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VW board members demanded Piech go after learning of secret plot

Ferdinand Piech, chairman of the supervisory board of German carmaker Volkswagen, arrives at the annual shareholders meeting in Hanover in this April 25, 2013 file photo. REUTERS/Fabian Bimmer/Files

By Andreas Cremer and Georgina Prodhan

BERLIN/FRANKFURT (Reuters) - Ferdinand Piech, who resigned as chairman of Volkswagen over the weekend, sowed the seeds of his own demise by reneging on a deal to support CEO Martin Winterkorn and secretly plotting to oust him instead, according to sources close to the VW board.

When news leaked out last week that Piech had been lobbying family members behind the scenes to install Matthias Mueller, the chief executive of Porsche, at the helm of VW, the company's powerful works council and its home state of Lower Saxony - a top shareholder - decided they had had enough.

They demanded a meeting of senior board members - the second emergency VW summit in a little over a week.

"It was one of the straws that broke the camel's back," a source close to one of the VW board's labor representatives, told Reuters, referring to a doomed attempt by Piech to convince fellow family members to dump Winterkorn and install Mueller.

On Saturday, at an airport in Braunschweig, a half hour down the road from VW's imposing Wolfsburg headquarters, Piech was issued an ultimatum: resign or suffer the ignominy of being booted out in a vote of the board.

Neither Piech, Volkswagen nor senior board members would comment on the resignation, which was announced by VW and a committee of board leaders.

Piech's departure represents the end of an era for Volkswagen. For over two decades, the 78-year-old Austrian has ruled VW like his personal fiefdom, summarily ending the careers of executives he'd taken a dislike to and ramming through controversial strategic decisions through sheer force of will.

His shock ouster ends two weeks of public mudslinging at Volkswagen. But it also leaves a void at the top of Europe's largest carmaker and a host of questions about the future shape of the company.

Most urgent among them is who will replace Piech in the crucial role of chairman.

Winterkorn had long been seen as the natural successor, but can he slide into the post now, in the wake of his damaging row with Piech?


Winterkorn has been freed from Piech's attacks but may also find himself more dependent than ever on the unions who saved his career. Berthold Huber, the former head of Germany's influential IG Metall trade union, takes over as acting chairman following Piech's departure.

"Nothing works at VW without the unions - it's a simple but sad truth. Winterkorn has won this showdown but very likely at the cost of becoming more vulnerable to the influence of labor," said analyst Juergen Pieper of Bankhaus Metzler.

Winterkorn has begun implementing a plan to eliminate 5 billion euros ($5.44 billion) a year in costs by 2017 at VW's core passenger-car brand, where profit margins are far below those of top rivals like Toyota <7203.T>.

He is doing so with the cooperation of the unions, adhering to the cumbersome consensual way of doing business that is core to Volkswagen's culture - but at a cost.

Only 1.5 billion of the 5 billion savings target has been identified. And last summer, Winterkorn was forced to dump consultants at McKinsey, who had been asked to advise on the implementation of cuts, when labor leaders protested.

Other failings for which Piech criticized Winterkorn include the group's chronic underperformance in the United States - where its inability to understand customer needs were underscored by its use of drink holders that were too small for jumbo-sized U.S. cups.

Under Winterkorn, VW has also struggled to engineer a low-cost car or make significant inroads in southeast Asia and Latin America. Some analysts fear that Winterkorn may now have a mandate to carry on just as before.

"All of this Winterkorn could not solve. All of this will now therefore continue with Winterkorn. All of this is a high risk for the VW group's economic strength," wrote Ferdinand Dudenhoeffer, head of the Center of Automotive Research at the University of Duisburg-Essen.

Much depends on whether Piech maintains a backroom influence through his share of the family holding in VW or sells out, as he reportedly threatened to do at a first crisis meeting in Salzburg on April 17th.

He owns a 13.2 percent stake, worth 1.7 billion euros ($1.85 billion). Other family shareholders would have right of first refusal to buy his stake.

Dudenhoeffer believes Piech would be well advised to sell given that VW shares are trading at 10-year highs and due to the new uncertainty over the company's future.


Insiders say VW is already starting to adjust its strategy to respond to Piech's criticisms.

Two company sources familiar with VW's product strategy told Reuters preliminary talks with China's Great Wall <601633.SS> had been held this year to explore the possibility of joint development of low-cost vehicles to tackle VW's chronic weakness in southeast Asia and India.

Another company source said VW was busy working on a small SUV for Brazil, where those models are selling like hotcakes, and is aiming to present a new concept car next year.

Some analysts see a rare opportunity for change at Volkswagen.

Advisory firm Evercore ISI upgraded the stock to "buy" from "hold" on Sunday, saying Piech's departure reduced the risk of more "empire building M&A".

Max Warburton, an automotive analyst at Bernstein, said VW had "considerable untapped potential" but that much would depend on who came into the CEO role, should Winterkorn be anointed chairman.

Other scenarios include a new member of the Porsche-Piech family, such as Wolfgang Porsche, taking over as chairman, leaving Winterkorn as CEO. VW could also opt to hire an outsider as chairman.

"Will the opportunity be seized? History suggests these situations require some very detailed post-conflict reconstruction - and it's not clear there's yet a plan in place at VW," said Warburton. "It's going to be fascinating to watch."

(Additional reporting by Jan Schwartz, Ilona Wissenbach and Laurence Frost; Editing by Noah Barkin)