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Herbert Diess, ousted Volkswagen CEO. The move to replace him began a week ago, when the Porsche-Piech family stopped supporting him. Picture: BLOOMBERG
Herbert Diess, ousted Volkswagen CEO. The move to replace him began a week ago, when the Porsche-Piech family stopped supporting him. Picture: BLOOMBERG

Volkswagen’s dramatic move to oust its combative CEO, Herbert Diess, was set in motion a week ago, when his backing from the billionaire Porsche and Piech family began to crumble.

Unwavering support from the reclusive clan that majority owns VW had helped Diess survive frequent clashes with worker representatives. But as key project failures combined with worker discontent, the family concluded he had to go.

The decisive day was July 20, according to people familiar with the deliberations. The top committee of VW’s supervisory board — comprising family representatives, officials from the German state of Lower Saxony officials and labour leaders — determined Diess’s time was up. He learnt this the next day, still jet-lagged from a visit to the carmaker’s SUV factory in Chattanooga, Tennessee.

In the end, Diess’s undoing is a brutal reflection of the challenges facing leaders of industrial behemoths trying to modernise for the digital age. VW’s unions wield huge influence even by German standards, where worker representatives account for half the seats on supervisory boards. Their leaders and the state are resistant to drastic and expedient change that will compromise jobs.

While Diess excelled at setting a strategic direction for VW, his delivery ruffled feathers and the company’s execution has been patchy. The outsider brought in from BMW in 2015 did not accumulate enough allies and became isolated. Threats of cost cuts and delays in developing software for the vehicles of the future ultimately cost him his position.

“The departure of CEO Herbert Diess should not be a surprise given how marginalised he had become in recent months,” Philippe Houchois, a Jefferies analyst, wrote in a report. “The timing is unfortunate and another illustration of dysfunction at VW.”

Spokespeople for VW declined to comment on the events leading up to Diess’s dismissal.

Flare-ups

Momentum to remove Diess before VW’s summer break started building last weekend during individual discussions among the eight-member presidium within its supervisory board. Diess was in the US to shore up progress in a market in which Europe’s biggest carmaker has long lagged.

While the top executive was away, key representatives of VW’s main stakeholders started contemplating who could replace Diess should tensions within the company worsen. There have been repeated flare-ups, including late last year, when Diess warned the company risked falling behind Tesla and mused about job cuts. In December, VW overhauled its management board, stripping Diess of some responsibilities while tasking him with leading Cariad, the carmaker’s software unit.

Since then, discord at Cariad has pushed back the scheduled rollout of important new models, including the electric Porsche Macan SUV. His struggle to muster broader support to execute his €89bn electric-vehicle and software strategy started to fray support among Porsche and Piech family members.

During the deliberations of the last week, Porsche CEO Oliver Blume emerged as the heir apparent with his long history of key operational positions at VW and track record of rejuvenating the sports-car division. As VW’s power players weighed pros and cons of putting a new leader in charge, they started to tilt towards making a change.

Voted unanimously

Hours after Diess returned from Chattanooga, he was hit with the decision and given 24 hours to respond. After consulting with legal advisers, he decided it was time to go.

Diess informed VW chair Hans Dieter Poetsch on Friday. A meeting of the company’s 20-member supervisory board was called for 4.30pm in Germany. Fifteen minutes before the start of the meeting, the presidium members informed their respective camps that Diess’s replacement was on the agenda. The board voted unanimously for his ouster.

Diess, credited with putting in place the industry’s biggest EV rollout, will make way for Blume in just more than a month. He is likely still to be entitled to be paid in full under his contract until October 2025. Depending on the carmaker’s operating results and share performance, the amount could reach more than €30m.

Bloomberg News. More stories like this are available on bloomberg.com

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