Global Insight Perspective | |
Significance | At a meeting on Friday, the supervisory board confirmed the nomination of Winterkorn to replace the departing Bernd Pischetsrieder from 1 January 2007 and approved an investment budget increase to 24.7 billion euro for 2007 to 2009 from 22.7 billion euro for the previous three years. |
Implications | Much of the investment will be allocated to expenditures in property, plant and equipment in Germany and also in developing the company's product range and constructing an assembly plant in India. |
Outlook | Many of the board's decisions, such as investment plans and position in the MAN/Scania tie-up will have collateral effects on the company's future developments. |
At its meeting on Friday (17 November), the supervisory board of the Volkswagen (VW) Group has confirmed that Martin Winterkorn will take over as chairman of the board of management from 1 January 2007. The supervisory board has also adopted a new investment plan for the next three years but on a number of other subjects, the incoming chief executive will have to deal with opposition.
Since Ferdinand Piëch, chairman of the supervisory board, has the support of the 10 labour representatives who comprise half the board as well as two representatives of Porsche, installing Winterkorn in the driving seat of Europe's largest carmaker was not really problematic even though some shareholder representatives took the opportunity to passively voice their opposition. The company said that Bernd Pischetsrieder will effectively leave the board of management at the end of the year but will continue to work for the Group and will assume functions in the interests of the Group. The supervisory board will decide at a later date on a successor to Winterkorn for his present function as chairman of the board of management of Audi. The future of Wolfgang Bernhard has not been discussed.
Last Friday's meeting was also important for two other reasons. Firstly, because the supervisory board was meant to discuss the Group’s current financial and capital expenditure planning for the period 2007 to 2009. Secondly, it also marked the deadline by which the company was supposed to take a more active position on the MAN-Scania possible tie-up.
As such, the VW Group has allocated total investment worth 24.7 billion euro (US$31.7 billion) to the Automotive Division until the end of 2009. In addition to investments in property, plant and equipment, this amount also includes additions to capitalised development costs and investments in financial assets. With its investment plans, the carmaker is also subtly hinting at the main lines of its future strategic development. Of the total 24.7 billion euro, the company plans to spend 17.7 billion euro in property, plant and equipment, of which 10.7 billion euro will be invested in Germany alone and 11.8 billion euro have been earmarked to support the modernisation and expansion of the company's product portfolio while developing more efficient powertrains. The carmaker also approved plans to construct a new manufacturing plant in India, which should start production of a compact car by 2009.
On the MAN-Scania front, the carmaker remained rather elusive. The supervisory board said it continues to support the merger of MAN and Scania and confirmed its two resolutions adopted on 15 October. In a statement the company said "It continues to seek an amicable solution, but is open to other strategies if necessary. VW will offer MAN its interest in Scania if MAN holds at least 56.01% of Scania’s voting rights and at least 71.31 of its share capital. However, if it is clear that the offer will not be successful, VW reserves the right to seek any alternative solution".
Outlook and Implications
As expected, VW's supervisory board has designed the company's future investment plans with a Germany-centric approach. In principle, this is not surprising since the carmaker managed to obtain clear labour concession from its German employees not so long while also confirming its intention to build capacity in a fast growing market. However, other plants in Western Europe may not be very enthusiastic about the carmaker's plans and workers in Belgium already began to strike on Friday and have announced their intention not to resume work until they receive guarantees about their job and the plant's future. VW has said for a long time that as part of its restructuring drive, up to 20,000 jobs were at risks. Since it has reached a labour agreement with its German workforce, it looks like most of the job cuts will be realised in plants located in Belgium, Portugal and Spain.
By reiterating its previous position on the MAN-Scania subject, VW has brought little clarity to what could be a major business development for the European truck sector, that looks set to get bogged down by technicalities. MAN made an official offer last Friday, which Scania's board declined. In addition, Scania is now defending itself against the hostile bid by questioning the validity of MAN's offer while Sweden's Securities Council has granted Investor AB and the Wallenberg foundations, which are major Scania shareholders, an exemption from the mandatory bid obligation for the Swedish truck-maker.
Against this background, Porsche raised its stake in VW last week, thus increasing its influence on the carmaker but Porsche's initial entry into VW's capital could be stained by possible insider trading issues, at a time when many wonder whether Porsche is planning a full takeover of Europe's largest carmaker. It emerged that German prosecutors are examining suspicions of insider trading linked to Porsche's 2005 purchase of shares in VW, involving a Frankfurt-based asset management firm. Pischetsrieder was reportedly criticised for his lack of firmness in the company's restructuring drive and position on the MAN/Scania merger, but he has provided stability and vision to a wounded company while involving key board members such as Bernhard and chief financial officer, Hans Dieter Poetsch, in the restructuring process. By centralising power around Piëch, Winterkorn and Porsche, the company's restructuring potential may be diluted.