(Bloomberg Opinion) -- Volkswagen AG is gearing up for the most sweeping transformation to affect the car industry since the invention of the automobile. It’s a moment that requires corporate leaders to make bold technological bets, tear up established structures and consider new partnerships and business models. It also means thousands of well-paid manufacturing jobs will disappear.
VW boss Herbert Diess has many of the qualities needed to manage that transition, including a long-term vision, an eye for unnecessary costs and dogged determination. Yet he appears to lack at least one key skill that’s essential for anyone managing painful change: political and human sensitivity.
The German car giant’s efforts to leave behind the diesel scandal via a massive pivot to electric vehicles were put in jeopardy last week when Diess said something incredibly stupid and offensive: “Ebit macht frei.” (Roughly translated as “Profit sets you free”).
Every German knows the callous and false entreaty “Arbeit macht frei” (work sets you free) that prisoners entering Nazi concentration camps were forced to observe. Volkswagen’s historical connections with the Nazi party mean its duty to speak and behave responsibly is greater than most. Diess says he was trying to motivate managers to deliver better profits and thus secure the company’s autonomy. While there’s no reason to think he had a sinister motive, he should have been aware of the offense his words would cause.
Some investors are angry and think he’ll have to step down, the Financial Times reported this week. But that viewpoint is far from unanimous. Diess became head of the core VW brand in 2015 and took over the group job last year. In a statement distancing itself from the comments, VW’s supervisory board said it “takes note” of Diess’s apology, which sounds like they’ve accepted it.
That board includes representatives of the Porsche and Piech families, as well as labor officials and local politicians (the State of Lower Saxony has 20 percent of the voting rights, while the families control 53 percent). If they don’t want to push out Diess, then his job is safe, regardless of what fund managers think.
Of greater concern is his credibility with VW’s vast workforce. Diess’s strategy envisages that battery cars will comprise 40 percent of VW sales by 2030, a much bigger commitment than most peers have made. Building electric vehicles uses far less labor than a combustion engine model, so VW’s workers have enough reasons to resent him already.
Bernd Osterloh, the powerful works council boss, has clashed frequently with Diess, including about the potential for more job cuts. Delays last year in developing and certifying important VW vehicles were a gift for Osterloh, as they gave the impression that management ineptitude, not labor intransigence, was at the heart of the company’s lagging profitability. Diess was foolish to do something that further undermines his authority.
However, the last thing the company needs is another schism between workers and management. That Osterloh hasn’t publicly used the Diess utterances against him makes it look more likely that the two sides will patch up their differences. Top VW officials are due to meet on Friday to attempt a reconciliation on various issues, Der Spiegel reported on Wednesday.
In spite of the storm clouds over the industry, analysts still think VW can generate an astonishing 44 billion euros of net income over the next three years, roughly 60 percent of its market capitalization. Investors remain skeptical that Diess’s massive bet on electric vehicles will pay off, though, or that he’ll make much progress tackling the bloated cost base and unlocking value from the company’s sprawling stable of brands. The decision to delay an IPO of VW’s trucks unit hasn’t helped.
News that the Porsche and Piech clans have spent 400 million euros buying more voting shares is more encouraging. Diess needs to prove that vote of confidence is warranted. He can start by choosing his words more carefully.
To contact the author of this story: Chris Bryant at firstname.lastname@example.org
To contact the editor responsible for this story: James Boxell at email@example.com
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.
For more articles like this, please visit us at bloomberg.com/opinion
©2019 Bloomberg L.P.