Diess out: tough, reform, loneliness and struggle

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Text / Wang Huiying

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On an ordinary weekend in July, former Volkswagen Group CEO Diess was busy inspecting the Volkswagen plant in Chattanooga, Tennessee.

Diess, who is still busy on the front line, does not know that he will undergo an important personnel change.

A week later, Diess was just a few hours back from the factory when he was told by the group that he was about to be replaced. According to the results of the meeting, Diess will officially resign on September 1, and Porsche CEO Obermo will take over as CEO of the group. At the same time, Obermo will continue to serve as Porsche CEO.

In this regard, the popular era belonging to Diess officially came to an end.

Everything happened suddenly, but unexpectedly. After leaving BMW in 2015 and joining the Volkswagen Group, Diess, an “outsider”, has begun to make drastic reforms. He took the Volkswagen Group out of the “dieselgate”, spared no effort to lay off staff in order to increase income and reduce expenditure, and was keen on the electrification and intelligence of automobiles…

Under the leadership of Diess, the Volkswagen Group has gone through a critical transition period and has become one of the most enthusiastic manufacturers of new energy vehicles among traditional automakers. Among them, the frequent interaction between Diess and Tesla founder Elon Musk also allowed Musk to test drive the upcoming Volkswagen ID.3.

The other side of the coin is that stories of power struggles are constantly being played out within the intricate Volkswagen Group. The frequent replacement of the high-level is an obvious portrayal.

Reform means the redistribution of interests. Diess’ reform has touched too many people’s cakes, and the first is the trade union. In June last year, the Volkswagen Group’s official website published an announcement titled “Supervisory Board Accepts Herbert Diess’s Apology.” It was this announcement that made public the “struggle” between Diess and the union within the Volkswagen Group.

Continued internal struggles, accompanied by frequent exit crises, last year Diess has been deprived of the position of CEO of the Volkswagen brand, leaving only the position of CEO of the Volkswagen Group.

This time, the only post was also removed. With three years to go before Diess’s contract extension, his story with the Volkswagen Group is coming to an end. Diess, 64, and Volkswagen, 85, will also enter a new stage.

sudden exit

After consulting with legal counsel, Diess decided to leave.

On July 22, local time in Germany, the Volkswagen Group announced a coaching change, and Group CEO Diess will step down.

The news was sudden. It only took Diess 24 hours from hearing the news to deciding to leave. Due to the early termination of the contract unilaterally by the group, Diess will receive a full salary of more than 3 million euros (about 200 million yuan).

It was a 7-day discussion. Volkswagen Group management had long planned to replace Diess before the summer vacation, but had been looking for a suitable successor. But Diess didn’t know it. During this period, he was still busy on the front line as the group CEO, working hard for the US market of the Volkswagen Group.

It was also at this opportunity that the two major families of the Volkswagen Group convened an 8-member Supervisory Board Presidium to discuss the issue of whether Diess should stay or stay.

In the end, the boots landed, and the question of whether or not Diess was going to stay for a long time came to an end. The new CEO of the Volkswagen Group is succeeded by the current chairman of the Porsche Global Executive Board, Obermu, which will take effect on September 1 this year. In addition, Obermu will continue to serve as the chairman of the Porsche Management Board.

In fact, this seemingly sudden exit is not surprising.

“The departure of Diess is not surprising, and his tenure has been fraught with obstacles and controversy,” Cox Automotive analyst Michelle Krebs was quoted as saying by Reuters.

Diess seems too out of touch with this traditional gasoline car empire. Since taking over the Volkswagen brand in 2015 and taking the helm of the entire Volkswagen Group in 2018, the Volkswagen Group led by Diess can be described as the most radical reformer in the old aristocratic circle of traditional automakers.

Behind the radical is the isolated and helpless Diess. In 2015, Diess just lost the election for CEO of BMW Group. Diess was invited by Volkswagen Group’s “Godfather” Piech to be the CEO of the Volkswagen brand. As an “outsider” to the public, Diess’ overly aggressive approach has caused dissatisfaction within the group.

Diess did not accumulate enough allies during his tenure, and he became increasingly isolated, which was an important factor in his eventual departure. Jefferies analyst Philippe Houchois also wrote in a note: “Given how marginalized CEO Herbert Diess has been in recent months, his departure should not come as a surprise.”

According to outside speculation, the fuse that Diess was forced out of was due to the unsmooth business development of CARIAD.

CARIAD is a software development subsidiary of Volkswagen Group. Its predecessor was the Car.Software department established in 2019. It is responsible for the research and development of various digital functions of the Volkswagen Group, including in-vehicle systems, infotainment systems, and autonomous driving.

According to a person familiar with the matter, cited by Reuters, Diess’s ouster is ultimately linked to the company he leads, CARIAD: “CARIAD was established during his tenure, but well over budget and also in terms of its goal of launching a new software platform. years behind.”

More importantly, Volkswagen Group’s software division underperformed, hurting its car brands. The head of the union, Daniela Cavallo, believes that the poor performance of the Volkswagen software department, which Diess is personally responsible for, has also forced the group’s high-end brands, including Audi and Porsche, to rely on their own software systems. production progress.

Not only has key progress not been made on the software front, it has also caused Volkswagen’s own car brand to delay the introduction of key models. It’s not hard to understand why CARIAD was the immediate reason for Diess’s ouster.

It is reported that Diess will continue to work for the Volkswagen Group as a consultant after his departure until the end of his contract in the autumn of 2025. But the era of the masses at the helm of Diess has come to an end.

Bold reforms, difficult transitions

Not afraid of challenges and having the courage to reform is the consistent style of Diess. “When I started working in Wolfsburg, I was determined to change the ‘Volkswagen system’ – to break down the old structures.”

It is also because of this that Diess’s helm has always been accompanied by the transformation of the public.

“Diess often doesn’t take into account the feelings of his colleagues when he makes decisions,” said a person close to him. Showing a combative attitude, he believes, is “the only way to move the masses forward and secure the future of the group.” .”

Diess’s “stinky temper” and maverick made many people unable to accept his work style. Even BMW colleagues in the past said that Diess’s flamboyant personality was one of the reasons for his failure to compete for BMW CEO.

As a professional manager, Diess is a very personal reformer. He can throw towels during power struggles and is a well-known “cost killer” in the industry.

Recalling that when Diess took office, it was at a time when Volkswagen was in urgent need of blood after going through an “emission gate” costing 30 billion euros in compensation. Piech has publicly stated that when he invited Diess, he was interested in his ability in cost control.

Diess did not disappoint Piech. In 2016, under the leadership of Diess, the Volkswagen Group announced that it would cut 30,000 jobs worldwide, which will help the company reduce expenses by 3.7 billion euros. Of course, because of burning money, he also cut off the Phaeton product line built by Piech.

Due to his outstanding performance in this public relations crisis, in 2018, Diess was promoted from the CEO of the Volkswagen brand to the CEO of the Volkswagen Group, officially becoming the head of the Volkswagen Group.

In the same year, Diess cut another 7,000 jobs and reduced production and various administrative costs. As a result of cost reduction and efficiency increase, Volkswagen has saved a total of 600 million euros in costs, and the group’s financial position in 2019 has improved. That year, Volkswagen Group sales revenue was 252.6 billion euros, an increase of 7.1% year-on-year, and operating profit was 19.3 billion euros, a year-on-year increase of 12.8%.

In addition to cutting costs, Diess has vigorously promoted Volkswagen’s development of electric vehicles. In January 2020, Diess sounded the horn on the global board of directors of the Volkswagen Group, “(Volkswagen) must accelerate the transformation to electrification and digitalization, otherwise it will repeat the mistakes of Nokia in the field of smartphones.” “

Diess even put forward a goal for the transformation of the Volkswagen Group during his tenure: Volkswagen will surpass Tesla and become the global leader in electric vehicles by 2025 at the latest.

Since Diess became the CEO of the Volkswagen brand in 2015, Volkswagen has launched a number of electric vehicles, including the ID. series, which has also brought sales growth year after year. In 2019, Volkswagen’s electric vehicle sales exceeded 100,000 units, 420,000 units in 2020, and 760,000 units in 2021.

These steps of Diess are very big, which naturally moved the cake of many factions and stood on their opposite sides.

These Diess are very clear in his heart, but the character of facing difficulties does not allow him to give up. Last year, Diess wrote in “How Volkswagen Transformed,” “With the support of many people around me, I have succeeded in several areas, but not all, the most important of which is at the Wolfsburg headquarters. “

The most intense conflict is the entanglement between Diess and the VW union. Due to the massive layoffs, Diess quickly lost the trust of his employees and faced strong opposition from the union. The union believes that companies should look to the top management for reasons, not layoffs. You must know that trade union representatives occupy 9 seats on the Volkswagen Group’s supervisory board and have great decision-making power.

Last year, the contradiction between the two sides was magnified again, and it was officially put on the table. Diess was seized from power and forced to give up the position of CEO of the Volkswagen brand, and only retained the position of CEO of the Volkswagen Group, directly laying the ground for the current exit.

One detail is that on November 27, 2020, the Volkswagen trade union held its 75th anniversary celebration in Wolfsburg. Former German Chancellor Gerhard Schroeder came to the platform to express his congratulations, but Diess was absent.

On the other hand, the failure of the software business also made the Volkswagen Supervisory Board lose confidence in Diess. The investment of billions of euros at every turn, as mentioned above, the business that Diess had high hopes for failed to materialize. During this period, the electrification transformation of the Volkswagen Group is also difficult to describe. Although sales are rising, the ID. family sold about 70,000 vehicles in China last year, which is still far from Diess’s expectation of 80,000-100,000 vehicles.

At the same time, the tying of VW with Tesla on multiple occasions led VW’s supervisory board to see it as weakening Volkswagen’s position. After all, this giant ship in the automobile empire has been running for 85 years, and a deep-rooted “aristocratic” atmosphere has already formed inside.

He has neither gained the trust of the trade union and employees, nor has he achieved satisfactory results for shareholders. The road to reform for this professional manager is indeed very bumpy.

It is worth mentioning that, after being dismissed, Hans Dieter Ptsch, Chairman of the Supervisory Board of Volkswagen, expressed his gratitude to Diess for his efforts and affirmed his important role in promoting the transformation of the company. “He not only led the company through the extremely turbulent period. period, but also implemented a new strategy.”

The struggle for power never stops

In Wolfsburg, Germany, the Volkswagen Group has been standing for 85 years and is the most well-known company in Germany. And in this so-called “Wolfsburg”, the power struggle at the top has never stopped.

German companies use a two-tier board system, in which the management board consists of senior executives, including the CEO, and reports to the supervisory board, which consists of a chairman and representatives of trade unions and shareholders.

Within the Volkswagen Group, the Volkswagen Group Supervisory Board consists of 20 members from the Borscher family, the Piech family, the Lower Saxony state government, and the Labour Council. These members have great power.

Even during Piëch’s tenure, due to family disputes, all members of the Porsche-Piëch family resigned from management, and the company was handed over to professional managers. Piëch had to enter Audi first and then take charge of Volkswagen.

The story develops into the Dies era, and it remains the same. Before Diess, Murren, who was also the head of the “reformists”, also experienced the fate of being forced to step down.

Behind Diess and Murren’s same goal is the failure of the reformists within the Volkswagen Group.

As Diess writes in How the Masses Transformed, “Above all, our group has a range of diverse interests and political agendas that make what is already a major challenge even more difficult and complex.”

“Outsider” Diess has always been trapped in power struggles at many key points, and rumors about when to go out have been heard repeatedly.

In the past two years, the supervisory board of the Volkswagen Group has held at least three meetings on the issue of Diess’s departure and retention, and the frequency is even equal to the frequency of the group’s business issues.

A personnel change in June 2020 is still fresh in the memory.

At that time, Diess had just applied to the Volkswagen Supervisory Board for a renewal of the contract, hoping to extend the term that was supposed to end in 2023 to 2025, so that he could continue to lead the Volkswagen Group to complete the reform. What he did not expect was that not only was the application rejected, but Diess was also forced to resign as CEO of the Volkswagen brand.

Behind the two bad news is that the relationship between Diess and the family forces within the Volkswagen Group has dropped to a freezing point.

During this period, the software problems of Volkswagen’s internal ID.3 and Golf 8 were widely exposed. Diess told thousands of executives in internal meetings that confidential information about the new car’s software flaws was leaked by members of VW’s supervisory board. This undoubtedly completely ignited the anger of the power core of the Volkswagen Group.

Diess is also aware of the crisis. Five months later, Diess admitted in an interview with the Financial Times that this summer’s supervisory board turmoil had raised “doubts” internally about his ability to reform the public.

At the same time, Diess’s fight with the union did not stop.

At the end of November, Diess once again raised the issue of contract renewal with the Volkswagen Group. After the three-hour meeting, Diess didn’t get a satisfactory answer. Luckily, Diess didn’t get “sacked,” but he didn’t get a contract extension either.

Diess, who rose to the challenge, did not give up on extending his term. After a tug-of-war for more than a year, the two sides agreed that Volkswagen’s supervisory board would meet on July 9, 2021, and voted to extend Diess’ work contract until 2025.

The good times did not last long. Although Diess remained in office but his power was cut, Diess will continue to serve as a member of the management board. In the future, he will be mainly responsible for the strategic direction of the Volkswagen Group and the mass production brand business, and will take over the software company CARIAD business from January 1 this year. .

In addition to the change of power, the supervisory board, represented by the Porsche family, does not want Diess to have too much say in the board of directors.

The ambitious Diess led the Volkswagen Group to carry out drastic reforms, but within the intricate group, Diess could not be alone. With the departure of reformist Diess, the Volkswagen Group may return to tradition again.

Two hours before the announcement by the Volkswagen Group, Diess also posted a photo of preparations for a vacation, “after a very intense first half of 2022, many of us are looking forward to a well-deserved summer vacation”.

On the evening of July 23, Diess also posted a photo on Twitter. In the photo, he is standing next to a Volkswagen electric van with his signature smile.

Now, the CEO of Volkswagen Group, who has the courage to break the routine, is stepping down. As a professional manager, he will also start his next stop.

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