Evercore ISI auto-industry analyst Arndt Ellinghorst published a research note on Tuesday in which he called for Volkswagen to undertake a major management change in the wake of revelations that the car maker installed software in nearly 500,000 cars in the US that was designed to cheat emissions tests.
The scandal, which initially only involved VW’s small-displacement TDI diesel engines in the US, has broadened: as many as 11 million vehicles may be affected worldwide.
Here’s Ellinghorst’s take:
The current developments surrounding VW’s Diesel engine compliance with emission regulations are exceptionally painful and we believe they need to be seen in context. VW is an overly complex company with a pending leadership and cultural issue. Maybe VW is also “Too German” for a global consumer company.
Clearly, VW is too big of a company to deserve this drama. We are talking about Europe’s largest employer, the company with the highest revenues and of course its biggest carmaker. Even before the latest traumatic events, VW’s fundamental performance has been poor and its CEO has been destabilized by the power struggle between him and former Chairman [Ferdinand] Piech. All this has to come to an end.
Martin Winterkorn, the VW Group’s current CEO, was reported to have have resigned on Tuesday by a German newspaper, but in a video posted VW Group’s media site he said that he was staying on.
VW’s supervisory board is holding a previously schedule meeting on Friday, originally planned to confirm Winterkorn as CEO after the “power struggle” that Ellinghorst mentioned in his note.
Winterkorn may not make it to that meeting as CEO, or VW’s leadership may decide then that it time for him to go. It’s certainly not inconceivable, however, that he’ll remain as CEO.
Regardless, Ellinghorst is clear on the outcome he’s rooting for. “So far there appears to be more self-destruction than constructive turnaround-management,” he writes.
“However, a new CEO, a new Chairman, new CFO and VW brand CEO could all turn VW into an interesting turnaround candidate. VW remains the global OEM with the most earnings upside if the company was managed properly.”
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