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Errors and emissions

22 September 2015 By Olaf Storbeck

Martin Winterkorn should no longer be chief executive at Volkswagen. The boss of the German carmaker has presided over an emissions-cheating scandal that wiped a third off the German carmaker’s market value in just two days. But even his removal – which VW denied was imminent on Sept. 22 – would only be the start of a fundamental makeover. The group’s structure is too complex, and its corporate governance dysfunctional.

VW’s systematic hoodwinking of U.S. authorities, selling cars equipped with devices that mask emissions during regulatory tests since 2009, is not the company’s only problem. The provision VW has announced of 6.5 billion euros will erode earnings already suppressed by troubles at VW’s key passenger car brand, persistent underperformance in the U.S. car market and growing headaches in China, where VW lacks the affordable SUV’s customers want.

It isn’t yet clear whether Winterkorn knew about the “defeat devices” in certain U.S. cars. Still, his handling of the situation is indefensible. U.S. regulators had started to investigate unusual emissions of certain models back in 2014. But it took Volkswagen until Sept. 3, 2015 to admit it had used the devices. The company stayed mum until after U.S. authorities made the misbehaviour public on Sept. 18 – even issuing a press release naming it the world’s most sustainable carmaker. Winterkorn either didn’t know about the scandal that would destroy 25 billion euros of market capitalisation in two days, or thought shareholders wouldn’t want to know sooner.

Even without Winterkorn, VW has a deep-running problem: the sheer complexity of an empire spanning across 12 brands from Ducati motor bikes to Golf family sedans, Porsche roadsters, Scania trucks and MAN ship engines. With over 592,000 employees and 119 factories in 31 countries, the giant looks ungovernable. Moreover, VW’s supervisory board is dominated by the Porsche-Piech family, regional politicians and German trade unions, making it too political to function effectively.

The Wolfsburg-based carmaker ought to radically simplify itself. It could carve out its truck division and Porsche into independent businesses, since synergies with other activities are minimal. What’s left could be grouped into a premium division under Audi and a volume division around VW. More broadly, Wolfsburg basically needs to scrap Winterkorn’s grandiose vision of becoming the world’s “number one mobility enabler.” And executing this turnaround needs someone else at the top.

 

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