It was a blowout. Germany
was up 4-0 early in the second half over Sweden at October’s World Cup
qualifier in Berlin. Naturally, the team relaxed–and things unraveled. With 28
minutes to play, Sweden scored, then scored again. And again. And again. The
Germans had no response. Final score: 4-4.
For Martin Winterkorn, a
talented goalkeeper who had professional aspirations and now runs Volkswagen
AG, the porous performance was hard to witness. Yet at a recent management
meeting he dimmed the lights, cued the video and made his team watch the
nightmare play out again.
Winterkorn
When the lights came
back up Winterkorn solemnly reminded his people of what they already knew:
“It’s halftime.” Five years ago, on the eve of the Great Recession, he had laid
out an aggressive plan to land Volkswagen at the top of the global auto
industry by 2018, surpassing both General Motors and Toyota. “We’ve had three
strong years,” he acknowledged. “You might feel good, but we have to stay
focused.”
His goal is more than just
topping GM and Toyota financially. By 2018 Volkswagen will be “the world’s most
profitable, fascinating and sustainable automobile manufacturer,” Winterkorn
says, with annual sales of 10 million vehicles and a pretax profit margin of 8%
or higher, compared with the modest 6% on sales of 6.2 million cars and trucks
worldwide when he took over in 2007. He also intends to have the most satisfied
customers and employees (there are 550,000 of the latter worldwide) in the
industry. “Only an automaker who can achieve all these goals,” he tells FORBES,
“can really call itself number one with justification.”
Skeptics may snicker that
Winterkorn’s grandiosity is delusional, especially his plan for the U.S., where
VW would need to triple its 2008 volume to meet his target of one million cars
a year (800,000 Volkswagens and 200,000 Audis). Competitors like Toyota, Honda
and Hyundai aren’t about to yield; neither will the domestics. VW had ignored
the U.S. market for decades after stumbling badly in the 1980s and remains
saddled with a reputation here for high prices, mediocre quality and a tin ear
for American tastes.
But halfway into
Winterkorn’s ambitious strategy, and despite a challenging economy, those 2018
predictions are looking conservative, if anything. Vehicle sales are up 49%
worldwide since 2008, to 9.3 million units, and its global market share has
improved to 12.8%, up one-half of 1%. Revenues grew even faster (up 63.5%),
fueled by strong demand for pricey luxury models from Audi and other premium
brands. Europe remains difficult, but Volkswagen is outperforming competitors
there. And it has enviable positions in growth markets such as China and
Brazil. Even in the U.S., VW has momentum, with 2012 sales up 31%, to 580,000
vehicles (including 438,000 VWs and 139,000 Audis). This all translates into
big profits: Last year VW earned a record 13.2% on $250 billion, a performance
that makes his long-term forecast of an 8% margin look like sandbagging.
To sustain this growth,
Winterkorn is deploying thiscash gusher
toward the biggest spending binge in VW’s history. Over the next two years the
company, along with its Chinese joint ventures, plans to invest almost $80
billion in ten new plants (including seven in China) and scores of new
products, from an American-style SUV to a $9,000 starter vehicle for emerging
markets, as well as in technologies like plug-in diesel hybrids and advanced
infotainment systems.
“Their only vulnerability
is themselves,” says automotive analyst Rebecca Lindland of Rebel Three
Consulting. “They can be tripped up by arrogance, underestimating their
competitors or overspending foolishly.” Neither GM nor Toyota is sitting still.
Both are spending about $8 billion a year on research and development, while
investing billions more to expand capacity.
That’s why Winterkorn
wanted to remind his people what can go wrong if they lose focus midway through
the game. In soccer terms he gives this assessment of VW’s performance so far:
“We have completed an extremely successful first half with a strong team and
the right strategy. However, one thing is clear: Conditions on the pitch are
deteriorating. Pressure is growing.
“Volkswagen must continue to
attack and make good use of its opportunities,” he continues. “Then we will
still be ahead when the final whistle blows.”
TO FULLY UNDERSTAND the scope of
Winterkorn’s ambitions, it helps to go to VW’s hometown of Wolfsburg, Germany,
a small northern city in the middle of nowhere that literally grew up with the
Volkswagen Beetle. The city was carved out of farmland in 1938 as a place to
house workers assembling “the people’s car” ordered up by Hitler prior to World
War II. Until the massive factory with its imposing power plant was erected
along the shores of the Mittelland Canal, the most notable landmark was the
medieval Wolfsburg Castle, for which the town was named.
Today Wolfsburg (pop.
123,000) might as well be called Volkswagen City. The 73-million-square-foot
factory, employing more than 50,000 workers, and an adjacent 13-story brick
headquarters building still dominate the riverfront landscape. The company’s
influence is everywhere, from VW-sponsored cultural festivals hosted in a
defunct power plant to the nearby Volkswagen Arena, home of the VW-owned VfL
Wolfsburg soccer team, to the VW-owned Ritz-Carlton hotel, where visiting VIPs
tend to stay.
But nowhere is VW’s
ambition more on display than at Autostadt, the $1.2 billion Epcot-like theme
park across the river from the sprawling factory. Some 2.3 million visitors a
year stroll the park’s 69 acres of lagoons and rolling hills or visit the
famous ZeitHaus, the most popular car museum in the world. An interactive,
multimedia exhibit lets visitors explore the latest developments in areas like
vehicle design or sustainability. Some just come for the VW-made currywurst, a
popular fast-food sausage with curry-flavored ketchup.
About one-quarter of
the tourists are Volkswagen customers who travel from all over Europe–sometimes
even farther–to take delivery of their Wolfsburg-built vehicles. Last year
Volkswagen delivered more than 173,000 new vehicles this way, instead of at the
dealerships where they were sold.
The cars awaiting delivery
each day are stored in one of two iconic 20-story glass towers that rise above
the Wolfsburg landscape. Robotic elevators pluck 500 cars a day from their
sky-high perches and present them to their waiting owners down below. Even
people who aren’t buying a car can get a feel for the process in a
stomach-churning ride to the top in a glass elevator. I buckled into one of a
half-dozen seats and held my breath as we climbed past a rainbow of shiny new
Golfs, Tiguans and other cars, looking over the entire Volkswagen empire–the
factory, one of the largest in the world; the headquarters in the distance; the
swooping, white Porsche pavilion (Autostadt’s latest addition) directly below;
and the soccer arena across the highway.
It’s a flashy
marketing tool for Volkswagen’s kingdom of car brands, which are showcased in
museumlike pavilions within the park. Besides VW itself, there is Audi,
Porsche, Lamborghini, Bentley, Bugatti, Ducati, SEAT, Skoda, MAN, Scania and
Volkswagen Commercial Vehicles, most of which are multibillion-dollar
businesses in their own right. As a whole VW works as an automotive
conglomerate, with each semiautonomous unit funneling profits from sales of 280
different models back to the mother ship, fueling Winterkorn’s ambitions.
While mass-market cars and
financial services constituted almost 60% of VW profits as recently as 2007,
Winterkorn has nearly reversed that–more than half its earnings now comes from
premium brands. Trucks are also a big factor here. Until 2000 Volkswagen wasn’t
a big player, selling mostly smaller commercial trucks under the VW brand. But
when Volvo Trucks’ 1999 attempted takeover of fellow Swedish truckmaker Scania
failed to win regulatory approval, Volkswagen swooped in and bought Volvo’s
share. Winterkorn bought the remainder from Investor AB in March 2008. In 2012
VW repeated the trick to gain control of Germany’s MAN, another heavy truck
company. As a result heavy trucks will soon account for 17% of earnings before
interest and taxes, says Deutsche Bank analyst Jochen Gehrke, while the
efficiency resulting from combining purchasing and product-development efforts
could yield $1.7 billion in savings. Suddenly VW’s truck division rivals that
of Daimler AG.
Porsche is even more
important. VW and Porsche share a history: They were founded by rival branches
of the Porsche family. But this permanent coupling began in an unusual way:
Early in Winterkorn’s tenure the sports car maker, seeing the synergies, tried
unsuccessfully to swallow the much-larger VW. Riddled with debt as a result of
that effort, Porsche wound up selling to Volkswagen: first a 49.9% stake in
late 2009; then last summer, after clearing various legal hurdles, VW acquired
the balance for $5.7 billion.
In Porsche Winterkorn’s
effort to move VW past the people’s car mission that Hitler envisioned for it
finally has a crown jewel and one that he can expand behind the full weight of
the parent. Gehrke expects Porsche to generate
$2.5 billion in operating
profit, which is a margin of 18%–the most profitable auto company in the world.
Winterkorn is shifting Porsche, once purely a sports car outfit, into a premium
luxury brand, with upcoming models like the Macan compact sport utility, a
midsize sedan similar to the BMW 5-series and a 2+2 coupe designed to take on
Ferrari.
As with the trucks,
Winterkorn is to marry surging revenues with waste reduction. His biggest
initiative: a new modular “tool-kit assembly” system that will allow the
company to build all of its vehicles, from the smallest Skoda to the most
luxurious Bentley, using just four basic tool kits –one for small city cars,
one for midsize cars, one for sports cars and one for large cars and SUVs.
Other carmakers have found similar efficiencies by putting different “top hats”
on common engineering platforms. VW boasts that this system will go far past
that, standardizing the engine position and the distance between the gas pedal
and front wheels on every car, where 60% of development costs are incurred,
allowing the rest of the vehicle to be stretched in any direction: Thus it’s
easy to build different-size vehicles using shared components or to swap
diesel, hybrid or electric drivetrains for a gasoline engine, depending on
consumer demand. The new VW Golf and Audi A3, for example, are the first of
about 40 new small and midsize models that will be developed using the
small-car tool kit.
This modular approach will
in large part determine whether VW can pass Toyota or GM. There’s big risk
here: If something goes wrong with a shared component, the problem can quickly
multiply across VW’s entire lineup. Just ask Toyota, which was forced to recall
millions of vehicles worldwide to deal with quality issues in a handful of
faulty parts. “There’s an example of where plans went horribly awry,” says
Rebel Three’s Lindland. And Audi and VW don’t exactly have stellar reputations
for quality to begin with. Both brands rank below average on quality and
vehicle dependability in J.D. Power &; Associates’ studies. The upside,
though, is tantalizing: If it works as it should, modular assembly, VW says,
will save at least 20% a year in car costs and shorten assembly times by 30%.
Winterkorn, born
outside Stuttgart in 1947, a decade after the birth of the company he now runs,
came of age as VW did, when it rose from the ashes of World War II. With a doctorate
in metal research, he worked for the industrial giant Robert Bosch in the late
1970s until 1981, when he was lured to Audi by Ferdinand Piech, the Volkswagen
Group chief who would become his mentor for the next 25 years.
VW Assembly plant (Photo: Christian Burkert/laif/Redux)
He arrived just in time for
some of the worst years in VW’s history, the result of a previous generation’s
mismanaged global ambitions. In 1978 VW took over a former Chrysler factory in
New Stanton, Pa., and officials confidently predicted that the company would
soon grab 5% of the U.S. car market. By early 1980 VW had 5,700 employees in
Pennsylvania and was producing 200,000 Rabbit small cars a year.
But that incursion
onto U.S. soil ended badly. The clunky Rabbit missed the mark with consumers,
as small cars from Toyota and Honda proved more reliable and popular. Even
after introducing the Jetta in late 1986, the plant was operating at less than
40% of capacity. In July 1988 VW closed it for good and shipped the equipment
to China. The 80s were also tough for Audi, which suffered a massive blow after
reports of unintended acceleration in its cars. But 1987 also marked the
beginning of VW’s strong growth in China. By the late 1990s VW’s brand image had
moved upmarket, and its portfolio was growing with the addition of Skoda,
Lamborghini and Bentley.
Winterkorn worked in a
variety of quality and production roles at VW and Audi, earning a reputation as
a boss who obsesses about the tiniest product details. By 2000 he was named to
the parent company’s board, overseeing research and development for the entire
group, and in 2002 Piech made him chief of Audi.
His success at Audi, a key
profit engine, propelled him to his current position. He succeeded Bernd Pischetsrieder,
who had the job only four
years before falling out of favor with the still powerful Piech, now chairman
of Volkswagen AG’s supervisory board.
Piech and Winterkorn have
been called Germany’s “dream team” because of their complementary leadership
talents. There’s no question that the mercurial Piech, 76, is still calling the
shots strategically. He is the grandson of Ferdinand Porsche, developer of the
fabled sports cars and inventor of the VW Beetle, and his family still controls
about 30% of VW’s shares and 53% of its voting rights. While group chief
executive, Piech started the collection of luxury brands under the Volkswagen
umbrella.
Winterkorn, methodical and
precise, is now carrying out Piech’s vision. Wiko, as he’s known, differs from
other prominent auto industry executives presiding over far-flung empires,
however. Unlike Renault-Nissan Chief Carlos Ghosn or Chrysler-Fiat boss Sergio
Marchionne, Winterkorn is a classic car guy. “Winterkorn is very
product-focused. He lets others run the financial show,” says Christoph
Stuermer, an analyst at IHS Automotive. “He’d rather kick the financial guys to
do some magic to make sure he can still build the best car possible.”
As a result, he’s been
known to throw production schedules into chaos by ordering last-minute
engineering changes. Shortly before Lamborghini was set to introduce the new
Aventador super-luxury sports car in 2011, for instance, Winterkorn took the
690-horsepower behemoth for a final test drive. After racing around the track
at speeds close to 200 miles per hour, he told engineers the instrument panel
on the $387,000 sports car had to go. He made them rip out the dashboard and
redo it, resulting in a six-month launch delay. Winterkorn isn’t apologetic. “I
have always been driven by the ambition to solve every problem I face, whether
as a scientist, engineer or entrepreneur,” he says. “The main things are
dedication to the task at hand and consistency in performance.”
Before the launch of the
redesigned VW Passat in 2011, Winterkorn flew to Chattanooga, Tenn. seven times
to inspect the vehicle’s quality. When it was finally unveiled at a press event
Winterkorn was furious after discovering a tiny paint flaw on one of the media
test-drive cars, according to one colleague. At the Frankfurt Motor Show in
2011 Winterkorn was caught on video poring over a new Hyundai model, griping to
one of his engineers that the Koreans managed to cheaply design a steering
column adjuster that made little noise, yet VW could not.
Often blunt and sometimes
gruff, Winterkorn’s supreme confidence can be mistaken for arrogance. “We are a
team, and we have a very clear, common goal,” says Christian Klingler, board
member for sales and marketing. “There are a lot of debates about how to
achieve it. But he’s a brilliant boss, and you are learning from him every
day.”
Stuermer has a less p.c.
way of putting it: “He doesn’t like bad news. Before anyone reports to him,
they make sure they have good news.”
PITY VW’S HEADS of China and Brazil,
respectively, given how their boss operates. VW has such dominant positions
there that bad news will follow a downturn in either of those BRICS nations.
Karl-Thomas Neumann, VW’s head of China operations, was pushed out last year,
partly because of an embarrassing quality problem with new gearboxes in its
cars. VW has a different kind of problem in India, where a failed partnership
with Suzuki, whose affiliate Maruti Suzuki has almost half of the Indian
market, left the German automaker on its own to develop cheap cars for emerging
markets. It hasn’t gone so well: VW’s market share sits below 5%.
Things don’t look much
better at home. Europe’s weak economies have soured consumers on the idea of
buying a car for the foreseeable future, leading to the lowest industry sales
there since 1996. The crisis gripping Europe’s industry is similar to the one
that bankrupted General Motors and Chrysler in 2009: There are too many
factories and not enough demand. But amid stubborn political resistance to
cutbacks, it’s been tough to close factories or cut jobs. So car-makers,
especially those that are overly dependent on the European market like Fiat and
Peugeot, keep cranking out vehicles and selling them at a loss. Winterkorn
terms 2013 “a year of truth for the entire industry.”
Of course, his 280-model
brand diversity and broad geographic footprint leave him well-positioned for
this year of truth. Some rivals, notably Chrysler-Fiat boss Marchionne, have
accused Volkswagen of creating a “bloodbath” by offering aggressive discounts
to gain market share from weaker rivals during the downturn. While VW says it
plans to hold prices steady, “They can always add more features, or they can
work with the financing guys to subsidize loans,” says Stuermer. “That way they
can really create some havoc with competitors.”
In a nod to that tactic,
Winterkorn predicts that while VW’s revenues will continue to march upward this
year, profits will remain at 2012 levels. To him it’s simply gamesmanship.
Soccer, after all, remains more than a metaphor. Most weekends he can be found
in his usual spot–Row 7, Seat 6–in the VIP section at Volkswagen Arena,
cheering on the local team, nicknamed the Wolves. “I am an emotional person,
and soccer is sheer emotion,” he says. “For me it is the best way to unwind.”
He is joined at every game by Bernd Osterloh, the powerful union chief who also
serves as Piech’s deputy on the Supervisory Board.
During halftime at one
recent game between Wolfsburg and Düsseldorf, fans milled around the giant
buffet tables on the suite level, loading their plates with currywurst, warm
pretzels and other stadium fare. Winterkorn sat with his back to the field, at
a table covered with white linen, sipping wine with Osterloh and others,
waiting for dinner to be served. He seemed happy. But was he? The Wolves
trailed 1-0. His team still had work to do.
Forbes.com
No comments:
Post a Comment