In a joint interview with Handelsblatt and the Wall Street Journal, VW's chairman-elect, Bernd Pischetsrieder, explains his early decision to split the company's major brands into two groups
Going for gold
Bernd Pischetsrieder will take over from industry legend Ferdinand Piech at Volkswagen AG on April 17. The former BMW chairman will have his hands full at his new company which under Piech became Europe's largest car maker, but also one of the least profitable.
In a joint interview with Handelsblatt and the Wall Street Journal, Pischestrieder explains his early decision to split the company's major brands into two groups. Relaxed, and smoking his trademark cigar, he also defends VW against long-standing criticism that it isn't friendly enough with its shareholders.
What are the most important differences between VW and BMW? A key difference is that at BMW, the segmentation, and with it, customer orientation, plays a larger role. Essentially, Volkswagen has long relied on a single model.
First the Beetle, then later, the Golf. That's still largely the case. Only in the last ten years, has the company been working to expand its range of models and gain new customer segments. BMW had to win new customers at a much earlier stage and as a result, knows them better.
VW has to catch up in that respect. It doesn't help the customer much if only the engineers can see the fine differences between models, or if the body is differently shaped around what is otherwise the same car. You plan to remove this deficit by splitting your major brands into two groups.
What makes them different? It's not a deficit, it's a matter of using added opportunities. It's about how we present ourself to the customer and how they perceive us. Until now, we haven't adequately addressed the question of why a customer would want to buy a certain model.
In future, we plan to expand the lines of VW, Skoda, Bentley and Bugatti on the one side and Audi, Seat and Lamborghini on the other – preventing overlap as much as possible. We're aiming for a completely complementary line on both sides to cover at least 85% of all market segments.
Today, that's somewhat less than 75%, and we're not represented at all in the strongest-growing markets. Seat and Skoda won't be poaching VW's territory anymore? No, they will be expanding their product lines within their market group.
Take Audi and Seat, for example. About a year ago, we started thinking about a successor model for the Seat Toledo – a luxury model, but with the Golf's modular technology. A car like that would compete only with the Audi A4. At the same time, our sports-car segment at Audi needs entry-level models for younger, first-time customers. It's difficult to position a premium brand in the Golf segment.
We have to entirely rethink it. The next Toledo will be based on a concept no one else has. And Seat will provide models to round out the lower end of the sports car segment. Seat and Skoda aren't exactly big profit spinners. How do you expect to achieve the target return on sales of 6.5% without any big cars?
That's the challenge. We have to change the paradigms. The return target of each individual brand was drawn from the company's targets and led, in the case of Seat and Skoda, to the logical aim of entering the market of larger-class cars.
On the whole, that didn't exactly help the group. So, in future, everything the units suggest will be evaluated in terms of the group's profit. What the group earns is decisive, not the result of an individual brand. Your focus on capital return will be welcome news to shareholders. VW headquarters in Wolfsburg isn't exactly known as a bastion of shareholder value.
Our goal is to achieve a long-term increase in the value of the company. I already said in 1994 that short-term share-price objectives do not define our corporate goals, a long-term increase in value does. And in the long term, that leads to a stronger market capitalization. It's too often assumed that an investor is automatically a member of the company.
That's not the case. The shareholder is an investor who wants to achieve a certain return within a specific period of time. But in our sector, the money comes in as return six or eight years after an investment decision. That's why the car industry isn't a very trendy investment these days.
The share price is not an adequate yardstick. At Mannesmann, for instance, the share price increased tenfold in a very short time and the company still got taken over. You don't have to worry about that, with VW's anti-takeover rule still in effect. VW's takeover rule is a federal law, so I can't really address that issue. But I see it as a symbol whose importance has been overestimated.
But it still says that no one is allowed to have more votes than VW's home state of Lower Saxony. Regardless of the law, if someone wanted to take a 55% stake, how long would politics be able to hold them off? Plus, the majority vote can easily be offset with a partner.
It would be no problem, for instance, to find an investment bank to loan its voting rights for a shareholder meeting. Much more important than the law is having the state of Lower Saxony as a major investor. The state is a corporate shareholder, not a short-term investor. You like having the state as a member of the company?
At BMW, the Quandt family is a major investor. I consider the comparison with the state of Lower Saxony very interesting. In my experience, both argue exactly the same, that is, in the interest of the company. Coming back to the share price, would VW have a higher market value without the state as its main shareholder?
The company's current stock-market valuation reflects the assumption that the state pursues different interests than investors do. It's the responsibility of the board to remove that contradiction. That's not the only contradiction you have to resolve.
It seems like an even more difficult contradiction to resolve between "cars for the people," which is the literal translation of your name, and your new luxury cars, such as the Phaeton. That's not a contradiction. VW is now a premium car maker in each of its segments.
That opens us up to high-end expansion. And the fact that everyone's asking us about it shows it's the right thing to do. Under the aspect of purely basic necessities of transport, it's hard to explain why anyone would want to buy a premium model from Stuttgart, versus Munich.
But customers want this premium car because of the personal identification they have with the car they drive. That's no different whether the car is a Golf or a luxury car. Which one do you prefer to drive? Until now, a Ferrari. But I may soon switch to a Lamborghini. The new Murcielago is a great car.