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 In a letter seen by Reuters, Chief Financial Officer Frank Witter
told British hedge fund TCI that Volkswagen (VW) had made
significant progress in implementing a new structure for the group
and the VW brand.
However, Witter also acknowledged that an inquiry by law firm Jones
Day into who was responsible for rigging U.S. exhaust emissions
tests was dragging on. "We are all frustrated at the time this is
taking," he said.
VW commissioned the inquiry from the U.S. law firm last year, but
Witter said Jones Day had to be allowed to continue its work into
the second half of this year to ensure "no stone (is) unturned in
the pursuit of truth".
The letter, dated May 17, was addressed to TCI founder Chris Hohn,
who has said Europe's biggest carmaker needs to improve its
performance and create a new governance structure.
Last month, VW announced a 4.1 billion euro ($4.6 billion) operating
loss for 2015 after making huge provisions to cover the cost of
clearing up the scandal.
It has reached a nearly $10 billion deal with the U.S. government,
but still faces an array of civil law suits and members of its
management board - which runs the company day-to-day - are under
fire over their bonus scheme.
Asked about Witter's letter, TCI partner Ben Walker said VW had to
reduce its labor costs and raise its profitability. Walker aimed his
criticism at trade unions and the government of Lower Saxony state,
which has a 20 percent stake in VW.
"It's a letter of fine ambitions but the key point is that the
unions and, in particular, Lower Saxony have to back the management
team now," he told Reuters.
"Then this could be the turning point for Volkswagen. Lower Saxony
and the unions have to acknowledge that a successful auto company
cannot survive long-term with margins of 2 percent."
NATURAL ATTRITION
VW employs over 120,000 people at six factories in Lower Saxony,
including its Wolfsburg headquarters, and the government along with
unions have been keen to protect jobs throughout the firm's crisis.
TCI said it had "exposure" to 2 percent of VW's non-voting
preference shares and none of the group's ordinary shares. It is
therefore dwarfed by the company's dominant shareholders - the Piech
and Porsche families, Lower Saxony and the Gulf state of Qatar.
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However, Walker said shareholders should back TCI's recommendations - setting
tough financial targets, aligning management compensation with shareholders and
controlling spiraling labor costs.
"All those key recommendations are clearly shared with all investors, including
the families, Qatar and ultimately Lower Saxony," he said, adding productivity
could be improved by natural attrition of VW's workforce, and controlling wage
inflation and employee growth.
Bonuses for VW's top managers after the 2015 loss have provoked a row which has
drawn in German politicians.
VW will pay 12 current and former members of the management board 63.2 million
euros in fixed and flexible remuneration for 2015. Management board members have
had 30 percent of their variable bonus awards withheld, but this will be
released if the share price - currently around 125 euros - reaches 140.
Witter said management incentives and bonuses would also be looked at as part of
a process of devising a new strategy 2025, which is due to be announced before
the summer.
VW had made progress, including building on the experience of its Porsche sports
car brand. "We would like to highlight the introduction of product line
management where the best ideas from Porsche are being introduced into the
engineering processes of the Volkswagen brand," the letter said.
(Writing by Edward Taylor and David Stamp; Editing by Mark Potter)
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