[Brucelee]

Off this mornings wire.




"A management shake-up at Volkswagen AG is putting more power in the hands of its engineering-minded new chief executive officer, Martin Winterkorn, and raising concerns among investors about how aggressively Europe's largest auto maker will continue to cut costs.


Europe's largest auto maker by vehicles sold said yesterday that the head of its core VW brand, Wolfgang Bernhard, would leave the company "by mutual consent" effective Jan. 31, less than two years after taking office and roughly two months after then-CEO Bernd Pischetsrieder abruptly resigned. Mr. Pischetsrieder had clashed with Volkswagen Chairman Ferdinand Piëch over the company's strategy and governance.

Mr. Winterkorn, who officially became CEO of Volkswagen Jan. 1, couldn't be reached to comment and has said little publicly about his plans for leading the company. While Mr. Winterkorn has garnered praise for increasing Audi's sales in recent years, investors question whether he will bring the same energy to cost cutting as Mr. Bernhard, who had taken a prominent role in the effort.

Volkswagen said in a statement yesterday that its new management structure "opens the way for greater synergies" within the company. An aide at the company's communications department said its representatives were traveling back to Germany from the North American International Auto Show in Detroit and weren't available to comment.

Mr. Winterkorn will now lead the VW brand and oversee research and development for the company. Volkswagen also reorganized its brands, putting luxury nameplates Audi, Bentley, Bugatti and Lamborghini together in one division, and mass-market brands VW, Seat and Skoda in another.

IN TRANSITION


• The Situation: Wolfgang Bernhard, who oversaw Volkswagen's biggest brand, departs the company, giving a greater role to Chief Executive Martin Winterkorn.

• What Matters to Investors: Some question whether Mr. Winterkorn will be as effective in cutting costs.

• The Bottom Line: Volkswagen must bring down its costs amid tough competition from other auto makers.

The new structure is the latest sign of the rising influence at Volkswagen of its biggest shareholder, German sports-car maker Porsche AG, and of Mr. Piëch, who is a member of the family that controls Porsche.

Earlier in the week at the Detroit auto show, Porsche CEO Wendelin Wiedeking, a close ally of Mr. Piëch and a member of Volkswagen's board, made clear he would push for "a lot of changes" at Volkswagen. He described VW as a "gold mine" and said he would demand productivity improvements. "I know how to make money," Mr. Wiedeking told reporters.

People familiar with the matter say Porsche officials and Mr. Piëch had argued in favor of the management shake-up, claiming it would promote more sharing of engines and other components between its brands.


As head of the VW brand, Mr. Winterkorn will face major challenges, such as turning around its unprofitable U.S. operations, shoring up its underperforming Chinese business and maintaining its competitiveness against leaner rivals, such as Toyota Motor Corp. At some of VW's German plants, it takes twice as many hours of labor to assemble a car as some rivals' plants require.

Under Mr. Pischetsrieder and his handpicked lieutenant, Mr. Bernhard, the company in recent months has pursued a vast restructuring intended to bolster its profit, which has fallen sharply since the early 2000s. The program involves the elimination of as many as 20,000 jobs, mainly in Germany, over several years; an extension of work hours without pay increases; and steering the VW brand back to its roots as a maker of affordable "people's cars." VW ran into trouble a few years ago when it launched a luxury sedan that flopped.

With Mr. Bernhard out, some investors worry the company's progress on those fronts may stall. One source of concern is that Mr. Winterkorn played a prominent role in several projects that have contributed to the VW brand's woes, including the ill-fated $68,000 VW Phaeton sedan. Sales were so disappointing that Mr. Bernhard ordered the luxury car pulled from the U.S. market in 2005.

Mr. Winterkorn's "track record on cost reduction is much less convincing than that of Dr. Bernhard," said Stephen Cheetham, an analyst with Sanford C. Bernstein Ltd. in London. "What this [shake-up] shows is that Volkswagen has reached the high-water mark of its restructuring. Investors should be extremely cautious."

The company said that it also set aside a new seat on its management board overseeing its sales activities and that it would create a new management post overseeing companywide production, to be filled by Jochem Heizmann, formerly head of production at Audi. The company said the sales post would be filled "at a later date." The management board runs the company's day-to-day operations.

It remains unclear where Mr. Bernhard will go now. Only 46 years old, he was well-known even before joining Volkswagen for leading a major restructuring of DaimlerChrysler AG's Chrysler division in the early 2000s, before a strategic dispute with his boss, then-CEO Jürgen Schrempp, resulted in his departure from the company. Mr. Bernhard couldn't be reached to comment yesterday."