VW Group CEO’s Ouster Brought on by Software Delays and Boardroom Drama: Report

VW’s almighty Porsche-Piëch family reportedly decided Diess had to go while he was out on a U.S. trip.

byStef SchraderJul 25, 2022 1:06 PM
VW Group CEO’s Ouster Brought on by Software Delays and Boardroom Drama: Report
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Volkswagen Group CEO Herbert Diess announced his resignation Friday by "mutual agreement" per VW's press release, but according to a report by Bloomberg, the powerful, reclusive Porsche-Piëch family who owns most of the VW Group pushed for Diess to leave. This wider majority-shareholding family had grown tired of managing labor disputes as software delays kept key products like the Porsche Macan EV from going ahead on schedule. 

Porsche-Piëch family representatives sit on the top committee of Volkswagen's supervisory board alongside labor leaders and officials from the German state of Lower Saxony. These board members first started discussing whether Diess needed to go somewhere around July 16, roughly a week before Diess' departure was made public, according to sources familiar with the matter who spoke with Bloomberg. At the time, Diess was away visiting Volkswagen's plant in Chattanooga, Tennessee.  

Diess' tenure as Volkswagen Group CEO has been rocky, to say the least, with Diess pushing for job cuts and other drastic changes in the name of efficiency as the company dives deeper into electrification. These have been met with fierce resistance from the labor groups and Lower Saxony's state representatives, who hold a much bigger role in the Volkswagen Group than they do in other companies, reports Bloomberg

Until now, the Porsche-Piëch family has had Diess' back somewhat, continuing to back the CEO through these labor disputes. Diess was an outsider brought in from BMW to lead the Volkswagen Group's electrification efforts, and the family knew that would require big changes that wouldn't always be popular. 

That's changed in recent months, however. Diess' battle with labor representatives ended in a compromise wherein Diess got to remain as the VW Group CEO but relinquished some operational control over the Volkswagen Group's mass-market brands like VW, Škoda and Seat to group-wide brand chief Ralf Brandstätter, reports Automotive News Europe. As part of the shake-up, Diess was tasked with more of a strategic role in the company and perhaps most importantly, with leading the Volkswagen Group's software division Cariad. 

This is where Diess lost the support of the Porsches and Piëchs on VW's board, per Bloomberg's inside sources. Diess has struggled to get support for his wider $91 billion EV and software strategy, and continued infighting at Cariad means it hasn't been able to meet key deadlines for the roll-out of some of the VW Group's most important new models. Most notably, these delays affected higher-margin fare in the Porsche, Audi, and Bentley lineups, Bloomberg reports.

By July 20, the decision was final: Diess needed to be replaced, with current Porsche CEO Oliver Blume emerging as the board's pick for a successor. Unlike Diess, Blume has been with the Volkswagen Group for decades, working his way up through various operational roles. Diess was informed of the board's decision around lunchtime on July 21, mere hours after returning from Tennessee, and was given 24 hours to respond. On July 22, the Volkswagen Group voted to approve Diess' resignation. Diess could be getting a hell of a golden parachute from the deal, however. Diess' contract as CEO lasts through October 2025, and Bloomberg reports that he's still likely to be paid in full through the end of that contract, with an amount that could be as high as $30.7 million, depending on company performance. 

If there's one family you don't want to cross while heading up the VW Group, it's the wider Porsche and Piëch clan. The Porsche surname is from that Porsche—Ferdinand—who founded the sports car brand and designed the Beetle that launched Volkswagen. Piëch should also sound familiar given that Ferdinand Piëch turned around Volkswagen's fortunes in the 1990s as its CEO. His mother was Ferdinand Porsche's daughter Louise, and his father Anton Piëch ran the Volkswagenwerk factory in Wolfsburg from 1941 to 1945. 

Together, the modern-day Porsche-Piëch family maintains control of Porsche SE, the holding company that owns a 53 percent voting stake in Volkswagen AG—a.k.a. the Volkswagen Group. The ownership structure gets complicated and the family itself rarely makes public comment on personnel matters like this, but the point is, any VW Group head has to keep that family happy no matter what. We'll have to wait and see if inside-pick Blume does a better job of staying in the family's good graces.

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