This article was first published in November 2015.
Photography by Julian Dodd
Ingolstadt is Audi town. Sitting on the Danube to the north of Munich, it’s a Bavarian bourgeois mini-city of a mere 131,000 souls – over 40,000 of whom work in the Audi complex, the second largest car production facility in Europe. They turn out 600,000 vehicles each year and are proud of their four-ringed automotive emblem.
Ingolstadt is also, however, famous as the venue of the creation of a grotesque and unnatural scientific experiment which leads to scandal and disaster for its maker: Dr Frankenstein. Mary Shelley’s Ingolstadt creature was stitched together from cadavers and animated by electricity rather than powered by diesel. But you get the irresistible parallel narrative drift. They don’t find such comparisons that amusing around here at the moment.
Audi is the pride of the extended VW family. It occupies the lucrative premium sector with far juicier margins than you can ever make on a Golf or a Polo. It is VW’s successful challenger to its deadly rivals BMW and Mercedes. However, the weeks since the VW Dieselgate scandal broke in September have been among the worst in the company’s life. Audi uses VW-derived engines, the smaller diesel varieties of which were initially implicated in the fraud. This week it was found that the 3 litre engines were fitted with the cheating software too.
Audi chairman Rupert Stadler insists he's still a fan of diesel engines. Credit: Julian Dodd
In the US, where the cheating of NOx emissions levels was discovered, the VW company has been pilloried. Being called ‘The Lance Armstrong of the motor industry’ was one of the politer attacks. There was a disastrous appearance by VW’s US chief Michael Horn in front of a congressional committee where even he acknowledged that the official line – that the fiddling was the result of just two rogue software engineers – was stretching credulity.
Ambulance-chasing lawyers have been falling over each other to sign up VW customers for class actions ever since. Eleven million cars worldwide are affected including 2.1 million Audis. Although no one has been killed, in some ways it looks even worse than BP’s Deepwater Horizon disaster, which eventually cost over $20bn in fines. At least that was an accident resulting from negligence. This was an act of gross deceit.
So, who knew what and when? The truth will out eventually and might take years. From a management point of view the ‘why’ question is, in some ways, more interesting. The 83-year-old industry veteran Bob Lutz who worked at GM, Ford, BMW and Chrysler wrote a telling blog in November with the title ‘One Man Established the Culture that Led to VW’s Emission Scandal – A Diesel Dictatorship’.
The man in question is Ferdinand Piëch, the former chief of VW’s supervisory board and grandson of Ferdinand Porsche, the original godfather of the German car industry. Lutz tells of a conversation he had with Piëch in the 90s about the amazingly slick body fits on the then new VW Golf. Piëch gladly told how he did it: ‘I called all the body engineers, stamping people, manufacturing and executives in to my conference room. And I said, "I am tired of all these lousy body fits. You have six weeks to achieve world-class body fits. I have all your names [echoes of ‘Don’t tell him, Pike!’ here] If we do not have good body fits in six weeks, I will replace all of you. Thank you for your time today."’
Lutz continues: ‘It was a reign of terror and a culture where performance was driven by fear and intimidation. He just says, "You will sell diesels in the US and you will not fail. Do it, or I’ll find somebody who will." The guy was absolutely brutal.’
Not just brutal but also bizarre. In 2012 Piëch ensured that his fourth wife, a former kindergarten teacher called Ursula who had been the family governess, was elected to the supervisory board. VW’s corporate governance has raised eyebrows for years. It is run by a mixture of family control combined with government ownership and very powerful union involvement.
Quoted in The New York Times, Markus Roth, a professor at Marburg University called it ‘a soap opera ever since it started’. Even the normally intensely loyal German media are restless: Süddeutsche Zeitung compared the autocratic leadership styles of senior VW people to those of Kim Jong-il in North Korea.
So, what is the true story? How are they coping? We’d all like to know. And so it is that I found myself unexpectedly bowling along the autobahn from Munich airport at 225kph in a chauffeur-driven, 12-cylinder, £105,000 Audi A8 long wheelbase, en route to an appointment with Rupert Stadler, chairman of the VW Group’s upmarket Audi brand.
MT’s interview with Stadler, who has been laying pretty low, came about in an interesting way. A way which shows how the world turns. We first met just over a week before the diesel particulates hit the fan in September. He was in Venice to celebrate the launch of the new A4.
I sat opposite him at supper in the glamorous, balmy surroundings of the Venetian lagoon. He was impressive – enthusiastic, thoughtful, right on top of all aspects of his brief and far less buttoned up than the average senior German industrialist. A proper 21st-century leader in what remains a deeply traditional, conservative industry in Germany. He even had a couple of glasses of vino rosso and a grappa, before retiring to bed for four hours’ sleep and taking his VW jet home for a board meeting the next day. If he knew anything about the impending scandal then he wasn’t showing it.
The following day I dropped his friendly Italo-German comms chief a note requesting a long MT interview. They would think about it. Eleven days later Dieselgate broke. VW shares immediately dived 20% and are now down by half. The world’s largest car maker was in deep crisis. That, I imagined, was it.
VW’s communication strategy since has been pretty lamentable. Defensive, evasive with the imprint of lawyers all over it. The drip, drip of bad news got still worse when it emerged that a degree of gaming the results of fuel economy and CO2 emission figures for many other cars was now suspected. (It is not just VW implicated here but many other manufacturers.)
Car manufacturers have a complex array of stakeholders – not just their customers, the public and their staff but also the dealer networks. All will be currently to varying degrees disconcerted. Some very pissed-off indeed. VW sales appear already to be dropping but those of Audi and its even more upmarket sister Porsche are still going up.
Then out of the November blue came an invite to spend an hour with Herr Stadler on a Friday afternoon. (As is the German custom the company politely requested sight of the interview before we published. Feeling this doesn’t make for a healthy, objective press, we declined but agreed to his quotes being approved.)
Arriving at the Audi Forum, this hardly looks or feels like a company in crisis. It’s very much business as usual. In the Audi museum parties of Chinese tourists are photographing each other in front of the legendary Auto Union racing cars of the 1930s and the Le Mans-winning vehicles from the last decade. It emphasises how fiercely competitive it is as a company. Audi people see themselves as winners, not losers.
MT editor Matthew Gwyther tests an emissions-free vehicle at the Audi museum. Credit: Julian Dodd
There is a huge hall for handing over new cars to customers. It’s like a giant maternity ward where beaming parents are handed their shiny, metal bundles of joy. Families pose for portraits in front of their A3, A4 or A5 as the keys are handed over. It’s very clever marketing.
Stadler became FD at Audi in 2007 and chairman plus CEO in 2010. He held various Group roles before that and is also on the board of the highly successful Bayern Munich football club. The most important point to grasp about Stadler is that he’s not an engineer but studied business management in Augsburg. The 52-year-old farmer’s son – who unusually for someone of his background was sent away to a cosmopolitan boarding school – worked first at Philips but has been in the car industry for 25 years. His brother now runs the family farm.
He’s clean-cut, smart and still smiles a fair bit. You seem a bit more emotionally intelligent than the average German senior boss, I flatter him, to warm things up a bit. He hasn’t heard of emotional intelligence but takes the compliment anyway.
So what does he think were the pluses of being schooled in business and not engineering? ‘I think my big advantage is an ability to focus on all the many aspects of car production from a neutral perspective. So a focus on customer needs comes very naturally to me.’
There has been talk of a very top down, command and control style at VW which dates back many years. Is this true? ‘We need a more decentralised approach, to encourage all management levels in all parts of the group to take more responsibility and quicker decisions. My management style is team-oriented and I give people responsibility for their actions. The expert must be responsible for his decision.
‘In discussions about piloted driving or computing power my role is to ask the right questions from a customer perspective, not to offer technical solutions. If finally we all together take a decision, my managers must feel fully responsible for it and if they don’t succeed they have to report what they need to reach their targets.’
This is all very nice but the traditional VW management style has been likened publicly to North Korea! ‘I can’t accept this kind of comparison and with my biography I prove the opposite. What’s true is that we need more entrepreneurship, more of a start-up spirit. There’s a huge young management potential in VW Group who can do it in a different way.’
He accepts the challenge of motivating and engaging with Gen Y and Z and is all for flexible working with no compulsory 7am starts. He has two young daughters himself. What we can deduce here is that he’s probably not a JFDI-style shouter.
Anyway, surely this mess spells the beginning of the end for the diesel car? He is having none of this. ‘I’m convinced the diesel engine is fantastic. It has good torque, low fuel consumption and big range. Its CO2 emissions are 15% lower than of petrol engines of the same horsepower. This is the reason why 70% of our European customers buy that technology. They are happy with what they get.’
He goes on. ‘We agree together with other OEMs that diesel is one of the answers to the very ambitious CO2 targets in Europe. But nevertheless we are investing huge sums on plug-in hybrids, which is a bridging technology towards fully electric cars. By 2018 we will have a SUV, which is fully electric with 500km of range. And we are able to bring fuel cells on the road.’
But this is urgent. What of cities like Paris where they now threaten to ban diesels by 2020? ‘What will happen in Paris to the French car manufacturers with an 80% diesel mix? [Answer: they will be even more monumentally screwed than they are already.] How can this work? We need continuity and reliability in law making. We are a capital intense industry with long life cycles of about seven years. Our way to future technologies demands a high return on sales, profitability which has to come from the so called traditional drivetrains. Lower emissions will have a high price.’
OK. But the second strand of the revelations must now mean real world, on-the-road testing of fuel consumption in the future. VW itself has fessed up that there have been irregularities here. ‘It will come,’ he accepts. ‘It’s a process of increased transparency which is good. We accept that.’
You haven’t really been entirely transparent so far though, have you? ‘There is now a high need for transparency. We need to put on the table what is needed and required and get our processes right.’
But what happened in the USA – and what has now been revealed to have been going on in Europe – is active deception. ‘We take the violations that have been discovered very seriously and deeply regret that we have broken the trust of our customers and the general public. We are cooperating fully with all authorities to clarify the facts comprehensively. Volkswagen has commissioned an external investigation into the matter.’
He is now on the back foot. So, does he think the US tech sector’s encroachment on his patch has become an even greater threat because it will capitalise on VW/Audi’s reputational troubles? Apple clearly wants to make cars. ‘It is a challenge for all of us in the car industry and has nothing to do with our current troubles. They all know a customer wakes up in the morning, puts on his smartphone and wants to be connected to the world. He gets into his car and drives to work one hour or more. The same happens in the evening.
‘Two hours in the car, five days a week. With piloted driving and parking we can create added value for customers. The driver can use this time to communicate, to work.
‘So, the car gets bigger than the car. That’s the reason why Google and Apple are interested in cars That’s why we plan to acquire HERE [Nokia’s old mapping business]. We want to have the best digital material to collect physical local data. We want to create an open platform, an automotive cloud to which others can contribute. Amazon deals with things, Facebook with people. We want to deal with local data.’
Isn’t Apple is going to be surprised by how difficult making cars really is? ‘Yes. Piloted driving isn’t easy at all. The whole system of hard- and software in a car is high-tech.’
And there is the fact that today’s twentysomethings just aren’t into cars like they once were. They don’t dream about them any more. ‘Young people haven’t lost interest in cars,’ he replies. ‘But young people have a different habit when it comes to spending their monthly budget. They have big emotional bonds with smartphones, with Spotify and other services. This is priority number one and it is their first step to mobility because they can communicate with their community. The sharing community is growing. Uber is a fact. But many do both, they own a car, they rent cars from a car sharer or they use Uber depending on the situation.’
Rupert Stadler: ‘There is now a high need for transparency.’ Credit: Julian Dodd
But fewer cars will surely be the result of more sharing? ‘We have to work on a more efficient use of mobility in general. Not just cars. Being stuck in traffic in Shanghai for two hours in the morning isn’t funny. We need new concepts and new ideas. However, the car is still part of individual freedom. Just look at China.’
Are the legal implications of Dieselgate and the potential damages bad news for vital investment? ‘There will be no reductions in budgets for future technologies. This is what we did in the wake of the world financial crisis and this is how we handle it today.’ Finally, is he aware that some want him to be the VW Group boss? He must be, but he is giving nothing away. ‘I am very happy in Ingolstadt.’
All highly diplomatic. I left with two distinct impressions. Stadler would have rather liked to tell me his side of the whole story but simply isn’t permitted to. He clearly feels personal pain but cannot express it. He would probably have quite liked to say ‘sorry’ but that’s tricky, as well. Think of the lawsuits.
It’s hard to escape the impression that at Audi they feel the time has come to put some clear blue water between them and the VW mothership. I would say a lot of Audi folk feel let down by Wolfsburg. Both Audi and Porsche, the premium and luxury elements of the VW family, are proud and highly profitable. The other parts less so.
In the wider context, the national brand has clearly also suffered: Made In Germany will not carry quite the price premium in future that it did before.
Germans are smart but they are saddled with a very high wage, rigid economy. It sounds like an odd thing to write in the face of all the evidence, but when it comes to bent and immoral ways of doing business Germans are not world leaders. They can be stubborn and forceful but equivocation is not their bag. And – as the Dieselgate affair shows in spades – they are not very good at it. Or at dealing with messy aftermath. Rather the scandal looks like a grotesque cock-up resulting from intolerable pressure from the top.
In crowing at VW’s predicament – the damage sums involved make break-up or bankruptcy a possibility – we should be careful what we wish for. It cannot be in anyone’s interest in Germany or the UK that VW comes a complete cropper. An economically failing and unstable Germany will be bad news for all Europeans.
‘If only everything in life was as reliable as a Volkswagen’ the ads used to purr. ‘Vorsprung durch Technik’ did the same for Audi. (These lines have now become meat and drink to satirists.) But like Frankenstein’s monster they only wanted to be loved, and desired. Bought and serviced.
And so to the final irony of this sorry tale. One of my colleagues, Hilton Holloway from Autocar, suggested to Stadler when we were in Venice that the current, widely lauded, Golf Mark 7 was probably just about the best engineered car a customer was ever going to get for the price. I don’t see the Germans disagreeing.
The Golf may be the apogee of the Piëch vision and modus operandi. He may have been a shouter, says Holloway, but he made them line the glove box of the Audi 90 with flock to enhance the perception of quality. The Golf made the standard for 40 years but it was rarely made to a price. VW was said to be making a margin of 2-2.5% before it ran up the arrestor bed. Cost-cutting across the Group is now bound to follow, which is why Audi requires careful protection. My money’s on the Audi.