Wednesday, September 14, 2005

Frankfurt Auto Show

Can Bernhard turn around VW?

Exec aims for results in three years

By Christine Tierney / The Detroit News

Torsten Silz / Getty Images VW brand Chairman Wolfgang Bernhard shows the cabriolet EOS in Frankfurt. If his major restructuring for VW succeeds, Bernhard could be on track to become CEO of Europe's largest carmaker. Error processing SSI file Comment on this story Send this story to a friend Get Home Delivery

FRANKFURT -- "What Wolfgang Wants" is now the mantra at ailing Volkswagen.

Less than 5 months since he took over Volkswagen AG's VW division, Wolfgang Bernhard is crafting a major restructuring that will put him on track to become the CEO of Europe's largest carmaker, if it's successful.

"The problems aren't dissimilar to what I worked on at Chrysler," Bernhard, former chief operating officer of Chrysler, said at the Frankfurt Auto Show Tuesday. "We have to work on our cost-competitiveness, we need to improve our quality, and we need to come up with new and exciting vehicles."

Bernhard, 45, helped turn Chrysler around in 2002 and 2003 by taking similar action. His energetic performance prompted swift results in Auburn Hills, leading DaimlerChrysler AG to appoint him head of its Mercedes-Benz luxury car business last year. But the company yanked the offer at the last minute.

Volkswagen CEO Bernd Pischetsrieder offered Bernhard a second chance.

But what makes Bernhard's task doubly difficult this time is that he's dealing with one of the world's most hidebound automakers, a partly state-owned company that has avoided deep restructuring efforts for more than a decade to keep peace with powerful unions.

In addition, VW's largest shareholder, the state of Lower Saxony, is more interested in keeping jobs -- and votes -- than generating a decent return on investment. As a result, VW has turned into a symbol for Germany's deteriorating competitiveness.

"When we export to the United States, to the NAFTA region, we lose three-digit-million numbers," Bernhard said. "That raises questions about our European production facilities."

Now, after watching VW's worldwide profit slide from $3.6 billion in 2001 to $850 million last year, management warns that its long-term survival is at stake if it doesn't change direction.

"The next three years will be decisive for us," said Bernhard, looking lean and energized as he did when he first arrived in Detroit. "If we don't succeed in the next three years, there'll be an acute crisis at Volkswagen."

But if Bernhard does succeed, the reward will be even greater than the plum job he lost at DaimlerChrysler. In interviews with German magazines, Pischetsrieder and Ferdinand Piech, the chairman of the supervisory board, speak of him as a likely next CEO for the company, whose brands include Audi, Seat, Skoda and Bentley.

"Pischetsrieder knows that at some point, Bernhard will take over," auto analyst Juergen Pieper of Metzler Bank said. "Pischetsrieder knew he needed someone like Bernhard," a hardworking, hard-driving manager who was also able to inspire people.

Europe's other automakers, including the regional operations of Ford Motor Co. and General Motors Corp., are watching the company's efforts closely. A revitalized VW would raise the bar for the whole region. "There's no doubt about it. It's going to make the market much more competitive," said Carlos Ghosn, now CEO of both Nissan Motor Co. and France's Renault SA.

Bernhard declined to comment on German newspaper reports that VW may be seeking to cut as many as 10,000 jobs in Europe, mostly in Germany, but the group is intent on slashing annual costs by $6 billion by 2008.

To reach that goal, Bernhard is threatening to shift more production to lower-cost regions if German plants cannot offer competitive terms. Later this month, VW will decide whether to build a small sport utility vehicle, designed in part for the U.S. market, in Wolfsburg or in Pamela, Portugal, where the production cost would be around $1,000 lower per vehicle. VW has asked its German workers to match the offer.

"For the next two to three years, our strategy must be to reduce cost to survive and to finance the next product offensive. It's very similar to the situation at Chrysler," he said. Volkswagen plans to add from five to 10 additional models to its lineup by 2010, including new vehicles for the United States, where its share of the market has fallen dramatically during the past two years.

VW still needs to wrest concessions from unions during a difficult time in Germany. The number of unemployed has grown to a postwar high of around 5 million, and Germany's sluggish pace of job creation will be a crucial issue in Sunday's parliamentary elections.

In its effort to push through reforms, the automaker's management draws more support from Lower Saxony, which now has a conservative premier, Christian Wulff. He appears concerned about the company's long-term prospects as well as jobs for his state. "We can't be a toy for politicians that play (with) us once in awhile," Bernhard said. "Governments come and go but we have to be there for the long run."

You can reach Christine Tierney at (313) 222-1463 or ctierney@detnews.com