Herbert Diess. (Photographer: Stefan Wermuth/Bloomberg)  

Volkswagen's Diess Goes From Lame Duck to Top Dog in 2 Years

(Bloomberg) -- As Volkswagen AG fought for its survival two years ago, Herbert Diess -- a fresh hire from BMW AG -- appeared headed for a rapid exit after a tense standoff with the company’s powerful labor unions over cost-cutting measures. Today, he’s poised to take VW’s top job.

Early in Diess’s tenure as head of the VW car brand, labor leader Bernd Osterloh publicly questioned his credibility in contract talks, raising concerns that he might fall victim to the carmaker’s complex internal politics, which has toppled many high-profile newcomers.

Volkswagen's Diess Goes From Lame Duck to Top Dog in 2 Years

But Diess, a lanky, cool-headed Bavarian, never got ruffled and ultimately secured a landmark deal that paved the way to cut as many as 30,000 jobs and save 3.7 billion euros ($4.6 billion). In the process, he earned the trust of the Porsche/Piech clan that controls the company by fixing problems at its flagship unit, according people familiar with the matter.

“Diess is ready to weather conflict, which is important to make things happen in a company like Volkswagen,” said Ferdinand Dudenhoeffer, director of the University of Duisburg-Essen’s Center for Automotive Research. As VW’s chief executive officer, “conflict will be part of the program.”

Volkswagen, which has a history of rocky management handovers, has decided to replace Matthias Mueller, 64, with the 59-year-old Diess, according to people familiar with the matter, who asked not to be identified speaking ahead of an official announcement. The surprise leadership switch is due to be finalized at a supervisory board meeting on Friday, the people said.

That meeting will also tackle Volkswagen’s unwieldy brand portfolio, with a plan to streamline its 12 different units into four groups, they said. The new structure, in which Diess plans to hold on to his leadership of the important VW brand, would comprise a mass market, premium, high-end sports cars and commercial vehicles unit. The potential reshuffle has echoes of previous attempts to lend shape to the VW behemoth.

“VW has to push changing its structure to become more agile,” said Ingo Speich, a fund manager with Union Investment with shares in Volkswagen. “Diess has proven to be someone who can get things done, so he’s the right person to try and execute these changes.”

Cryptic Statement

Volkswagen on Tuesday issued a cryptic statement saying Mueller has “showed his general willingness” to contribute to changes to the CEO job as part of a review of the group’s management structure. The company declined to comment further.

While the timing of the handover seems somewhat counter-intuitive -- VW is financially on the mend and has defended its status as the industry No. 1 -- Mueller had at times shown signs of fatigue. At recent public events, the CEO has appeared strained and prickly, a contrast to his previous persona as the easygoing boss of the Porsche car brand -- the job he held before being tapped for CEO in the chaotic days following the cheating revelations in September 2015.

Volkswagen's Diess Goes From Lame Duck to Top Dog in 2 Years

The planned shuffle is the result of longer-term considerations, according to people familiar with VW’s thinking. As VW emerged from the diesel scandal, the company began reviewing its future structure, and how to streamline the still-byzantine conglomerate, said the people, who asked not to be identified because the deliberations aren’t public.

With two years on his contract left, Mueller wasn’t viewed internally as the right man to implement sweeping change, including a possible spin-off of the trucking business, said the people. As a result, his own future became a point of debate, and Mueller agreed to make room, they said.

At the Geneva car show in March, the silver-haired Mueller gave only curt answers to reporters’ questions before making a quick exit. Diess, by contrast, remained at ease, staying long after official proceedings ended to answer tough questions about the future of diesel. In public, he’s appeared relaxed and in control, like the time when he smoothly batted away criticism on a German talk show last month that the car industry wasn’t committing major funds to transition out of diesel.

“Mueller has displayed a certain weariness about his post,” said Juergen Pieper, a Frankfurt-based analyst at Bankhaus Metzler. “Diess has been through the school of hard knocks at VW” and seems to have earned the respect of the company’s power players.

Unlike Mueller -- a four-decade VW veteran -- Diess has held senior positions elsewhere. After a brief stint in academic research, he joined auto-parts maker Robert Bosch GmbH in 1989. He rose to become a plant manager in Spain and then joined BMW in 1996.

As head of purchasing at BMW, Diess was instrumental in the luxury-car maker’s ability to weather the financial crisis by squeezing more than 4 billion euros out of supply costs. He then took charge of development, but was ultimately passed over for the CEO job, when the Munich-based company picked Harald Krueger in December 2014. That spurred his move to Volkswagen in July 2015, weeks before the crisis started.

Hard-Charging

His hard-charging nature has come through at Volkswagen, where he’s turned around the namesake brand by overhauling development and reining in costs. The long-struggling unit more than doubled profit margins to 4.1 percent last year from 1.8 percent a year earlier. He was also the first Volkswagen manager to talk about attacking Tesla Inc. in electric cars.

“Diess has the advantage that he knows other companies,” said Stefan Bratzel, director of the Center of Automotive Management at the University of Applied Sciences in Bergisch Gladbach, Germany. After more than two years of crisis management, “the course at VW has been set, and it’s now about taking those steps.”

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