The recent drama between Herbert Diess and Volkswagen is emblematic of larger schism driving the legacy automaker apart. While executives like Diess want to set aggressive goals and transition the entire company to zero emissions as soon as possible, workers and unions want to take it slow. This fundamental tension is what forced Diess to abandon his title as CEO of the Volkswagen brand (he’s now CEO of VW Group, but not the VW brand. Confusing, I know). In the aftermath of that embarrassing ordeal, Diess demanded an early contract extension as a show of support from the board. They didn’t extend his contract but they didn’t fire him either, highlighting the board’s struggle in balancing the demands of two important competing factions.
Christiaan Hetzner at Automotive News shared his thoughts on the situation yesterday:
The drama that played out in recent weeks at the highest levels of Volkswagen Group can be explained with these two facts:
1. VW is in the midst of a generational shift toward a fully carbon-neutral business over the next 30 years.
2. The software-enabled, zero-emission vehicles favored by CEO Herbert Diess will have a dramatic effect on employment at the German behemoth.Automotive News
That’s the tension in a nutshell. Once Volkswagen completes its transition to electric vehicles, a lot of people are going to lose their job. Volkswagen is trying to downplay that fact, but everyone knows it’s true. Naturally, unions and workers aren’t all too excited to make that day come faster.
Both stakeholders are already on edge. Utilizing the carmaker’s own internal figures, the Fraunhofer Institute estimated last week that employment in Volkswagen brand car plants in Germany could sink by 12 percent by 2029 because of the switch to electromobility. Worse, the group component plants would assemble parts that were 40 to 60 percent less labor-intensive. That means creative solutions and upskilling are required to manage the transformation, as layoffs have been ruled out.Automotive News
How are you going to transition to electric vehicles without laying anyone off? It seems like legacy automakers have their hands tied with these kinds of promises. This is a hard pill that Volkswagen is going to have to swallow if it wants to survive. Does 12% of employees laid off sound scary to you? Well, how about 100%? How about getting bought out of bankruptcy by some startup in China with a 30 year old CEO? That is the alternative to transitioning as fast as possible. And even moving as fast as possible, it’s not clear whether that will be fast enough.
The two patriarchs of the Porsche and Piëch families that control 53.3 percent of the voting shares demonstratively backed Diess, who was forced to yield control over the VW brand in June to a union favorite, Ralf Brandstätter.Automotive News
Isn’t it wild that majority control of one of the largest automakers on Earth rests with two families?
Unions are furious, however, about plunging volume at the factory. It is on track to build just 500,000 light vehicles during this pandemic-racked year, down from roughly 700,000 in 2019 and a far cry from the 1 million promised to employee representatives more than two years ago.Automotive News
That would be a pretty insane symbolic milestone if Fremont & Shanghai produced more vehicles that Wolfsburg for 2020. It’s one of Volkswagen’s many factories compared to all of Tesla’s, but it would still be a jaw dropping statistic.
Executive Bonuses Linked to ESG Targets
In another bizarre change emerging out of this tension, Bloomberg’s Christoph Rauwald reports that top Volkswagen executives’ bonuses will now be tied to environmental, social, and governance targets:
Volkswagen AG plans to link top executives’ bonuses to environmental, social and governance targets as the German industrial giant seeks to bolster sustainability credentials that are increasingly relevant to investors.
“Integrating ESG criteria into the bonus calculations for our management board offers concrete incentives to pursue the sustainability goals we have outlined,” Poetsch said. The progress of ESG initiatives will be tracked via key metrics including internal decarbonization and diversity indices, he said.Bloomberg
Sounds questionable. How about this: No bonuses until the EV transition is complete.
VW has added ESG targets to its strategic goals and calculates bonuses using a range of factors including the group’s operating performance and in the future also ESG improvement. Chief Executive Officer Herbert Diess received a bonus of just over 3 million euros ($3.7 million) for last year, roughly twice as much as most management board members.Bloomberg
I’m guessing executives giving up their annual multi-million dollar checks is not going to happen. How about taking some of that money and giving it to the workers who will be temporarily displaced by the transition?