First it was Olof
Persson of Swedish truck maker Volvo, now it is Ferdinand Piech of Volkswagen.
Two big automotive heads have rolled. Are more to follow?
Last week, Carl-Henric Svanberg, chairman of
Volvo, selected Martin Lundstedt from
Scania to replace Olof Persson as chief executive officer, declaring it was time for the Swedish maker of
commercial vehicles and construction equipment to move on from cost-cutting to
improving its truck business.
In making his move, Svanberg pointed to
Lundstedt’s 25 years at Scania in roles including engine production and
development, marketing and sales, and chief executive since 2012.
“If you have spent your life in trucks you
know an awful lot,” Svanberg is reported.
Lundstedt takes over in October and will focus
on how to achieve the best from Volvo’s truck brands including Renault, Mack in
the US, UD in Japan, Eicher in India, and Dongfeng in China as well as
improving the company's production and development. A big task.
Persson, whose experience was principally in Volvo’s
construction equipment and aerospace engine businesses, appears to have paid
the price for Volvo Group’s decline in profitability during his four-year tenure.
A restructuring programme designed to cut costs by SKr10 billion and
shed more than 5,000 jobs stalled and is only now bearing
fruit.
In the first quarter of 2015, Volvo’s
operating margin jumped to 6.1 per cent from 3.9 per cent. However, Volvo’s
operating margin was 9.7 per cent when Persson became chief executive and 7.9
per cent later that year when he announced plans to investors to increase
profitability by 3 percentage points.
A combination of increased costs, difficult
truck markets in Europe and Latin America, and problems in its construction
business in China have contributed to the operating margin sinking to 3 per
cent last year. And even Volvo's latest trucks are not behaving themselves on the road.
By contrast, Scania has long been an industry-leading
profitable truck-maker, making an operating margin last year of 9.5 per cent.
According to Svanberg, Volvo and Scania face
different issues.
“Scania has been a truck company for a very
long time and had the chance to optimise their business. They came to the end
of the road because they were in a few markets only. We are in a different
situation: we have acquired a lot but not optimised parts of our business,” he
declared.
Svanberg declares diesel engines and
transmissions as core products of both trucks and construction equipment.
“It is very logical to have a construction
equipment unit, but that doesn’t mean we will abide by it,” he said. One thing is for sure, whatever Mr. Svanberg may say: although still a Swedish company, Lundstedt will find Volvo a much different company to that of Scania.
Squabbles at the top
of VW
Meanwhile, in Germany, ironically, Scania is on the fringe
of another fall from grace. The architect of the modern multi-brand Volkswagen
Group with its global expansion plans, has had to submit to the inevitable.
Whatever the truth surrounding Ferdinand
Piech, he has been a controversial and towering figure not only within Volkswagen, but throughout
the automotive industry.
That he fell on his sword on Saturday
as chairman of Volkswagen Group suggests we may not have heard the last of this
human dynamo.
It seems, however, Piech has
been the cause his own undoing. According to Business Insider, Piech reneged on a pledge to support
Winterkorn, instead secretly plotting to oust him instead.
Business
Insider claims Piech had been lobbying family members behind the scenes
to install Matthias Mueller, the chief executive of Porsche, at the helm of VW.
But the company's powerful works council
and its home state of Lower Saxony — a top shareholder — decided they had had
enough and demanded a meeting of senior board members — the second emergency VW
summit in a little over a week.
Whatever the substance of the
actuality, the exit of Piech after two decades, is likely to send ripples round
the world, including curbing any potential for acquisitions by a company that
is seeking to cut costs at its core brand and revamp its operations. For
example, it has been rumoured that VW could make a bid for troubled Navistar
International. That could well now be off the agenda.
"Piech's departure is good
news for VW," insists Evercore ISI analyst Arndt Ellinghorst. "VW has
a better chance to turn itself into a more profitable and valuable
business."
Empire-building at VW, which
only a year ago took full control of Swedish truck-maker Scania, should play a
smaller role in the post-Piech era.
Under Piech's nine years as
chief executive officer, VW bought luxury brands Bugatti, Bentley and Lamborghini,
integrated Spanish-based Seat into the group and transformed its Czech division,
Skoda.
The push for scale under the Winterkorn-Piech
era did allow VW to almost double sales to €202 billion last year and nearly
triple group profit. But there are hints that more could be achieved from less.
Winterkorn is seeking to boost
profitability in the Volkswagen division, aiming for cost savings to €5 billion
a year by 2017 as the group slims its volume-driven focus.
"More than 600,000 workers
build slightly fewer vehicles than market champion Toyota with 350,000
workers," notes Ferdinand Dudenhoeffer, head of the Center of Automotive
Research at the University of Duisburg-Essen. "The problems strike at the
heart of VW."
Volkswagen group has to generate
cash to fund its global operations while perpetually upgrading its fleet of
more than 310 models. VW has to move to focus on earnings quality at the
expense of being global sales champion.
"Scale is important but the
push for volume is anything but the sole parameter of management policy,"
a member of VW's 20-seat supervisory board told Reuters on Monday.
Reuters also claims there are
signs of VW's top management starting to adjust strategy to overcome
shortcomings in foreign markets.
Two company sources familiar
with VW's product strategy told Reuters preliminary talks with China's Great
Wall had been held this year to explore the possibility of joint development of
low-cost vehicles to tackle VW's chronic weakness in southeast Asia and India.
Another company source told
Reuters that VW is busy working on a small SUV for Brazil, where such models
are selling well, and is aiming to present a new concept car next year.
In the meantime, both Volvo
Group and Volkswagen Group are heading for change.
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