By on May 14, 2009

Poor Wendelin “walk-on-water” Wiedeking is getting it from all sides. Yesterday, he was the Jesus Christ of the automotive world. Only He could perform the miracle of having more profits than sales—two times in a row. The multiplication of bread and dead fishes is mere amateur hour compared to the unnatural act of turning sales of €3bn into profits of €7.34bn. But will the man be revered until eternity? Just the opposite is true: After bringing in the bacon, Wiedeking is being led to the slaughterhouse, squeaking for his dear life. And yet, Wiedeking’s troubles are just the surface scatter of a brutal family feud that makes the War of the Roses look like flower power. They even brought in the Feds . . .

Automobilwoche [sub] tells its aghast (or smirking) readership that BAFIN, Germany’s equivalent of the SEC, finally opened an investigation into Porsche for stock manipulation, something they had carefully avoided. In March, Berlin’s financial watchpuppies had declared they would not investigate, due to a lack of evidence. However, last week, BAFIN got a smoking gun dropped into their lap and was forced to take action.

The German magazine Wirtschaftswoche just happened to come across the transcript of a clandestine meeting held in early February 2008 between two Porsche executives, their lawyers, and a ranking representative of the government of Lower Saxony, holder of 20% of the VW shares.

In that meeting, Porsche had announced their intent to buy 75 percent of Volkswagen. Not only that, they said they wanted to make sweeping changes at VW, and to strip Lower Saxony of its controlling minority, courtesy of the “Volkswagen Gesetz.” If that piece of news would have become public, the stock would have skyrocketed. Absent of news, the stock dropped. A month later, Porsche denied that it intended to acquire 75 percent of the VW shares. The VW share treaded water.

In October 2008, the news of a global car meltdown attracted short sellers to the VW stock. Unbelievably, it traded at €400. In a few days, it plunged to slightly over €200—still way overpriced in light of the ensuing carmageddon. Just when the VW share had dropped to the level where it previously had languished for a year, Porsche let it be known that they wanted 75 percent of the stock—and were already in control of most of the available shares, one way or the other. Frantic short covering drove the VW stock to vertigo-inducing heights of over €1K a piece. Big hedge funds were NFSWed. Pandemonium. Now, the stock is back in its old €200 range.

Ever since, the humiliated hedgies have been busy seeking revenge, and preferably hefty damage payments from Porsche. Care to guess who leaked the menacing meeting memo to the magazine?

Not too fast. The leaks could have come from another side. Ever since the lurid tale of hookers for union leaders was leaked, conveniently timed before a crucial election, the people working on the top floor of the Volkswagen Hochhaus had gained the respect of professional plumbers and leakers for adroitly using information, the media, and law enforcement—should it come to that.

Even BAFIN is listening for the drip-drip of a leak: BAFIN doesn’t want to bring criminal charges against Porsche . . . yet. They want to conclude their investigation first. Because, so said a speakstress of the agency in charge of financial oversight, it cannot be ruled out that someone has put out the information with the intent of harming Porsche. Sharp thinking!

Porsche of course vehemently denies all charges. Now, Porsche and VW, or make that Piech and Wiedeking, are on a war footing. Porsche even took the chain off an unlikely attack dog: Uwe Hück, head of the Porsche workers council, fired a salvo in the direction of Wolfsburg and said he had hired lawyers to check into reporting Volkswagen’s Ferdinand Piech to the authorities, on grounds of yet to be specified violations of securities laws.

A few weeks ago, we reported that Wendelin Wiedeking and his derivative-wielding CFO, Holger Härter, had been sent to death row after a sitdown by the Porsche Family. The Porsche/Piech clan found themselves suddenly perilously short of funds. All the while everybody had thought they had amassed untold riches with puts, shorts, straddles, long condors and short butterflies, Porsche was running out of dough. They had to go begging to the banks, who grumpily loaned them €10 billion with draconian conditions attached.

This was the minute of Napoleonic (in stature and cunning) Ferdinand Piech, who grabbed his chance to put Wiedeking and Härter back in their box after they had done their deed. The takeover of VW by Porsche morphed into a takeover of Porsche by Volkswagen which is owned by the Porsche Family.

Now, Piech is doing what he does best: slow execution of a top executive by a thousand cuts. At the sidelines of a presentation of the new Polo in Sardinia (befittingly home of the “culture of vendetta, in which clans mete out their own justice with no deference to any state or to any organization,” as Pino Arlacchi’s wrote in his book “Why There’s No Mafia in Sardinia”), Piech pulled out his paring knife and started slicing. Gerhard Mauerer of Automobilwoche [sub] stood close by and took notes.

Usually, Piech doesn’t say much. Questions are often answered with a sardonic grin. In Sardinia, Piech suddenly turned into a verbal waterfall. A simple merger with Porsche is out of the question, “because it would mean the loss of existing rights of Volkswagen” said Piech, head of VW’s supervisory board and capo di tutti capi of the Piech faction of the Porsche/Piech clan. He then said that he also doesn’t want to limit the rights of the state of Lower Saxony, always a trusted Piech ally, especially since Lower Saxony had been ruled by the conservative CDU.

Before Volkswagen and Porsche can merge, Piech went on to say, Porsche (as in Wiedeking) has to solve its own financial problems. Piech opined that Porsche (as in Wiedeking) is having a hard time finding money, Volkswagen (as in Piech) on the other hand doesn’t suffer from financial anorexia. Therefore, said the Chairman, it is not unthinkable that Volkswagen buys Porsche: “That’s one of the possible solutions. Our favorite is what is fast and painless,” said the purveyor of slow and painful death. As for how much VW’s Piech would be willing to pay Porsche/Piech for Porsche (are we confused yet?) Piech doesn’t think it’s much: “VW only will pay what Porsche is worth.” Translation: Not a whole lot. Maybe a few Euro more than what Fiat pays for Chrysler.

Asked about Wiedeking, Piech didn’t grin. He pulled out his whetstone, carefully honed his cutlery, and then slowly sunk it in, twisting the blade: “Currently” Wiedeking still has his trust, he said. And just in case someone hadn’t listened, Piech added: “Did I say ‘currently?’ Strike that.” And on he went to throw Wiedekind to the curb, literally: “He’s trying hard to fix the blown tire.” Unsaid, but understood by anybody who knows Piech: Wiedeking will blow it again, and then he will be blown away by the Machiavellian (in cunning and intrigue) Piech. From Lopez through Pischetsrieder and Bernhard: Piech’s career path is littered with corpses, which he uses as helpful stepping stones.

While applying cuts, Piech couldn’t help himself from filleting the Fiatsco. A possible joint Fiat-Chrysler-Opel doesn’t cost the Chairman much sleep, he said. It had taken Volkswagen and Audi 15 long years to truly merge, Piech said.

And he should know, he ruled both. He did everything to keep Volkswagen at a distance when he ruled Audi. And the true merger came to pass only after Piech took the helm at Volkswagen, surrounded by trusted men from his Audi times.

Never short of a quotable line, Piech quipped: “Two or even three sick people in one bed don’t make a healthy one.” Going back down memory lane, Piech added: “The people who are right now thinking about these mergers won’t have 15 years time, I’m sure.”

Gotta go. I’ll talk to my lawyer about getting the movie rights.

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15 Comments on “Editorial: Wiedeking and Piech, the War of the Hard-Noses...”


  • avatar
    Paul Niedermeyer

    It’s my understanding that all of the profits Porsche booked from stock/derivative activities are only paper profits (as a result of the market’s huge swing), which would explain why Porsche is short of cash.

    This whole saga is going to make a hell of a book someday. Truly epic. Thanks for the detailed write-up, Bertel.

  • avatar

    Ah, Paul, the paper profit also made Wiedeking and Härter the world’s highest paid auto execs ….

  • avatar
    Diewaldo

    Piech shouldn’t laugh too loud. It’s only a matter of time when VW will bitterly need the money they want to p*ss away to aquire Porsche.

    This is all just stupid powerplays. They should concentrate to built better cars for the mass market, not in Bugatti Veyrons, Bentley Arnages, Lamborghini Murcialagos etc. I know that this is a personal Piech thing … to built the “best” cars in the world.

    But then again there is the volume bringers. I still think it was a big mistake to shove the development of a “new” Golf and instead to do a facelift on the old V and call it the VI.

    If Opel survives until the end of year and manages to bring the new Astra into production it could give the Golf a hard time in a already very competitve market. The new Megane is not helping VW either. It might have saved them a few million bucks on the developement front, but it could also cost them dearly to miss one generation out.

    Remember … Jacques Nasser tried the same thing at Ford Europe. It nearly killed them.

  • avatar
    kaleun

    don’t they have 8 brands now? Like someone else… say … GM? Maybe they should focus on their core brand (VW) and make it reliable? Just crazy me speaking….

    And having 5 luxury/sports brands… they only would make money if they shared components/platforms. but especially in that segment you need differentiation. People that buy a Skoda don’t care that the same motor is used in Seat and VW… but a Bugatti buyer might care.

    And the idea to establish VW (people’s car) as a premium brand (Phaeton), which cost billions, delayed the new Golf, was so dumb…. and now the same people are allowed to rescue the company?

    Their only hope is for Opel to disappear, then they could sell some more cars for a while.

  • avatar
    AKM

    @Bertell: thanks for the great write-up. And to think the rest of the world believes Germans are mostly debonair engineers.

    @kaleun:I haven’t seen a 4-turbos 16-cyl engine in a VW yet. Let me know when the VW Golf R120 comes out :-) It’d be even better than the 12-cyl prototype.

  • avatar

    I worked for (not at) VW for most of my professional life, and I know a little about the company.

    About the brands: Volkswagen is basically a huge brand (VW,) a large brand (Audi,) two mid-sized brands (SEAT and SKODA) and a bunch of toys: Bugatti, Lamborghini, Bentley, and maybe I have missed some. I did: Trucks (their own light ones, Scania, and 30% of MAN. They currently wish they wouldn’t have done that.)

    The huge, the large, and one of the mid-sized brands (Skoda) are doing fine. Only SEAT is a disaster, due to their exposure to disastrous Spain. VW is currently the second largest manufacturer in the world. Don’t look at them through U.S. eyes. After a huge success (into which they bumbled) with the Bug, they had made a mess out of the U.S. market. For a while, they even thought of retreating. Being small in the US shelters them now from the US car malady. Where you don’t have much, you can’t lose much. That sets them apart from Toyota, which takes the full brunt.

    As for the toy brands, they are basically there for the entertainment of the top executives. They make less than 100 Bugattis a year, by hand. They make a few thousand Lambos, and maybe 10K Bentleys. Bentley actually makes some money. In the grand scheme of things, the toy brands don’t count.

    Their platform-sharing is actually quite clever: One wouldn’t think or see that the New Beetle, the Bora/Jetta/Vento/Sagitar, the Audi A3, Audi TT, Scirocco and countless others are all based on the same Golf (PQ35) platform.

    What nearly NSFWed them up was the Phaeton. But not because of the alleged billions that car did cost to develop. Or the stupid idea of an über-factory in the center of Dresden into which nearly complete Phaetons were brought by tramway for final production in front of the eyes of the customer. The floors of that factory are parquet – wood! Bright wood for where the car doesn’t touch the floor. Dark wood for where tires roll. Insanity, but tolerable. The car even sells – in a way. About 6000 a year. A lot of them in Asia, China takes over 1000. Last year, 3000 Phaetons were registered in Germany. BMW 7series? 4200. What screwed them up was that for years, the whole company got fixated on the Phaeton, thought only Phaeton, did only Phaeton. The bread & butter cars suffered from attention deficit. What’s worse, even the smallest cars turned into mini-Phaetons in the course of the “up-positioning” of the whole VW brand. Humor was suddenly verboten, Volkswagen lost its folksy touch.

    I had a lot of fun at Volkswagen since 1973. But when the Phaeton came in 2002 (and in the years before its launch) the fun evaporated. Everything got dead serious. In 2005, I left. Just in time, because the hooker scandal hit, and the last bit of fun during otherwise boring conferences was suddenly verboten also. (And it made the toy brands the only legit – even slightly obscene entertainment.) The Phaeton is a fun car to drive though, as Jack Baruch will confirm. Especially with the 12 cylinder W engine and a friend at VW, who hooked up his VAS 5051 and killed the speed limiter. Even more fun at 300+ km/h in a car that looks deceptively like a Passat in a rear view mirror.

  • avatar
    Kyle Schellenberg

    I saw that 12-pot Golf on Top Gear – that was simultaneously ridiculous and amazing.

    Great writing. Convoluted, confounding, captivating.

    That Piech is a peach.

  • avatar
    kaleun

    Bertel Schmitt: good assessment.
    i haven’t figured out why they can’t shoot straight in the US. they want to be premium here, but bring their oldest motors, cheapest interior and probably the worst quality over (or from Mexico). they americanize the cars by giving them red blinkers etc. and then they wonder why they don’t sell. they bring the old platforms, don’t have any wagons available it is like their US management gets paid by the competition. It hink once fiat/Reanult or whoever enters the US market they just have to do the opposite of what VW management does to stay succesful.
    Obvioulsy they are too large to fail (like GM) and did a good job cutting cost. Opel has very similar cars, so their potentials likely will come to VW once Opel disappears. So they got lucky.

    AKM: I meant those luxury brands sharing platforms and parts. Obvioulsy the Bugatti won’t get the Lupo motors and vice versa…

  • avatar
    Stingray

    Man, I love the development of this soup opera.

    Gimme more :D

  • avatar

    @Bertel,

    Great write-up, the only part I’m unclear on is..

    The German magazine Wirtschaftswoche just happened to come across the transcript of a clandestine meeting held in early February 2008 between two Porsche executives, their lawyers, and a ranking representative of the government of Lower Saxony, holder of 20% of the VW shares.

    In that meeting, Porsche had announced their intent to buy 75 percent of Volkswagen. Not only that, they said they wanted to make sweeping changes at VW, and to strip Lower Saxony of its controlling minority,

    Am I reading this correctly? Why would Porsche attend a meeting, with a ranking rep from Lower Saxony in attendance, and announce their intent to remove them from the equation? Seems like that would be counterproductive to their cause…

    Or, is that the point? :-)

  • avatar

    993C4S:

    It’s a long story. Sine 2005, Porsche bought larger and larger slices of VW. Yet, they denied that they were intent on the majority. Their engagement was widely viewed as the chivalrous act of a white knight who protected the virginity of VW from rape by foreigners, takeover artists, or gypsies.

    In February 2008, they had less than 50%, and had said they don’t want more.

    According to the transcript, they disclosed in the Feb meeting, that they were intent on 75%. At this point, according to German law, Porsche would have been able to book all VW profits as theirs. However, Lower Saxony and their special minority shareholder rights were in the way. The transcript doesn’t say why they disclosed to the state that they wanted 75%. It just says that they disclosed it. And that’s the crux of the matter. In March 08, Porsche gave green light to acquire more than 50%, but denied that they were after 75%. The gist is that it is alleged that they had publicly lied and hence violated securities law.

    The transcript also says that it was said that without 75%, the whole thing may fall apart (threat, threat.) Well, it’s falling apart.

    High stakes poker.

  • avatar
    bluecon

    Bertel

    So where is VW selling all these vehicles?

    Toyota is in big trouble since their main markets in the US and Japan are in a tailspin.

    Europe is down but not as much.(first quarter GDP down around 5% Germany down 3.8% Russia down 23%)

    China is the anomoly. Increasing sales which I think are likely to tank.

    I worked for JAKrause once and spent a summer in Germany.(utside of Bremmen) An interesting experience. Great mechanical stuff and controls that were way overcomplicated. Great food and gorgeous women.

    http://www.bloomberg.com/apps/news?pid=20601087&sid=a_tKd1Bf1.YA&refer=home

  • avatar
    Edward Niedermeyer

    Thanks for the sturm und drang, Bertel!

  • avatar
    mpresley

    bluecon : So where is VW selling all these vehicles?

    When I was in China, I saw more VWs than any other (recognizable) brand. Most were taxis (looked like the old VW Quantum), but Passats and Jetta (various styles) abounded. The new Jetta (Sagitar) appeared to be popular in China, also.

  • avatar

    mpresley: Actually, they make more VWs in China than in Germany, more than 1m. VW is also strong in other growth markets such as Brazil and Mexico.

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