Volkswagen billionaire clan plotted CEO ouster as he was on US trip

BERLIN (BLOOMBERG) – Volkswagen AG’s dramatic move to oust its combative chief executive officer was set in motion a week ago, when his backing from the billionaire Porsche and Piech family began to crumble.

Unwavering support from the reclusive clan that majority-owns VW had helped Mr Herbert Diess survive frequent clashes with powerful worker representatives. But as key project failures combined with worker discontent, the family concluded that he had to go.

The decisive day was July 20, according to people familiar with the deliberations. The top committee of VW’s supervisory board, comprising family representatives, officials from the German state of Lower Saxony and labour leaders, determined that Mr Diess’ time as CEO was up.

He learnt this around lunchtime the next day, still jet-lagged from a visit to the automaker’s sport utility vehicle factory in Chattanooga, Tennessee.

In the end, Mr Diess’ undoing is a brutal reflection of the challenges facing leaders of industrial behemoths trying to modernise for the digital age. VW’s unions wield significant influence even by German standards, where worker representatives account for half the seats on supervisory boards. Their leaders and the state are resistant to drastic and expedient change that will compromise jobs.

While Mr Diess excelled at setting a strategic direction for VW, his delivery ruffled feathers and the company’s execution has been patchy. The outsider, brought in from BMW AG in 2015, did not accumulate enough allies and became increasingly isolated. Threats of cost cuts and delays developing software for the vehicles of tomorrow ultimately cost him his position.

“The departure of CEO Herbert Diess should not be a surprise given how marginalised he had become in recent months,” Jefferies analyst Philippe Houchois wrote in a report. “The timing is unfortunate and another illustration of dysfunction at VW.”

Spokesmen for VW declined to comment on the events leading up to Mr Diess’ dismissal.

Momentum to remove Mr Diess before VW’s summer break started building last weekend during individual discussions among the eight-member presidium within its supervisory board. Mr Diess was in the United States to shore up progress in a market where Europe’s biggest carmaker has long lagged.

While the top executive was away, key representatives of VW’s main stakeholders started contemplating about who could replace Mr Diess should tensions within the company worsen. There have been repeated flare-ups, including late last year, when Mr Diess warned that the company risked falling behind Tesla and mused about major job cuts.

In December, VW overhauled its management board, stripping Mr Diess of some responsibilities while tasking him with leading Cariad, the carmaker’s software unit.

Since then, discord at Cariad has pushed back the scheduled roll-out of important new models, including the electric Porsche Macan SUV.

His struggle to muster broader support to execute his €89 billion (S$126 billion) electric vehicle (EV) and software strategy started to fray support among Porsche and Piech family members.

The successor

During the deliberations of the past week, Porsche CEO Oliver Blume emerged as the heir apparent with his long history of key operational positions at VW and track record of rejuvenating the sports car division.

While Porsche’s all-electric Taycan is Mr Blume’s most visible achievement, he has successfully executed various projects across the group, winning the backing of VW’s many factions.

As VW’s power players weighed the pros and cons of putting a new leader in charge, they started to tilt towards making a change.