Thinking Small (63 page)

And while the German national government relinquished its
20 percent of VW shares in 1988, the government of Lower Saxony still owns 20 percent. In fact, there is something called the “VW Law” that effectively gives the state government of Lower Saxony the ability to block any resolution that it does not agree with at Volkswagen. So even though it has only 20 percent of the company’s shares, it could nevertheless exercise full
control of the plant, but even more specifically, if another car company or person should have controlling shares of the stock, the state of Lower Saxony could prevent them from taking over the company as a whole. (The European Court of Justice, in 2007, ruled that this law was not constitutional, and thus the balance at VW is currently being reconfigured, as is the VW Law.)

In any case, as it now stands, the people (the workers) and the government (the state leaders) both have a heavy influence at Volkswagen, and the company thus spends a lot of time and energy balancing its management concerns, its unions, its shareholders, its stakeholders, its “daughter” car companies, and its authoritative figures. With such a large size and with so many differing voices, decisions do not always get made quickly or efficiently. The
company that few thought would survive in 1945 has become an international economic powerhouse, but it has done so using a business model and a method of production that can appear inefficient and slow at times, operating in a far different manner from other German car companies—companies like Porsche.

Today, Porsche and Volkswagen are two of Germany’s most famous carmakers. They both started with one man, Ferdinand Porsche, but as businesses, they have evolved very differently over the years. Volkswagen is a giant operation on all counts. Porsche has an incredible image and reputation, but remains more a boutique, luxury car company. (Volkswagen AG sold over 6 million vehicles in 2010, and Porsche sold less than 100,000, but Porsche made more money
per
car
.) The differing sizes and products of these two companies has meant that, though they started in the same place, they have become very different business models. In fact, in Germany in 2007, it would
have been very hard to find two companies as structurally different, and with such a differing
Weltanschauung
(philosophy or worldview) as Volkswagen and Porsche.

But the split between them goes beyond their structural style and business models, tied to a dynastic feud between two families that are really one family: the Porsches and the Piëchs. It’s such a complex, soap-opera-like family division—one that includes affairs, deals with Arab investors, and every imaginable kind of familial problem, multiplied tenfold—that it’s hard to remember it all started with one man. When Ferdinand Porsche
died on January 30, 1951, he left behind a design firm in Stuttgart (the design firm that was in that very moment transforming into the Porsche car company of today) as well as a dealership in Salzburg, Austria (which would later become the biggest dealership in Europe). The financial backing that allowed these two Porsche firms to grow came in large part because of the new agreements that were made between Porsche and Volkswagen when Nordhoff, Ferry, and Anton met on September 17,
1948.

Porsche had two children, Louise and Ferry, and it was to them he left the Porsche businesses when he died. Louise and Ferry had a close relationship, but they were very different people: Ferry, as he described himself, was more of a mother’s boy, and had a tender, spiritual side that Louise perhaps had as well, but that she was less apt to show. Louise always came off as very strong, sometimes rude or gruff, with a personality much more like her
father’s. Today, Ferry’s sons carry the Porsche name, and Louise’s children have the last name of the man she married, the man who was in prison with her father in France, Anton Piëch. As was always the case with Ferdinand Porsche himself, business and family remained deeply intertwined; thus the rivalries, miscommunications, and struggles within the family soon extended to the Porsche and Volkswagen firms, and have played out in the wider German arena of
politics and economics since Ferdinand Porsche’s death.

In Ferdinand Porsche’s will, he gave Ferry control of the Stuttgart design firm, and Louise control of the Austrian dealership. Anton, Louise’s husband, hardly outlived her father, dying very suddenly in 1952. Louise was thus left to raise her four children more or less alone and simultaneously hold down the Austrian side of the Porsche company. Ferry and his family were dealing with the German part of the Porsche business in Stuttgart,
a town and country where “Porsche” was already a name that carried weight. The Porsche and Piëch children thus grew up in different countries, and in very different ways. The Piëch children were sent to Austrian boarding schools, for instance, schools that Louise’s son, Ferdinand Piëch, the family member who would (much later) become the leader of Volkswagen, now describes as “elitist, Spartan, and strict.” Ferry’s boys,
on the other hand, went to the Waldorf schools, German schools inspired by Rudolf Steiner. Steiner is the founder of Anthroposophy, a philosophical movement guided by “living through deeds of love, and allowing others to live with tolerance for their unique intentions.” One oft-repeated motto of the Waldorf schools (which are still prominent in Germany today) is, “Receive the children in reverence, educate them with love and send them forth in freedom,” a
big difference from the Spartan, strict world that was known by Ferdinand Piëch! But the Porsche boys could be harsh too, often reminding Ferdinand Piëch, for instance, that he did not directly bear the Porsche name.

But even though he did not carry the Porsche name, there had rarely been a minute in Piëch’s life when he could escape the ghosts of his father and grandfather. When he would begin his rise at Volkswagen, for example, there would be rumors about his father Anton’s complicity in labor camps during the Second World War. Many tried to keep Piëch from rising to authority, saying that if the story got out about the role his father had played in
the use of forced labor at VW, it would not bode well for the company’s public image. With Ferry still around, the Porsche boys could lean on their father, a man who was able
to be more accountable for himself, to discuss his activities during the Second World War with them and with the public, and to share or deflect the burden of that weight. Both Louise and Ferry gave their children a great deal of love and support, but growing into adulthood without a
father certainly took its toll on Ferdinand Piëch.

In any case, these kinds of underlying tensions within the Porsche and Piëch families understandably carried over into the workplace. For example, in the 1960s, Ferdinand Piëch (who was working for the Porsche company at the time, and had not yet joined VW) created a race car known as the Porsche 917. But his method of building this car—using the best parts and the best research and engineering advisors, regardless of time and cost—caused a
great deal of tension. The Porsches disagreed with his reasoning and approach, and this exploded into a huge family argument, though the 917 was a landmark race car, debuting in 1969 and going on to win Le Mans.

By 1970, it had become clear to Ferry and Louise that their children were not getting along and that the fighting was affecting the business. They ultimately made the decision that
none
of their children would be allowed to work at Porsche ever again. The children could own their shares in the company and be on the board, but they couldn’t hold official management positions there. This is how Ferdinand Piëch ended up at Volkswagen. His response to
this new rule was to start working at Audi, which eventually led him to VW.

As Ferdinand Piëch became the chairman of the board and guiding personality of Volkswagen, so too did the two companies take on the Porsche/Piëch feud. The Porsche brothers criticized the VW business model and their cousins’ complicity in it (and they also contested the VW Law, which would have kept them from being able to own VW). But Piëch learned how to operate in the VW world, and it worked to his benefit
and
to the benefit of VW
(Piëch saved VW from financial troubles and deflected yet another near buyout from Ford). The feud reached its boiling point in 2008, when Porsche nearly took over Volkswagen, after
the ECJ ruled against the VW Law, thus making such a takeover possible. It might have been the most heated move for acquisition in all of German industry, made all the more spectacular because it almost worked: Porsche nearly took over VW, a company
fifteen times
its
size. But it had been a speculative, hedge fund kind of move, heavily involving stocks, and when the market collapsed in 2008, the deal collapsed as well. The Porsche company was thus left vulnerable, with copious amounts of debt, very angry investors, and the possibility that they would have to file for bankruptcy. All this, and in the blink of an eye.

By the end of 2008, it was clear that Porsche now needed to be bailed out. And it wasn’t long before Volkswagen owned 49.9 percent of Porsche, and Porsche, though no longer in fear of bankruptcy, lost its potential claim to VW. Ferdinand Piëch was the figurative head of VW as all this took place, though he had stepped down as CEO in 2002 to become chairman of the supervisory board; Wendelin Wiedeking, the CEO of Porsche, was forced (many believe by
Piëch) to leave. To a large degree, Wiedeking (backed by the chairman of the Porsche board, Wolfgang Porsche) was behind the Porsche move to take over VW, mainly because Wiedeking believed that VW’s business model was outdated and needed to be changed. Wiedeking became a sort of pawn in the battle between VW and Porsche; thus his final resignation was the sure sign that VW and Piëch had “won.” But in truth, there was no clear winner or loser, just a
monumental shift in the relationship between VW and Porsche.

Negotiations about how this new VW/Porsche relationship will be structured are still continuing as I write. If the current deal goes through, Porsche will receive billions of dollars from VW to pay off its debts. The Porsche and Piëch families will get 50 percent of the merged VW/Porsche company; thus, VW (which once had only Ferdinand Piëch as the family representative) will now be partly owned by the Porsches. In turn, the Porsches will have less direct
control of the Porsche company itself. The German state of Lower Saxony would still keep 20 percent of VW, the Emirate of Qatar would get another chunk
based on its dealings with Porsche, and the rest of the company will remain with the investors and stockholders. Porsche will become a “daughter” company of VW, and thus Porsche will be VW-owned.

What is certain in all this maneuvering is that the two companies are once again owned in part by the same family—and both the Piëchs and the Porsches have benefited from this. As Dietmar Hawranek wrote in
Der Spiegel
in 2009, “The assets of the Porsches and Piëchs have multiplied.
²
Before the investment in Wolfsburg, they
owned 100 percent of Porsche, a small sports-car maker. Now they own more than half of the world’s second-largest automobile group. As dirty as it was, it was an extraordinarily profitable family feud.… The merger places the German-Austrian industrialist clan on a level with the world’s biggest corporate dynasties: the Fords, the Agnellis, and the Peugeots.”

So for the moment, it seems the VW business model will prevail, though this (like everything else in the story) is more complex than meets the eye, and is currently in the midst of change. Volkswagen AG is one big company made up of many individual, smaller ones, and so far, this setup has worked in large part because Volkswagen does not infringe on the other brands, but allows them their freedom in production and design methods, even as the companies share certain
mind-sets and technologies. Hopefully, the same will hold true for Porsche. The challenge for Volkswagen AG is to find a way to continue growing, even as it champions basic German traditions and deeply rooted work methods like joint responsibility and participation (
Mitbestimmung
and
Mitverantworung
). Until now, the guiding force of VW has been sustainability rather than huge profits—even though the huge profits have come—so while they haven’t
made as much money as they might have made with a smaller cost base (in other words, had their business and manufacturing philosophy been predominantly based on the “lean model” as developed by Toyota, and as used by Porsche), they
have
made a profit, and that’s been enough. At the same time, the management
at Volkswagen AG seems to know it must be flexible, that they cannot restrict change as they continue to grow.

Already, Porsche and VW are intermixing in new ways: Michael Macht, an expert in lean production who was once the CEO of Porsche, has recently been named to head the Volkswagen Group’s global network, for instance, and Volkswagen AG has named Matthias Mueller, previously VW’s top car strategist, to be the new CEO of Porsche. But the true test of Volkswagen AG might be how it merges these differing structural models into a new strategy, one that remains
true to the company’s history and methodology while at the same time evolving certain aspects to reflect its new acquisitions. In one sense, the traditional Volkswagen business model has demanded a slowness that can be frustrating. But in another sense, this slowness has been the company’s strength, keeping it from overreaching itself, guaranteeing good engineering and good quality work.

German-born economist Fritz Schumacher once wrote, “Character … is formed primarily by a man’s work.
³
And work, when properly conducted in conditions of human dignity and freedom, blesses those who do it and equally their products.” Every big company is now trying to find the right balance in this sense—the
balance between becoming big while at the same time attending to the details, because the details are what will ultimately make or break them—and VW is no different. In the global automotive market, VW is second only to Toyota when it comes to profits and units sold, and VW’s chief executive has promised to surpass Toyota by 2018. Volkswagen now talks about becoming the biggest and most profitable car company in the world. In fact, this has become a kind of slogan of
VW’s, and lately, they say it often.