There can only be one: "Game of Thrones" in Wolf Castle

Sunday 20th December 2020

There can only be one
"Game of Thrones" in Wolf Castle

From Helmut Becker

2020 should be a year of celebrations and anniversaries at VW: 75 years of Wolfsburg, 75 years of the works council. But at the end of 2020 a power struggle at the world's largest automobile manufacturer escalates, in which there can only be losers – or a film-like happy ending.

In the last few months, a power struggle has raged at the top management level in the German economy, as it could well have been the script episode of the popular television series "Game of Thrones". The only difference is that the whole thing did not take place in fictional kingdoms, but in real terms in the German auto industry. And the actors weren't dark people, but honorable employees of two extended families. Instead of a film set, the action took place at Volkswagen AG's headquarters in Wolfsburg.

The story is a bitterly serious power struggle between two equal opponents. One is called Herbert Diess and is the CEO of the Volkswagen Group, with an annual production of more than ten million cars and 600,000 employees the largest car company in the world. The opponent is Bernd Osterloh, chairman of the VW general works council. The fight revolves around the strategic direction of the Volkswagen Group. To put it bluntly, it's about who is in charge at VW. The battleground is Wolfsburg, which, like the works council itself, is celebrating its 75th anniversary this year. This background is important if you want to understand the plot.

There was once …

VW was founded on May 28, 1937 by the Hitler regime as the "Society for the preparation of the Volkswagen" and in 1938 it became the Volkswagenwerk GmbH renamed. The place where the plant was built on the green field was named "City of the KdF-Wagons near Fallersleben" because of the nearby town of Fallersleben. KdF stood for "strength through joy". After the end of the war, responsibility for the Volkswagen factory was transferred to the British military government. Under the direction of Anton Piëch, father of Ferdinand Piëch. The plant itself started work in mid-June 1945 as "Wolfsburg Motor Works". On May 26, 1945, the city of Wolfsburg was renamed. In 1949 the British military government transferred the company to the trusteeship of Lower Saxony – combined with the condition that the ownership rights were exercised jointly with the federal government and that the other federal states and the trade unions were given great influence.

And it stayed that way for all the following decades. The company was converted into an AG in 1960 and partially privatized. In 1985 it was renamed Volkswagen AG. In 1993, Ferdinand Piëch took the stage as CEO.

Workers instead of capital

The essence of this history is the realization that Volkswagen AG has been the child of the workers, not of capital, since it was founded. In principle, the unwritten responsibility always rests with the employees and the works council, not with the investors. Nothing changed about that after the transfer of ownership to the Piëch and Porsche family lines in 2009. The respective CEOs always sought coordination and consensus with the works council, in this case with Bernd Osterloh.

Then Herbert Diess came along – and everything should be different. The Austrian Diess was poached by Piëch von BMW as head of the central Volkswagen brand in 2015 and replaced Matthias Müller as Chairman of the Board of Management of Volkswagen AG in 2018. At the same time, union man Gunnar Kilian, who was Ferdinand Piëch's assistant in asset management in Salzburg, was ordered back to Wolfsburg as head of human resources.

Radical remodeling plans

In fact, the supremacy of the works council was secured. And the company peace as well, had it not been for the published intention of Diess shortly after taking office to radically rebuild the brand first and then the group within two car generations, i.e. 14 years. Diess wanted two things:

As a "creative destroyer", he wanted to fundamentally change the VW corporate culture based on internal power struggles and personal squabbles. On the other hand, Diess wanted to completely replace the traditional and successful combustion engine drive technology in the VW Group, especially the core brand Volkswagen, with electric drives. Diess announced that VW would no longer develop internal combustion engines from 2026 and that it would no longer produce internal combustion cars from 2040. So: layer in the combustion shaft on the Aller.

These projects inevitably had to lead to a violent conflict with the works council and the workforce because they would have resulted in serious job losses.

A "breach of law" and the question of trust

The first scandal between Diess and works council boss Osterloh occurred in spring 2020 when Diess publicly complained and accused his supervisory board of "breaking the law" – a very unusual occurrence. Only through a public apology was he able to save the head and the corporate chairmanship. However, he had to give up the management of the electro-endangered core brand Volkswagen, as well as his regular place on the talk shows of public television channels.

The next scandal came when Diess did not take part in the ceremony for the 75th anniversary of the VW works council, to which even the former Chancellor Gerhard Schröder traveled. Finally, the conflict between corporate management and the works council broke out openly when it came to the need for new appointments to the board. Diess had nominated candidates for two vacant board positions according to his ideas, but these were rejected by the works council on the supervisory board. What followed is the best "Game of Thrones" fashion: Diess now wanted to know and asked the supervisory board a question of confidence. In addition to the appointment of his preferred board members, he also applied for the early extension of his employment contract, which would not expire until mid-2023 and would not normally be on the agenda before 2022.

Showdown with an uncertain outcome

The question of power between VW CEO Diess and works council boss Osterloh had flared up with all sharpness – and landed on the supervisory board. A showdown with an uncertain outcome was looming. Did Diess play poker? Does he want to go? Does he have to go? And how can which of the two opponents save face and save face? It sounds like squaring the circle. But supervisory board chairman Hans Dieter Pötsch would not be an Austrian if he had not come up with a compromise solution after weekend and night meetings. One that saved both opponents from losing face:

Herbert Diess remains in office. He waives an early contract extension and in return receives a declaration of honor from the entire Supervisory Board to continue his cost-cutting and transformation path without restriction and to appoint his preferred board members. "Herbert Diess has had a significant impact on Volkswagen since 2015. Without his commitment, the company's transformation would not have been as consistent and successful," it said. The Supervisory Board appreciates the determination and tenacity with which Diess is pushing its goals. – That's clear.

Bernd Osterloh, in turn, sets limits for the employee side of Diess. There may only be a necessary downsizing in the context of existing programs – through demographic change with partial retirement and early retirement. At the same time, Diess was obliged to build electric cars at the main plant in Wolfsburg, not only in Emden or Zwickau – especially the plug-in hybrids with internal combustion engines preferred by Osterloh. A veritable safety net against uncertain market developments and employment risks. Osterloh can see himself confirmed.

Are the two opponents now exercising reason? If they do, Volkswagen will face the difficult automotive times ahead with this compromise. If they don't, there will probably be another episode of "Game of Thrones in Wolf Castle" soon.