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Wednesday, 5 September, 2001, 17:08 GMT 18:08 UK
VW changes course
Former BMW chief Bernd Pischetsrieder
Mr Pischetsrieder wants to shake up VW's brands
Volkswagen, Europe's biggest car maker, is approaching a bump in the road.

On Friday, amid the sort of ceremonials usually associated with a papal election, VW is expected to unveil its new chief executive.

VW group sales, '000 units, H1 2001
VW: 1,626
Audi: 369
Seat: 264
Skoda: 247

Almost everyone expects the top job to go to Bernd Pischetsrieder, a VW director and the man who presided over the controversial sale of Britain's Rover in his previous role as boss of BMW.

Mr Pischetsrieder - if indeed he gets the job - will have enormous shoes to fill.

Under the control of Ferdinand Piech, its legendary chief executive since 1993, VW has transformed itself from a dowdy European manufacturer into arguably the world's most successful car brand.

What everyone wants to know is how Mr Pischetsrieder will make his mark.

Hard act to follow

Following Mr Piech won't be easy.

Over the last few years, VW has pursued a ruthless three-pronged strategy, focusing on product quality, international expansion and canny marketing.

VW group sales by region, '000 units, H1 2001
Western Europe: 1,598
Eastern Europe: 174
North America: 325
Latin America: 292
Asia-Pacific: 228

Mr Piech's attention to detail - especially where standards were concerned - was seen as crucial.

Executives used to joke that PEP, the abbreviation for the firm's product development process - in German, Produktentwicklungsprozess - actually stood for Piech entscheidet persoenlich, Piech decides himself.

He helped push the firm into overseas markets, and lavished money and time on international brands such as Spain's Seat and the Czech Republic's Skoda, the latter seen as one of the most successful foreign investments in post-communist Eastern Europe.

Grabbing market share

Recently, Mr Piech said the firm was planning a plant in the United States, where it is the only European firm to have made a serious market inroad.

An old VW Beetle advertisement
The Beetle: An old brand is relaunched

In the process, VW has grabbed market share from its European rivals, quelling a threatening challenge from Japanese manufacturers, and squashing its closest competitor, General Motors-owned Opel.

The firm's relaunch of the Beetle model, until recently restricted to the Mexican market and a handful of European enthusiasts, is now seen as one of the car industry's most stunning marketing coups ever.

Sales of the Beetle, combined with new product launches from VW and Skoda, have helped the firm beat its profits forecasts at a time when the automotive industry as a whole is starting to suffer.

Nobody's perfect

But VW still has problems.

It is still seen as having a split personality: abroad, it is a dynamic, sexy success story; in Germany, it is a heavy industrial leviathan.

Like other big German firms, VW has been hit by labour problems, as powerful unions make it hard to trim costs.

Its attempts to shake up its domestic operations have been hampered by the fact that the government of Lower Saxony still holds an 18.6% stake in the firm, and Chancellor Gerhard Schroeder used to sit on its board.

At the beginning of September, VW agreed a landmark working conditions deal with German staff, but its German base will probably always remain troublingly expensive.

Brands battle

Another headache for Mr Pischetsrieder is the fact that some of VW's brands have become victims of their own success.

A Skoda Fabia
Czech Skoda has been a marketing hit
As Skoda and Seat cars have been moved up-market, they have reportedly started to cannibalise sales from the firm's middle-market VW brands.

VW produces a bewildering portfolio of marques, but analysts complain there is too little differentiation - too few budget or luxury vehicles - to justify the range.

The only exception is the firm's small but high-profile UK luxury car business, Rolls-Royce/Bentley.

But if Mr Pischetsrieder tinkers too much with the firm's offering, he risks jeopardising the reputation for dependable - if unexciting - quality that the firm has so painstakingly built up.

Unfair shares

Most pressing of all, perhaps, will be the need to do something about VW's share price.

The firm is seen as aloof and secretive by the investment community - something that has provoked complaints of inadequate corporate governance.

As a result, VW's shares have been poor performers, drifting down by about 15% this year despite a series of excellent results.

While VW was seen as in the safe hands of Mr Piech, investors may not have been too worried.

But the change of chief, especially to the man who bungled BMW's investment in Rover, will demand some more active PR from the firm.

Advance warning

There are already a few clues about Mr Pischetsrieder's likely tactics.

After he gave a presentation to analysts in August, news leaked out that he was planning to realign VW's brands, dividing them into two distinct "aggressive" and "conservative" groups.

A Seat Ibiza
Spain's Seat is seen in need of sprucing up
VW and Skoda cars are likely to be classified as "conservative", while zippier brands such as Seat and Audi will be revamped and aimed at the sportier end of the market.

In an attempt to give the company a little more spice, Mr Pischetsrieder is also believed likely to launch a Formula 1 racing team.

Mr Pischetsrieder is a friend of Formula 1 impresario Bernie Ecclestone.

There is also talk that the company may end its foray into the heavy truck business, which began last year with the purchase of a stake in Sweden's Scania.

Secretive as ever, VW is not saying much about its future direction.

But if Mr Pischetsrieder wants to escape from his predecessor's shadow, he will need to make a splash quickly.

Graham Maxton, Autopolis
"[Pischetsrieder] is very well respected as a strategist and as an engineer"
See also:

05 Sep 01 | Business
VW Mexico strike ends
29 Aug 01 | Business
VW locked in Mexico wage talks
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Strike hits Mexican Volkswagen plant
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VW may produce in the US
27 Jul 01 | Business
VW profits accelerate
30 May 01 | Business
VW fined 31m euros
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Happy motoring for VW
20 Feb 01 | Business
VW reports record profits
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