Herbert Diess has been named as the new Volkswagen brand boss. Diess, who is 56 years old, was the chief of BMW development. Diess, an Austrian national, succeeds Martin Winterkorn who will stay in the company as VW Group CEO. Diess is tasked to raise profitability, reduce costs, and turn the brand into a stronger competitor in the U.S.
The first item on Diess’s plate is to guarantee that the efficiency program initiated by Winterkorn to increase overall earnings by 5 billion euros before 2017 ends proceeds smoothly. This plan is critical to increasing the operating margin of the VW brand from 2.5% in 2014 to higher than 6% in 2018. The obstacle to this is that about 50% of the savings have not been identified yet.
JP Morgan auto analyst Jose Asumendi is confident that Diess can rise above the challenges, saying that Diess did a “fantastic job” at BMW and that his track record at the German company speaks for itself. Asumendi even said that BMW shouldn’t have permitted Diess to transfer.
Diess enters VW at a time when the brand’s auto sales have been slowing down, making up 60% of the volume of VW Group.
Last May, VW brand worldwide sales decreased by 5.9% with 499,500 units delivered. The factors that caused the decline include the slowdown in China and South America that outweighed the improvements in Europe. This is the seventh sales decline for the company in eight months. Diess had built an image for himself as a cost killer when he served at BMW as purchasing manager for five years (2007-2012).
According to top-level insiders at BMW, Diess was the perfect person to implement the cost cuts, which the company had to do after the collapse of the Lehman Brothers in late 2008. Sources also revealed that Diess wasn’t a serious contender for the CEO position at BMW since he can’t get the support of the company’s unions that are part of the supervisory board.
Instead, Harald Krueger was named CEO. In the short term, the VW brand will benefit from Diess’s expertise at pressuring suppliers and reducing waste. However, it can’t be denied that the automaker has later pushed out other executives that were brought in from rival companies and didn’t have an internal support base in Wolfsburg.
In 2005, Wolfgang Berhard became VW brand chief to much fanfare among shareholders. But before this when he was at Chrysler, he cut about 20% of its workforce. He even referred to Mercedes-Benz as a restructuring case where “blood would flow.”
He stayed with VW for less than 2 years before handing in his resignation in January 2007, almost immediately after he won an argument over a plan to cut jobs in Germany.
Analysts now think Diess will have to practise finesse when he faces the German unions. Unions play a major role in Volkswagen because of the brand’s rules that say that the union has to approve any plan of the company to shut down an assembly plant. The most recent occurrence was in 1988, when a VW plant in Westmore, Pennsylvania, was closed.