VW’s Top Brass Faces Up to the Obstacles

(Bloomberg) -- Volkswagen AG’s drive to loosen up a famously bureaucratic decision-making apparatus will extend well beyond the potential IPO of its truck unit -- if the German manufacturer’s leadership has its way.

With a decision imminent on whether to sell a of a minority stake in Traton SE, Chief Financial Officer Frank Witter said moving ahead with it would be a good step and “an important sign” for VW.

“We do see the broader strategic dimension of such a move,” Witter said in an interview Tuesday from the Geneva auto show. The manufacturer could delay a deal if market conditions prevent it from generating adequate proceeds, he said.

The world’s largest carmaker is in the midst of a fundamental overhaul meant to make it more agile and better equipped to fend off both traditional rivals and newer challengers like Alphabet Inc. or Tesla Inc. In addition to speeding up decision-making, Chief Executive Officer Herbert Diess has pledged to slash VW’s notoriously excessive engineering costs and allocate significantly more funds to software and electronics.

Doing all of that at the same time is a challenge and includes potentially unpopular decisions on which assets are key going forward and which ones are best cut loose. VW’s powerful unions and the state of Lower Saxony, which is VW’s second-largest shareholder with a 20 percent stake, have resisted deeper cutbacks in the past in a bid to protect German jobs.

Super Premium IPO?

Diess, CEO since April, insists that an asset review that started three years ago might still lead to disposals at the industrial giant, which employs some 640,000 people at 123 factories across the globe, making everything from motorcycles, supercars and heavy trucks to ship engines.

Swirling speculation about a possible IPO of its most profitable brand Porsche was quickly denied last year. VW plans to shift Lamborghini from the Audi unit to Porsche to forge a so-called “super-premium” group that also includes Bentley and Bugatti.

This division alone could be valued at more than 120 billion euros ($136 billion), Bloomberg Intelligence senior analyst Michael Dean said in September. VW is currently valued at 78 billion euros.

Diess has the backing to push for deeper changes from VW’s Porsche-Piech ownership family, the reclusive billionaire clan that rarely comments in public about the prospects of its main asset. Wolfgang Porsche, a top family leader and supervisory board chairman at Porsche Holding SE, told reporters late Monday he fully supports management’s push to tackle what he described as “fossilized structures” that bog down the main VW and Audi brands.

As VW’s top brass forges ahead, Witter says a squeeze-out of minority shareholders at the MAN SE subsidiary “isn’t a topic currently” and won’t influence the vote on whether or not to go forward with the Traton IPO. VW has been untangling the MAN conglomerate to fold the main truck operations into Traton and shift the remaining businesses to somewhere else within the group.

Analysts and investors have grown increasingly skeptical VW can deliver deeper efficiency gains and savings, even as the company proved remarkably resilient against increasing pressures from trade tensions, a slowdown in its largest market China and the fallout from its diesel-emissions scandal, which cost VW 5.3 billion euro in cash outflows last year.

“The criticism is understandable,” Witter said. “In many areas we’re still not where we should be.”

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