whether Mr. 
Pischetsrieder, having spent 26 years in those cozy confines, was 
temperamentally suited to make the leap to a big, messy company like 
Volkswagen.
The way he sees it, though, he can bring the best of BMW to Volkswagen. 
He knows he is part of an elite fraternity - executives who have had the 
chance to run not one but two major auto companies. "I didn't find 
anything here that I didn't know about," Mr. Pischetsrieder said, 
stubbing out his cigar as he headed back to Wolfsburg. "If there is 
anyone to blame, it would be myself."