Article: Interview with Bernd Pischetsrieder
10-22-2001, 06:14 AM
#1
Article: Interview with Bernd Pischetsrieder
Copyright 2001 The Financial Times Limited
Financial Times (London)
October 22, 2001, Monday London Edition 1
SECTION: INSIDE TRACK; Pg. 14
LENGTH: 1230 words
HEADLINE: A slow-burn approach to profits: BMW ALUMNI 1: BERND PISCHETSRIEDER: BMW is a nursery for motor industry talent. Its former chairman talks to Tim Burt and John Griffiths about his new job at Volkswagen:
BYLINE: By TIM BURT, JOHN GRIFFITHS and BERND PISCHETSRIEDER
BODY:
Bernd Pischetsrieder is smitten by clever engineering. From piston-rings to headrests, the chairman-designate of Volkswagen has a passion for precision tooling.
He is particularly taken with his latest lighter. It seems to be supercharged, which is just as well, for his cigar is the size of a small mortar shell. Between lunch courses, the VW director ignites his cigar with jets of flame, while he expounds on VW's future. It is highly distracting. "The most robust strength of any carmaker is clearly profitability. Whether this leads directly to a better share price is another question," says Mr Pischetsrieder, disappearing for a moment in smoke.
The share price is a sensitive issue at VW. The German carmaker's financial results are less than transparent, even after adopting international accounting standards.
VW insiders complain that the company is undervalued by analysts; institutional investors complain that it is not open about its figures and strategy. Given that Mr Pischetsrieder has yet to succeed the formidable Ferdinand Piech, he is circumspect. In terms of sales, he says, VW has a simple criterion: "to do better than last year". Reluctant to predict future market trends, he concludes: "We are doing better than the competition. That is our main objective."
But he shares the current chairman's disdain of "short-termism" in the investment community. And he refuses to be distracted by short-term issues such as temporary production cutbacks or recent market volatility.
"In a business like ours when you only talk about one year's results, it's very easy to show a profit," he says. "Under inter-national accounting standards you can show a substantially higher result if you want to. But, for me, profit really starts only after you have secured your future."
That means the former BMW chairman - removed two years ago following splits over its ill-fated Rover acquisition - will champion investment in new products and manufacturing facilities ahead of profits. Get one right, he argues, and the other will follow.
The Rover debacle dented the pride of the 53-year-old Munich engineering graduate as well as BMW's balance sheet. BMW's folly at Rover was to risk its premium status with a rag-bag British marque, which it subsequently mismanaged and failed to support until it was too late. Investors must hope that Mr Pischetsrieder will not repeat those mistakes with VW's family of brands.
He has to prove that he learnt from Rover, where his "hands-off" approach left the company floundering with rising losses, ageing products and crippling exchange rates. That was compounded by the investment in the executive-class Rover 75 and the Mini rather than Rover's mainstay models in the middle market.
When he did intervene, Mr Pischetsrieder did not always help. In Britain, he is remembered for undermining the Rover 75 launch by warning that the company's future would be threatened without better productivity.
"I partly blame myself - we needed a crisis, so we manufactured one," he recalls.
After five years of turmoil and Euros 5bn (Pounds 3.1bn) of investment and losses, BMW jettisoned both Mr Pischetsrieder and Rover.
VW has adopted a different approach to its subsidiaries. The carmaker, which headhunted Mr Pischetsrieder last year, could easily have fallen into the Rover trap after acquiring the Spain's unfancied Seat brand and Skoda, the Czech carmaker whose dubious quality sustained comedians for years.
Unlike BMW, however, Germany's largest carmaker did not leave its juniors to fend for themselves. Arguably, it went too far the other way - providing them with VW's precious DNA in the shape of car platforms and components. Critics accuse VW of "badge-engineering", giving Skoda and Seat - and, to a lesser extent, Audi - basic VW models to "re-skin". Skoda's Octavia bore an uncanny resemblance to VW's Passat; the acclaimed Audi TT looked like a VW Beetle on hunger strike; the Seat Leon was clearly fathered by the Golf.
VW executives claim the benefits - in terms of a broader product portfolio - outweighed the risks of diluting the core German brand. While applauding that strategy, Mr Pischetsrieder feels that it has served its purpose. Now it is time for a subtle change of direction.
This is where he is could bring his BMW experience to bear. At BMW, Mr Pischetsrieder was consumed by developing a dominant premium brand. His deputy, Wolfgang Reitzle, was largely the engineering force in the company - ensuring that each model's performance met brand aspirations.
BMW recognised its target audience and developed BMW products only for that group. This is what he wants to achieve at VW, where each brand is likely to be redefined under his leadership.
"What needs to be sharpened is the position of the brands to the customer," says Mr Pischetsrieder, who assumes the chairman's role at VW next April. "The philosophy that every brand had to aim for a market dominant position was the right strategy while Skoda was defined by the eastern bloc and Seat was serving the Roman market. VW was the brand with big cars and Audi defined the premium sector," he says.
In today's car market, however, the brands compete directly in some categories. That has persuaded Mr Pischetsrieder to adopt the sort of "character branding" pioneered by General Motors - where Pontiac is the sporty brand, Cadillac the luxury marque and GMC the workhorse.
At VW, Seat will be more sporty, Skoda will represent value motoring and VW will embody German quality engineering. Audi will serve the premium end. Bentley, Lamborghini and Bugatti will define the luxury market. In each sector, VW hopes to offer the best product - whether urban runabout or grand tourer.
That also applies to commercial vehicles, where Mr Pischetsrieder hints that VW may walk away from its investment in Scania, the Swedish heavy truck company, unless it can be developed, most probably through acquisition, into a market leader.
The trick, he says, is to differentiate each brand while still sharing large components or modular systems and merging back-office functions such as marketing, logistics and finance. "Customers don't buy organisations; they buy cars," he adds. The key to profitability, according to Mr Pischetsrieder, is to invest sufficient sums to develop new products, while sharing overheads across several brands.
Analysts fear that VW will miss its self-imposed 6.5 per cent return on sales margin. Mr Pischetsrieder is unimpressed: "There is nothing easier than showing a 6.5 per cent return if it has to be shown. If you reduce research and development spending by half, you get a profit kick."
VW has no intention of resorting to that. On the contrary, the new chairman will invest in both products and financial services. It is not enough to build quality cars - the group has to be able to manage sales, leasing and used car values. "You cannot sustain profitability if you forsake financial services - it is a pre-condition of a successful car business," he says.
As Mr Pischetsrieder has warmed to his theme, so the tip of his neglected cigar has faded and died. When it comes to reigniting VW and its brands, he appears to recognise that it will take more than a hand-held flamethrower to get the company going.
Tomorrow: Wolfgang Reitzle, developing luxury brands at Ford
LOAD-DATE: October 22, 2001
Financial Times (London)
October 22, 2001, Monday London Edition 1
SECTION: INSIDE TRACK; Pg. 14
LENGTH: 1230 words
HEADLINE: A slow-burn approach to profits: BMW ALUMNI 1: BERND PISCHETSRIEDER: BMW is a nursery for motor industry talent. Its former chairman talks to Tim Burt and John Griffiths about his new job at Volkswagen:
BYLINE: By TIM BURT, JOHN GRIFFITHS and BERND PISCHETSRIEDER
BODY:
Bernd Pischetsrieder is smitten by clever engineering. From piston-rings to headrests, the chairman-designate of Volkswagen has a passion for precision tooling.
He is particularly taken with his latest lighter. It seems to be supercharged, which is just as well, for his cigar is the size of a small mortar shell. Between lunch courses, the VW director ignites his cigar with jets of flame, while he expounds on VW's future. It is highly distracting. "The most robust strength of any carmaker is clearly profitability. Whether this leads directly to a better share price is another question," says Mr Pischetsrieder, disappearing for a moment in smoke.
The share price is a sensitive issue at VW. The German carmaker's financial results are less than transparent, even after adopting international accounting standards.
VW insiders complain that the company is undervalued by analysts; institutional investors complain that it is not open about its figures and strategy. Given that Mr Pischetsrieder has yet to succeed the formidable Ferdinand Piech, he is circumspect. In terms of sales, he says, VW has a simple criterion: "to do better than last year". Reluctant to predict future market trends, he concludes: "We are doing better than the competition. That is our main objective."
But he shares the current chairman's disdain of "short-termism" in the investment community. And he refuses to be distracted by short-term issues such as temporary production cutbacks or recent market volatility.
"In a business like ours when you only talk about one year's results, it's very easy to show a profit," he says. "Under inter-national accounting standards you can show a substantially higher result if you want to. But, for me, profit really starts only after you have secured your future."
That means the former BMW chairman - removed two years ago following splits over its ill-fated Rover acquisition - will champion investment in new products and manufacturing facilities ahead of profits. Get one right, he argues, and the other will follow.
The Rover debacle dented the pride of the 53-year-old Munich engineering graduate as well as BMW's balance sheet. BMW's folly at Rover was to risk its premium status with a rag-bag British marque, which it subsequently mismanaged and failed to support until it was too late. Investors must hope that Mr Pischetsrieder will not repeat those mistakes with VW's family of brands.
He has to prove that he learnt from Rover, where his "hands-off" approach left the company floundering with rising losses, ageing products and crippling exchange rates. That was compounded by the investment in the executive-class Rover 75 and the Mini rather than Rover's mainstay models in the middle market.
When he did intervene, Mr Pischetsrieder did not always help. In Britain, he is remembered for undermining the Rover 75 launch by warning that the company's future would be threatened without better productivity.
"I partly blame myself - we needed a crisis, so we manufactured one," he recalls.
After five years of turmoil and Euros 5bn (Pounds 3.1bn) of investment and losses, BMW jettisoned both Mr Pischetsrieder and Rover.
VW has adopted a different approach to its subsidiaries. The carmaker, which headhunted Mr Pischetsrieder last year, could easily have fallen into the Rover trap after acquiring the Spain's unfancied Seat brand and Skoda, the Czech carmaker whose dubious quality sustained comedians for years.
Unlike BMW, however, Germany's largest carmaker did not leave its juniors to fend for themselves. Arguably, it went too far the other way - providing them with VW's precious DNA in the shape of car platforms and components. Critics accuse VW of "badge-engineering", giving Skoda and Seat - and, to a lesser extent, Audi - basic VW models to "re-skin". Skoda's Octavia bore an uncanny resemblance to VW's Passat; the acclaimed Audi TT looked like a VW Beetle on hunger strike; the Seat Leon was clearly fathered by the Golf.
VW executives claim the benefits - in terms of a broader product portfolio - outweighed the risks of diluting the core German brand. While applauding that strategy, Mr Pischetsrieder feels that it has served its purpose. Now it is time for a subtle change of direction.
This is where he is could bring his BMW experience to bear. At BMW, Mr Pischetsrieder was consumed by developing a dominant premium brand. His deputy, Wolfgang Reitzle, was largely the engineering force in the company - ensuring that each model's performance met brand aspirations.
BMW recognised its target audience and developed BMW products only for that group. This is what he wants to achieve at VW, where each brand is likely to be redefined under his leadership.
"What needs to be sharpened is the position of the brands to the customer," says Mr Pischetsrieder, who assumes the chairman's role at VW next April. "The philosophy that every brand had to aim for a market dominant position was the right strategy while Skoda was defined by the eastern bloc and Seat was serving the Roman market. VW was the brand with big cars and Audi defined the premium sector," he says.
In today's car market, however, the brands compete directly in some categories. That has persuaded Mr Pischetsrieder to adopt the sort of "character branding" pioneered by General Motors - where Pontiac is the sporty brand, Cadillac the luxury marque and GMC the workhorse.
At VW, Seat will be more sporty, Skoda will represent value motoring and VW will embody German quality engineering. Audi will serve the premium end. Bentley, Lamborghini and Bugatti will define the luxury market. In each sector, VW hopes to offer the best product - whether urban runabout or grand tourer.
That also applies to commercial vehicles, where Mr Pischetsrieder hints that VW may walk away from its investment in Scania, the Swedish heavy truck company, unless it can be developed, most probably through acquisition, into a market leader.
The trick, he says, is to differentiate each brand while still sharing large components or modular systems and merging back-office functions such as marketing, logistics and finance. "Customers don't buy organisations; they buy cars," he adds. The key to profitability, according to Mr Pischetsrieder, is to invest sufficient sums to develop new products, while sharing overheads across several brands.
Analysts fear that VW will miss its self-imposed 6.5 per cent return on sales margin. Mr Pischetsrieder is unimpressed: "There is nothing easier than showing a 6.5 per cent return if it has to be shown. If you reduce research and development spending by half, you get a profit kick."
VW has no intention of resorting to that. On the contrary, the new chairman will invest in both products and financial services. It is not enough to build quality cars - the group has to be able to manage sales, leasing and used car values. "You cannot sustain profitability if you forsake financial services - it is a pre-condition of a successful car business," he says.
As Mr Pischetsrieder has warmed to his theme, so the tip of his neglected cigar has faded and died. When it comes to reigniting VW and its brands, he appears to recognise that it will take more than a hand-held flamethrower to get the company going.
Tomorrow: Wolfgang Reitzle, developing luxury brands at Ford
LOAD-DATE: October 22, 2001
10-22-2001, 09:29 AM
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I don't think Piech will let anyone ruin what he's developed and quite frankly
I think Audi is it's own worst enemy. Even Piech was disappointed in them. Let's not jump to conclusions. I liked some of what he said, it could be good for the brand as a whole.
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