CASE STUDY: CAR WARS AT WOLFSBURG
By Steven L. McShane, University of Western Australia
Over the past 15 years, Volkswagen Group (VW) acquired several fiefdoms—Audi, Lamborghini, Bentley,
Bugatti, Skoda, SEAT—that had jealously guarded their brand and continuously rebelled against sharing
knowledge. One member of VW’s supervisory board (the German equivalent of a board of directors)
commented that managing the company is “like trying to ride a chariot with four or five horses, each of
which pulls in a different direction.”
Then, Porsche AG entered the fray. The luxury sports car company, which relies on VW for some of its
production work, began acquiring stock in VW and eventually achieved a controlling interest. Porsche
CEO Wendelin Wiedeking was aware of VW’s internal rivalries. “If you mix the Porsche guys with the
Audi guys and the VW guys you will have trouble,” says Wiedeking. “Each is proud to belong to his own
company.” Yet Wiedeking stirred up a different type of conflict as Porsche tightened its grip over VW’s
supervisory board. Through an unswerving drive for efficient production and astute marketing,
Wiedeking and his executive team transformed Porsche into the world’s most profitable and prestigious
car company. Wiedeking wanted to apply those practices at VW by closing down inefficient operations
and money-losing car lines.
“Wiedeking is a Porsche CEO from another corporate culture,” says German auto analyst Christoph
Stuermer. “He’s out to maximize profits by cutting costs. And he snubbed everyone, telling off VW
management, interfering with their way of doing business.” Ferdinand Dudenhoeffer, director of
Germany’s Center of Automotive Research (CAR), agrees. “Porsche is very successful in being lean and
profitable. It’s not going to be harmonious.”
Particularly offended by Wiedeking’s plans was VW chairman Ferdinand Piëch, who had a different
vision of Europe’s largest automaker. Piëch, whose grandfather developed the VW Beetle, placed more
emphasis on spectacular engineering than exceptional profits. For example, he supported the
moneylosing Bugatti brand, which VW acquired several years ago when Piëch was CEO. More recently,
Piëch championed the Phaeton, VW’s luxury car that broke new ground in innovation (it boasts 100
patents) but has not been a commercial success.
Wiedeking, in contrast, believed that VW could be more profitable if it stopped producing the Phaeton
and Bugatti. “Piëch sees his vision endangered by Wiedeking,” says Dudenhoeffer. “Wiedeking said that
there are no holy cows at VW, no more Phaetons, no more Bugattis.” These ideas made Piëch’s blood
boil. “Anyone who says that VW should pull the Phaeton doesn’t understand the world,” grumbled Piëch,
explaining that luxury cars represent the only segment with double-digit growth.
There is an unusual twist in the conflict involving Piëch, Wiedeking, and Porsche. Piëch is a member of
the Porsche family. He is a cousin of Porsche chairman Wolfgang Porsche and owns a 10 percent share of
the Porsche company. Piëch began his career at Porsche and became its chief engineer before moving to
Audi and later VW. Furthermore, in what many consider a blatant conflict of interest, Piëch supported
Porsche’s initial investment in VW. But when Piëch’s and Wiedeking’s plans ended up on a collision
course, that initial friendly investment in the partnership turned into all-out corporate war. “There was
always a ceasefire between Piëch and the Porsches, but now it’s war,” claims auto analyst Ferdinand
Dudenhoeffer. “This is like Dallas and Dynasty in Wolfsburg [city where VW has its headquarters]. No
company in the world is so self-absorbed with its problems.”
Postscript
Ironically, Porsche CEO Wendelin Wiedeking’s plans backfired. Porsche had borrowed heavily to acquire
its controlling interest in VW while maintaining its own business operations. Some estimate that Porsche
had loans of more than US$14 billion. Furthermore, VW shares increased substantially during the
takeover process, so Porsche owed massive taxes for the increased “paper profits” of the shares it
owned. The timing couldn’t have been worse. The great financial crisis hit the world, which cut Porsche
sales and dried up funds, making it difficult for Porsche to pay interest on its loans and to renew loans
that were coming due. In effect, it was on the brink of bankruptcy. In addition, a unique law allowed one
German state (Lower Saxony), which had a 20 percent ownership in VW, to veto any important decisions
in the company, including Porsche’s control of VW. Ultimately, Porsche agreed to give up its controlling
interest in VW. Instead, it sold some of its business to VW and the Qatar government and, ultimately,
agreed to be acquired by VW (rather than vice versa). Wiedeking lost his job as Porsche CEO, whereas
Ferdinand Piëch (as chairman of VW’s supervisory board) would effectively be head of both automakers.
Complicated legal and financial matters delayed the complete acquisition, but VW recently completed its
takeover of Porsche.
Discussion Questions
1. Identify and discuss the sources of conflict between Porsche and Volkswagen executives.
2. Describe the conflict handling styles used by Wendelin Wiedeking and Ferdinand Piëch. Were they
appropriate in this situation?
