STURM UND DRANG AT VW.

By Peter M. De Lorenzo

Detroit. It’s no secret that Dr. Ferdinand Piech, the 77-year-old Volkswagen Group Chairman and industry legend, has had an incendiary career with his stints at Porsche and VW marked by reactionary product decisions and furious personal battles with both colleagues and underlings alike. Piech, the at times brilliant engineer and innovator who back in the day was responsible for some of Porsche’s greatest racing machines (the 908 and 917 to name just two), is also responsible for leaving turbulence in his wake at every turn. It’s a recurring pattern, in fact.

Piech, who resembled the lovable Colonel Klink from Hogan’s Heroes in his earlier years, instead has proved to be more like a Klinkian nightmare over his entire career. An arrogant, blunderbuss of a man with a massive ego, Piech ruled with an iron fist based on the premise that he was the smartest guy in the room – any room – and anyone who deigned to question one of his executive decisions or myriad product whims would soon endure his wrath.

Private and public humiliation was Piech’s specialty, and chastising underlings and jettisoning them with the slightest provocation took on an air of sport for him. Piech fell in and out of love with a series of heir-apparent executives on a routine basis, publicly praising them and then growing tired – or bored – and then undermining them by making negative, and on more than one occasion, even humiliating statements to the press before exiting them from the company altogether.

Piech held sway over the VW Group like an emperor whose reign would go on forever. He made boneheaded product decisions on the slightest of whims, whether they made sense or not. One example of his unbridled arrogance and hubris at work was the VW Phaeton. The Phaeton was Piech’s ill-conceived notion to create a luxury car that would humiliate BMW and Mercedes-Benz, but instead it turned out to be one of the most embarrassing product disasters of the modern automotive era.

Piech was warned that it was a bad idea by more reasoned and rational executives, who told him that people didn’t equate the VW badge with luxury and that it would be a recipe for complete disaster. But Piech shoved the program down the organization’s throat, even commissioning a stupendous new “Transparent Factory” in Dresden to assemble it.

To absolutely no one’s surprise, Piech’s more rational underlings proved to be absolutely right, and the pricey Phaeton was a non-starter from the moment it made its debut. The disaster was especially painful for VW’s U.S. dealers, who had the $75,000+ Phaeton dumped on their doorsteps, with not a clue how to sell it or who to sell it to. But true to form, Piech dismissed his critics far and wide as being uninformed and ill-equipped and he pressed on with the cash-burning Phaeton, even insisting that a new-generation car would be built, which is still hanging around in VW’s future product plans somewhere, as hard as that is to believe.

A scion of the Porsche family, Piech conducted himself unimpeded, knowing full well that he was basically untouchable, and that his reign over the VW Group would go on indefinitely, even though he had set a retirement date for 2017.

But apparently Piech’s reign will not go on forever, as his attempt at embarrassing and humiliating his latest heir apparent has gone awry, and in a big way too. Over the last two weeks, Piech has suggested that CEO Martin Winterkorn was dispensable, and that the seasoned executive may not automatically succeed him, but Piech made a major miscalculation. Assuming that he could do his usual act of belligerent bluster to influence any future management decision, Piech instead encountered a blistering and decisive pushback, to the point that the board vehemently disagreed with Piech and instead gave Winterkorn a rousing endorsement.

Piech used to be considered a mad genius, but now it's looking more and more like he's just mad, and his tenure now looks to be coming to an end, which would be a good thing for everyone concerned. He has had a good and at times brilliant run, but as Chris Rock has said he’s like the old guy who hung around at the club too long, and it’s time for him to go.

One thing that has resulted in all of this airing of VW’s dirty laundry, however, is that everyone has been reminded yet again that VW has been an abject failure in the U.S., which is one of its most important markets. Yes, the auto market in China is the be-all and end-all for the foreseeable future - or until the Chinese government nationalizes the interloping import auto companies – which is a distinct possibility, but VW’s performance here has been inexcusable, and it’s a glaring and embarrassing issue for Winterkorn. (Don’t think there’s a chance of nationalization ever happening in China? Think again. The Chinese government is now allowing gray market luxury cars to enter the country and be sold openly, undermining the pricing of luxury imports from Germany in particular. Not Good comes to mind.)

What’s the problem for VW in this market? Well, several things. Let’s start with poor product planning for one. The Germans are traditionally the most arrogant car marketers in the world, and the executives from VW prove that theory out on an almost daily basis. They think, no make that they are absolutely convinced, that they can shove any product down the U.S. dealers’ – and consumers’ – throats, and that they know what’s best for all concerned. Listening isn’t one of their gifts, obviously, and the realities of this market aren’t high on their list either. They dismiss the competition as a matter of course, and as a consequence it has made their lives miserable over here.

VW marketers have been sucked into thinking that the globalization of their marketing is a good idea, and that goes for their product positioning and naming regimen too. Well, as other marketing “geniuses” have eventually found out - the hard way, I might add - that doesn’t necessarily translate from region to region. But the thing is that VW marketers have seemingly never found that out, and it has been going on for decades too.

The other glaring problem for VW marketers is that they never know when to walk away from products that aren’t working, or are flat-out inappropriate for this market entirely (the aforementioned Phaeton is just one example; there are many others). That’s German automotive arrogance in all of its rancid glory, too, and it has been played out in this market for decades as well. Did they really need a new iteration of the Beetle? The High-Octane Truth? Uh, no. Make that oh hell no. If they wanted to keep the Beetle convertible around to cover that niche, that’s one thing, but they’re just spinning their wheels with the Beetle when they should be focused on other things.

But the biggest problem for VW in this market is that they’ve repeatedly strayed from the positioning that once defined the brand in this country, and that is one of offering German automotive goodness at a reasonable price. And I can’t stress this point enough. Yes, they’ve had some intermittently memorable ad campaigns – and ads - over the recent years, but too often VW executives base their U.S. marketing on the whims of whoever is calling the marketing shots that particular quarter. Thus the VW brand lacks the kind of focused consistency that the dealers need, and that consumers require in order to fully embrace the brand.

VW has been a train wreck in this country in terms of marketing savvy for so long now that it’s almost a joke. Piech never understood this market, and a long list of his heir-apparent executives didn’t either, including Winterkorn.

The Storm and Stress for VW in this market is likely to continue for the foreseeable future, too, because Piech or no, they’ve got their heads so far up their collective asses that clarity and rational thought are in painfully short supply.

And I don’t see anyone at VW on the horizon with the stones and the ability to fix things either.

And that’s the High-Octane Truth for this week.

Editor-in-Chief's Note (4/23, 8:35 a.m.): German press reports are abuzz with the breaking news that VW Chairman Ferdinand Piech is attempting to terminate CEO Martin Winterkorn before the company's annual meeting on May 5th, completely ignoring the wishes of the majority of the board, who strongly backed Winterkorn when Piech first raised the issue two weeks ago. A giant "we'll see" at this point.  -PMD

Editor-in-Chief's Note: (4/26, 8:30 a.m.): In a stunning development, but not entirely unexpected given the circumstances, Ferdinand Piech resigned from his position at VW - and from the powerful supervisory board as well - when it became apparent that he was staring at a "no" vote of confidence and had lost support of the board. He and his family still control a boatload of VW stock, but his day-to-day reign has come to an end. Remarkable. -PMD