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Merkel’s moment

4 November 2015 By Olaf Storbeck

If Volkswagen were a normal company, it would be going through radical reforms. Instead, three groups of entrenched stakeholders prevent the carmaker moving on from its deepening emissions-cheating scandal: family shareholders, the state of Lower Saxony and labour unions. Safeguarding VW’s future may require some extreme political intervention.

Some public shareholders are rightly calling for a new outside chairman. Engineering company Siemens dug its way out of a bribery scandal in 2007 by bringing in Peter Loescher as chief executive. He sacked huge swathes of the company’s management, and sued his predecessors. But at VW, external shareholders have non-voting stock and hardly any board representation. New Chairman Hans Dieter Poetsch and the new Chief Executive Matthias Mueller are members of the old guard.

The existing controlling stakeholders have little incentive to force change. The Porsche and Piech families, which control 52 percent of the voting stock, have dominated VW for decades, and may be too close to take a dispassionate look at the culture they helped to create. Lower Saxony, with 20 percent of the voting rights, wants to safeguard its dividend from VW, which in 2014 equalled 10 percent of the state’s total revenue. Along with the labour unions, it also has a goal of maximising employment and wages. The group’s labour costs are significantly above Daimler’s and BMW’s.

To move forward, something needs to happen to wake them up. For the family, a share price implosion might do it. VW stock has lost around a third since it was first revealed in September to have cheated in emissions tests. Were the stock to fall heavily from here, the family might start to fear a huge loss of wealth – or at worst, being diluted in a Berlin-led bailout.

Even that may not be enough to persuade the unions and Lower Saxony. Volkswagen may need a different form of intervention: a word of command by Chancellor Angela Merkel. If VW were really to crumble, Berlin would have little choice but pick up the pieces at the country’s largest private employer. VW is too big to fail. This gives Merkel the authority to intervene. For her to discreetly demand Poetsch’s head is probably the best chance VW has at wiping the slate clean.



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