When Volkswagen was dominated by the autocratic Ferdinand Piech, its goal was to be the world’s biggest car company. Much of its focus on diesel powered cars was designed to cater to European tastes for foul smelling oil burners. But Piech also believed diesels could beat back the challenge from Toyota and its new hybrid car, the Prius.
For a while, the strategy worked. A year ago, Volkswagen could claim to be the largest car company on earth. Then the roof fell in when it was discovered all those diesels cars really didn’t comply with emissions regulations after all but the company continued to sell them anyway.
The aftermath of the Volkswagen diesel cheating scandal has sucked billions of dollars out of the company’s stock valuation. It faces up to $10 billion in fines from regulators in the US. Its sales are off dramatically and it is floundering around while it looks for a way out of the mess it created.
Today, Volkswagen Group is comprised of twelve brands, including heavy truck company Scania. It also builds engines for ships under the MAN brand and has a welter of small component manufacturing division. On June 15, CEO Matthias Mueller told the Volkswagen board of directors that the company is reviewing all of its far flung operations. It will abandon its empire building strategy in favor of a new commitment to electric and autonomous vehicles and car sharing services.
Along the way. all those separate component divisions will be combined into one and some of those brands may be sold so the company can focus on its core business. The new plan is set to be revealed publicly on Thursday. two days from now.
The steps make “perfect sense,” says Arndt Ellinghorst, a London-based analyst with Evercore ISI. “The financial market still doesn’t seem to realize that there is more going on at VW than some people might think.” Volkswagen’s shares in Frankfurt have rebounded more than 40 percent since hitting a post-scandal low in October.
One of the baubles on Volkwagen’s corporate charm bracelet is Italian motorcycle manufacturer Ducati. The company was widely criticized for paying too much for Ducatti, criticism that Piech sloughed off in his usual peremptory fashion. Now Ducati may go up for sale once again, along with VW’s heavy truck and marine divisions.
“Commercial vehicle demand is on the rise in Europe so their timing on a sale of the truck operations MAN and Scania might be well timed,” Richard Hilgert, a Chicago-based analyst with Morningstar, said in an e-mail. “Ducati is a well revered brand and could be worth a pretty penny.”
Getting rid of assets may not sit well with unions and the German state of Lower Saxony. The latter is where much of Volkswagen’s production takes place. It is also a major stockholder in the company. Both are opposed to the company decreasing in size.
Meanwhile, there are reports that board members representing the Porsche and Piech families are planning to vote against paying a dividend to stockholders this year. The two families together own 52% of Volkswagen stock. The next board meeting is scheduled for June 22.
The vote is fraught with serious implications. Under German law, if a company fails to pay a dividend for two consecutive years, its preferred stock holders are automatically granted voting rights. That could reduce the number of votes the Porsche and Piech families have below the 50% figure needed to give them control of the company. It would also dilute the influence of the state of Lower Saxony.
There is some high stakes poker being played in the Volkswagen boardroom this month. It will be interesting to see who wins and who loses as this drama plays out.
Source: Automotive News