VW Said to Cut Engineering Frenzy to Revive Profits Amid Scandal

Volkswagen Exec Apologizes to Americans for Scandal
  • New VW brand chief unveiled 12-point strategy to executives
  • Push to rein in expenses to better offset scandal costs

Volkswagen AG’s namesake brand plans to break some expensive habits: developing new car parts from scratch when existing ones would do or making last-minute changes to new vehicles just before they start production.

The policy revisions are part of a 12-point strategy laid out to managers by the brand’s new chief, Herbert Diess, according to people familiar with the plans, who asked not to be named because the talks were private. Diess has also proposed streamlining costs and expenses, regional decision-making and communication, and entering three new markets, the people said.

Diess is taking the first steps on a pledge to transform a culture created over decades of top-down leadership by former Chairman Ferdinand Piech and Martin Winterkorn, who resigned as chief executive officer after the company admitted to cheating on diesel emissions tests. Hired away from BMW AG before the scandal broke, Diess had already been asked to boost margins, which are lower than those at mass-market competitors. That need has become more acute as VW faces the prospect of multi-billion-dollar fines.

"VW has a number of areas where Diess can lower costs," said Sascha Gommel, a Frankfurt-based analyst for Commerzbank AG. "They can reduce model variants, look at the number of components they manufacture themselves, like BMW has already done, and have more common parts" used in different cars.

The group spent more on research and development than any other public company from 2012 through 2014, according to data from consulting firm Strategy&. But auto industry executives rank Volkswagen’s innovation and technology only sixth worldwide, according to a KPMG International survey published Thursday. BMW and Toyota Motor Corp.led the ranking by far.

Diess, who joined the Wolfsburg, Germany-based manufacturer in July, is pushing to re-use technology and components whenever possible and to avoid the kind of top-down fussing over details, down to the trim on the dashboard, that was common under Winterkorn and Piech. That triggered substantial unexpected costs on past models including the Touran minivan, according to people familiar with the vehicle’s introduction.

Meanwhile, entering at least three markets in coming years is a bid for additional sales in Asia, South America and Africa.

Diess’s top lieutenants warned managers that VW is facing fewer orders than expected for 2016, together with constraints on earnings, liquidity and credit ratings, according to people who have attended briefings with his team. Volkswagen declined to comment.

To help with the transition, Diess has overhauled management at the brand, Volkswagen’s largest division by sales volume. New executives at the unit include Juergen Stackmann, the former chief of the Seat marque, who heads sales. New finance and development directors have also been appointed. Underscoring the less formal culture he’s seeking to cultivate, the dress code of the company’s internal management gatherings now doesn’t include a tie.

Volkswagen set aside 6.7 billion euros ($7.3 billion) in the third quarter to address the cheating scandal but has acknowledged this won’t be enough. Diess has already vowed to rein in expenses by about 1 billion euros. More detailed targets are set to follow later this year, when CEO Matthias Mueller presents a new comprehensive strategy. 

Before it's here, it's on the Bloomberg Terminal. LEARN MORE