Driven by tradition

A young boy looks on as his grandfather explains the finer points of a new car he has designed. The photograph may have been taken nearly 60 years ago but the image of Ferdinand Pich gazing intently at his grandfather, Ferdinand Porsche, explains much about the events last week that have reshaped the European automotive industry.

Porsche was the inventor of the Volkswagen Beetle and paved the way for the foundation of the sports-car-maker named after him. The companies enjoyed close links – in the picture Pich's grandfather is showing off the Porsche 356, the company's first car built largely from VW parts. Mr Pich set himself an extraordinary goal, given his grandfather's pre-eminence. "It was always my aim eventually to run a bigger company than my grandfather,” he said once. "VW, family, money,” was another way he summed up his priorities.

Mr Pich, now supervisory board chairman of VW and truckmaker MAN as well as a controlling shareholder of Porsche, reached his goal last Monday. At 8am his beloved VW took over the majority of Scania, the Swedish truckmaker, making it the ninth brand in a company producing everything from a one litre mini-car to a 40-tonne truck. Then at 3pm came even bigger news – Porsche had received the go-ahead from its board to extend its large stake in VW to more than 50 per cent. Mr Pich had succeeded in uniting his grandfather's two companies, creating Europe's largest car and truck empire with €150 billion ($A248 billion) in annual revenues and brands from VW, Seat and Skoda to Lamborghini, Bugatti and Bentley.

Mr Pich seems unlikely to rest on his laurels. "Pich wants to create a company that is bigger than Toyota,” said one of his closest allies at last week's Geneva motor show. "He wants to enter car history alongside, or maybe even above, Henry Ford.”

But many remain sceptical about whether his bid to secure a family legacy will be an economic success. Some point to the problems Daimler, another high-end German carmaker, had with its foray into mass-market production through its acquisition of Chrysler. "Porsche may well find what worked for it doesn't work at VW,” says a Daimler management board member. Another senior Daimler executive says: "I just do not think VW is capable of chasing Toyota. And I especially have my doubts about whether Pich is the right person to do the chasing.”

Mr Pich, 71 in April, was born in Vienna with "petrol in his blood” (his biography is titled Auto.Biography). He joined the industry after engineering school and earned such success from the 1960s onwards at Porsche, Audi and VW that in 1999 he was named "car executive of the century” by the Global Automotive Elections Foundation (his grandfather won the engineer prize and Ford was also a winner). At Porsche he developed the 917, one of the most successful racing cars in history. At Audi came a slew of innovations such as the five-cylinder engine. Moving to VW in 1993 as chief executive, he saved it from financial disaster.

But there were questions about his methods. He became VW chairman in 2002 after record results. Many new managers at VW complained his focus as an engineer on technical excellence had led to expensive adventures such as the Bugatti Veyron (with a price of about $1.4 million and top speed of more than 400kph, it was dubbed by some "Pich's folly”) and the VW Phaeton luxury saloon that pleased him but failed to bring in customers.

He is also known for a cold manner that allows few people to get close. His father, Anton, a lawyer, died when he was 15 and he was sent to a Swiss boarding school by his mother, Louise, who ran the Porsche Holding car export business from Salzburg and was very tough. Mr Pich is vague about his private life, but according to various interviews he has 12 or 13 children with three, four or more women. He also caused a long-time schism in the family by having an affair with the wife of his cousin.

"He is the coldest person – and the hardest to communicate with – that I know. If you are against him it is hell. But if you are with him, and more importantly agree with him, he will protect you very well indeed,” says a German industry executive who knows him well. That side of him is shown by his often brutal way of firing managers – as with Bernd Pischetsrieder, his successor as VW's CEO – informing them through the press. Mr Pich has defended his tough tactics. "You don't win a big fight with friendliness,” he once said. Another motto is: "It is not possible to bring a company to the summit while maintaining harmony.”

Mr Pich can seem "bulletproof”, as one Porsche manager says, after brushing off attacks. Some VW non-executive directors tried to oust him three years ago, as did some of the leading German and Anglo-Saxon shareholders a year later, but both failed. Some directors remain unhappy about the corporate governance implications of Mr Pich controlling Porsche and being chairman at VW simultaneously, as well as his close relationship to VW's unionised workforce. "Please don't think VW is an example for Germany. It is not a normal company. In fact, what happened here is a stain on our reputation,” says one director.

None of those fears is likely to worry Mr Pich, who arguably has more power than ever at VW. But his position at Porsche is weakening, partly due to his brother, Ernst, selling a stake 30 years ago that left the Pich family holding only 46 per cent of voting rights to the Porsche family's 54 per cent. "The two families have never been a loving couple,” says a senior executive.

Wendelin Wiedeking, Porsche's cocky chief executive, has also contributed to Mr Pich's weaker position – he has begun to attack some of Mr Pich's closest allies and principles. VW workers are outraged by Mr Wiedeking's focus on costs and his aim to make VW as profitable as Toyota, while Mr Pich appears to want to sell more cars than his rival. A manager close to both men says: "People aren't scratching each other's eyes out. But things are very tense. This could decide the direction of VW.”

Mr Pich gave little away at the Geneva show. "There is no problem between us,” he said in his soft, clipped style. Yet he had one more surprise. On the night of his triumph he unusually conceded some power at Porsche by retiring from the main committee of the supervisory board. He said cryptically: "It creates room for something else.” Maybe having trumped his grandfather's legacy, he now realises how far he has to go to catch up with Toyota.

Copyright The Financial Times Limited 2008