As was widely expected, Volkswagen Group (NASDAQOTH:VWAGY) announced on Friday that Porsche chief Matthias Mueller will take over as chief executive officer, effective immediately.
Mueller, who is 62, is well regarded and affable, and is generally thought to have done a very good job of leading Porsche. He'll need all of the business skills he can muster as he faces a daunting task: restoring Volkswagen's health and credibility.
A massive, costly scandal is just part of the challenge that Mueller will face
Volkswagen has been rocked by a massive scandal around emissions from its supposed "clean diesel" engines. After months of pressure, VW executives admitted to U.S. regulators that certain diesel-powered Volkswagens and Audis contained software intended to trick emissions testing. In regular driving, the cars' exhaust is much dirtier than allowed by law.
That was particularly outrageous in light of the "green" claims that VW had made about its diesels for years. The outrage jumped to a much higher level after VW revealed that the engines with the cheating software had been sold not just in the U.S. but all over the world -- 11 million vehicles in all.
VW is all but certain to get hit with fines running into the billions. It's nearly certain to be charged with crimes -- likely in the U.S., possibly elsewhere. Suits by outraged VW owners and dealers could add billions more to the final bill.
And somewhere in there, VW has to figure out how to fix all of those cars so that they meet emissions standards -- and then recall them all and get them fixed. Until then, it probably won't be allowed to sell any diesels in the United States, where diesels make up roughly a quarter of its total sales. And it may face bans elsewhere.
Mueller will have to guide VW through all of these consequences in a way that helps restore the company's trust and credibility over time -- while preserving its financial viability.
And, of course, while he's managing all of that, he also has to figure out how to reverse sales slumps in the U.S. and China that were well under way even before the diesel scandal broke. On top of that, he'll have to figure out how to keep up VW's aggressive investments in much-needed advanced technology despite the massive financial pressures arising from the scandal.
Not an easy job.
Mueller might be taking a page from Mary Barra
In a statement, Mueller seemed to make it clear that he knows what he's undertaking. "My most urgent task is to win back trust for the Volkswagen Group -- by leaving no stone unturned and with maximum transparency, as well as drawing the right conclusions from the current situation," he said.
Under my leadership, Volkswagen will do everything it can to develop and implement the most stringent compliance and governance standards in our industry.
That's what he has to say, of course. But the proof will be in actions. Like Toyota and General Motors before it, VW's scandal may have indirectly been the result of a strategy that sought global sales leadership at all costs. Backing away from that will be politically treacherous for Mueller -- but if he's able to do it, it will bode well for his chances elsewhere.
In a not-dissimilar spot early last year, then-new General Motors CEO Mary Barra made similar statements. But it was the actions she and other senior GM officials took in the months that followed that helped mitigate GM's official penalty.
If Mueller is looking to Barra as an example, he's probably looking in the right direction.
Unlike GM's defective ignition switch, nobody died (at least not directly) as a result of VW's outrageous error of judgment. But because of its global impact -- and because VW's actions were clearly and overtly illegal, and because they went on for years despite regulatory pressure -- the impact to the company is likely to be much greater than what GM has faced. But a similar approach is likely to benefit the company over time.
If Mueller can put deeds behind his words, then VW will stand a good chance of recovering. But it will take years.
Much more change is in store for Volkswagen -- and it needs it
VW's Supervisory Board also announced a restructuring of the company on Friday, moments after Mueller's promotion was announced. We'll take a closer look at the changes next week, but the gist is that VW is moving to decentralize some authority.
Part of the problem with VW has been its insular, top-down culture, an approach imposed by longtime chief Ferdinand Piech. Piech is officially retired, but the board appears to understand that the company needs to get out from under his very long shadow.
It doesn't help that Piech is a member of the Porsche family, which owns just over 50% of VW's stock and has massive influence on its affairs. But Mueller is said to have the support of the family. How much will he really be able to change VW? We'll find out.