Vw's New Boss Has The Beetle In His Blood

It looks like a dream play to cash in on Europe's borderless market. Next Jan. 1, German auto maker Volkswagen will get an Austrian chief executive with French Huguenot ancestors, Ferdinand Piech. His deputy will be Daniel Goeudevert, a Frenchman whose family has Flemish roots. Outgoing CEO Carl H. Hahn leaves them a nearly $50 billion company that is spending $50 billion in five years to expand across Europe from Czechoslovakia to Spain.

Now, all Piech has to do is make it all hum like the sporty Audi Quattro he produced as head of VW's luxury-car unit. Over the past decade, Hahn's drive has taken VW from fourth to first in the European race for market share. It has 16%, vs. 12.6% for second-place Fiat. Trouble is, profits haven't followed, holding at about $660 million for the last two years. VW's costs are too high. Piech needs to get them under control if he is to withstand the tidal wave of competition from lower-cost Japanese and Asian rivals, as well as newly aggressive U.S.-owned operations led by GM Europe.

An engineer, 54-year-old Piech seemed predestined to run VW. His granddad, Ferdinand Porsche, designed the legendary VW Beetle, and his mother's Porsche Holding group is the VW/Audi importer for Austria. Piech owns 10% of Porsche, was once its research and development chief, and is on its supervisory board. He recently tried to eject Arno Bohn, Porsche's fourth CEO in little more than a decade. Bohn survived the onslaught. But the message to managers at Audi and VW as well as Porsche is crystal clear: If they don't perform to Piech's exacting standards, they're in trouble.

In contrast, the 50-year-old Goeudevert, who lost out to Piech in the race for the top job, prefers negotiation to conflict. But he can be outspoken. Much to the fury of auto executives, he recently said it might be a good idea to impose speed limits on Germany's unrestricted Autobahnen. He learned the business on a Cook's tour of the European industry, working at Citroen, Renault, and Ford before joining VW.

FIRST ROUND? The new team will start with a round of cost-cutting at VW's German plants. Over the next five years, 12,500 of VW's 127,000 German jobs will be axed. Labor leaders, including IG Metall's tough boss Franz Steinkuhler, agreed mainly because the cuts will come through attrition. Some analysts think the cuts will have to be deeper. Unless VW averages annual output gains of up to 3%, another German work force cut of 10% will be needed by the mid-1990s to stay level with the best in Europe, says John Lawson, auto analyst at Nomura Research Institute in London.

Hahn started a trend of moving output from high-cost Germany. He switched production of VW's bottom-of-the-line Polo compact to its Spanish subsidiary, SEAT. That garnered savings estimated by analysts at $400 to $500 per car. But VW is going to have to repeat the same trick with bigger and more profitable midrange cars, selling at $18,000 and up. That's because Japanese producers are adjusting to European Community restrictions on sales volume by moving into higher-priced models.

Piech also must make Hahn's latest expansion projects pay off. These include a $3 billion production line at Zwickau in eastern Germany and a $6 billion investment in Czechoslovakia's Skoda. Hahn followed a Japanese-style strategy of grabbing market share, acing Italy's Fiat and others out of East European deals, without worrying too much about short-term profits.

That's a luxury VW can no longer afford. Since taking over at Audi in 1988, Piech has doubled profits, to $85 million last year. Now he has to show that big money can be made from the huge turf Hahn has staked out for VW in Europe.

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