Ford Man in VW's Future

Although it is scarcely a consolation to Detroit, the big European automakers are also having their problems. British Leyland, which is one of Britain's largest non-nationalized industrial firms, has been forced to go, hubcap in hand, to Harold Wilson's Labor Government for a five-year loan of $230 million or so to help it get over a severe cash shortage caused by plunging sales. Peugeot and Citroen have sought and received financial backing from the French government for a desperation merger. Italy's Fiat, hit by a sharp decline in sales, is struggling to unload an inventory of some 345,000 unsold cars. Meanwhile, a variety of troubles have overtaken the largest auto manufacturer outside the U.S., West Germany's Volkswagen.

VW's overall sales were off "only" 13% in 1974; but they were down a thumping 30% in the company's most important export market, the U.S., which normally accounts for a third of the company's production. Mainly because of the export disaster, VW expects to report 1974 losses as high as $210 million--the first deficit that Volkswagen has shown since it was revived after World War II. Lately, VW's six West German plants have been operating at 60% of capacity, and nearly 80% of its 109,600 West German work force has been laid off.

Board-Room Politics. One of Volkswagen's casualties was Rudolf Leiding, 60, who resigned as president last month. The company gave poor health as the reason, but by all appearances, Leiding's main problems were bad luck in sales and some brusque boardroom politics. When he took over the top job at Volkswagen's Wolfsburg headquarters in 1971, Leiding recognized that the basic Beetle, essentially a 1937 design, was steadily losing consumer appeal, and he moved quickly to develop new models to replace it. Unfortunately, the oil crisis and the subsequent economic slowdown hit just as Leiding was rolling out his new cars. Caught in a classic revenue squeeze, Leiding started jacking up the price of the Beetle, which now costs $2,895 in the U.S., up 16% in the past year. Then, when sales plummeted, Leiding cut production, trimmed the payroll, and began talking about beating cost problems, caused by the Deutsche Mark's relentless rise, by building an assembly plant in the U.S. The prospect of exporting jobs rather than cars angered two powerful factions on VW's 21-man supervisory board of directors: the members representing the government's 40% ownership of the company and the workers' representatives, who sit on the board under West Germany's system of Mitbestimmung (co-determination) in corporate management.

Last week, nearly a full month after the board accepted Leiding's resignation, it finally agreed on a successor. He is Toni Schmuecker, 53, an outsider who was until recently president of Rheinstahl AG, a large steel company. But Schmuecker is no stranger to the auto business: he spent 30 years with Ford of Germany, rising to director of sales. Yet his reputation as a corporate reorganizer dates from 1968, when he jumped from Ford to Rheinstahl, a once profitable firm that had been driven into the red by severe cost problems. Schmuecker lopped off unprofitable operations, turned the earnings slide around, then arranged for Rheinstahl's sale to the August Thyssen-Huette AG iron and steel combine in 1973.

Volkswagen could stand some similarly dramatic treatment. Certainly the company must find some way to adjust its mammoth production capacity downward so that consumer demand can be met without generating suffocating overstocks of cars. But how much innovation VW's politically sensitive board will tolerate from Schmuecker remains to be seen. VW's new boss is more affable and articulate and less authoritarian than Leiding, and charm may help. But even VW's chairman Hans Birnbaum has said bluntly that there are no "magic solutions" to the company's problems, and that he does not expect a full recovery until 1980 at the earliest.

This file is automatically generated by a robot program, so viewer discretion is required.