VW CEO Mueller's likely exit heralds sweeping changes at carmaker

Frankfurt

VOLKSWAGEN'S board abruptly ended the tenure of chief executive officer Matthias Mueller, a caretaker who revived the carmaker after its worst crisis on record, turning instead to a leader who can implement deeper changes, people familiar with the matter said.

Key stakeholders came to the conclusion they couldn't afford to wait two years until Mr Mueller's contract expired to appoint a fresh CEO, as they deliberated an overhaul that will likely include an IPO of the heavy trucks division and how to most rapidly implement those changes, said the people, asking not to be identified discussing the private talks.

64-year-old Mr Mueller, always a reluctant CEO who had grown weary of the regular grillings by board members, responded during the talks by signalling he was prepared to step aside, they said. With Mr Mueller agreeing to go, the controlling Porsche-Piech clan, the state of Lower Saxony and powerful labour leaders settled on Herbert Diess, chief of the namesake brand, as successor, ruling out other top executives such as the chief financial officer, the heavy-trucks chief and Porsche CEO, the people said.

None of these behind-the-scenes deliberations were apparent from VW's surprise release that was as short as it was cryptic when it landed on Tuesday afternoon. Mr Mueller had signalled his "general willingness to contribute to the changes", the statement read, and that the board was considering changes that included the position of the CEO. It didn't identify Mr Diess as a possible successor, and the company declined to comment further.

In tapping the 59-year-old Mr Diess for the top job, Volkswagen would elevate a senior executive from its own ranks, while handing the reins to someone who was not at the carmaker when the diesel-cheating scandal began. Mr Diess joined VW from German rival BMW in mid-2015, shortly before the scandal erupted publicly. As the executive overseeing VW's biggest unit, he has routinely butted heads with labour leaders while seeking to cut costs and simplify the carmaker's byzantine structure.

VW's statement didn't specify whether the planned changes meant replacing Mr Mueller or simply a shift in responsibilities. It said chairman Hans Dieter Poetsch will spearhead the transition, and that there is no certainty that personnel changes will in fact occur.

The supervisory board will meet on Friday to sign off on the management changes and other proposals, the people said.

Under Mr Mueller - who was talked into taking the top job in the chaotic days following the public disclosure of the diesel cheating - VW has weathered the blows from the scandal while embarking on an aggressive expansion into electric cars. Its profit margin climbed to 7.4 per cent of sales last year from 6 per cent in 2015, when the crisis hit. The carmaker also managed to fend off Toyota Motor to retain its status as the world's largest carmaker.

In the aftermath of the diesel-cheating scandal, Mr Mueller sought to overhaul Volkswagen's rigid top-down management structure, delegating more responsibility to its brand and regional chiefs. The complexity extends to its main shareholder, Porsche Automobil Holding, where Mr Poetsch serves as the CEO and Mr Mueller as a top executive. Porsche said in a separate release that any changes at VW would be reflected in its management.

Including Mr Mueller, VW's management board totals nine people, with responsibilities ranging from purchasing to legal affairs to financing and human resources. Audi, the VW brand, the trucks division, and the group's Chinese operations also have representatives on Volkswagen's top executive body.

Publicly-listed companies in Germany have two management structures: one consisting of the management board around the CEO and a supervisory board that is made up half-half of labour representatives and members of the capital side to ensure even distribution of interests.

Volkswagen is more complex than most of its peers, with the Porsche-Piech families de-facto controlling the manufacturer and the state of Lower-Saxony - home to the company's headquarters and VW's main factory - owning 20 per cent.

While Mr Mueller is a VW veteran, at times he cuts an uneasy figure in the top job, which required him to manage the often contradictory demands of angry car owners, disgruntled investors, well-organised workers, as well as state officials with their own political agendas.

Tensions flared in recent weeks between Mr Mueller and Lower Saxony's leadership, which is represented on the supervisory board. Mr Mueller told German magazine Der Spiegel in March that he "doesn't like politicians meddling with my business", likening a discussion about a salary cap for executives to the oppressive system of the former German Democratic Republic. BLOOMBERG