At Volkswagen, a Game of Thrones as Chairman Ferdinand Piech Quits

On April 16, the tables turned on Ferdinand Piech, the powerful patriarch of Volkswagen AG, reported The WSJ.

For years, he had dominated the automotive giant his grandfather established. But in a meeting with other board members at his family estate in Salzburg, Austria, Mr. Piech didn’t simply fail to win support for his effort to oust VW Chief Executive Martin Winterkorn. This time it was Mr. Piech who felt the sting of rebuke.

Nine days later, one of the most storied businessmen in postwar Europe made a dramatic exit by quitting the company he had turned around.

The boardroom battle distracted the company’s top management and workforce at a time when Volkswagen is losing momentum in its bid to overtake Toyota Motor Co. and General Motors Co. as the leading auto maker world-wide by sales.

Mr. Piech is the grandson of Ferdinand Porsche, the engineer and designer who developed the Volkswagen Beetle. He has spent more than 25 years steering Volkswagen, as CEO and chairman of the supervisory board.

With Mr. Piech’s departure Saturday, Volkswagen faces two weeks of uncertainty before its annual meeting on May 5. The supervisory board would like to have a candidate ready to succeed interim Chairman Berthold Huber. And after that, the automotive giant faces big challenges getting back in gear amid slumping sales in the U.S. and China and high costs in Europe.

The Showdown in Salzburg, as German media are calling that gathering, brought together the men who had cooperated with Mr. Piech for years. But this time was different.

The works council boss Bernd Osterloh, who often stood at Mr. Piech’s side in past battles, abandoned the 78-year-old chairman. Stephan Weil, the socialist premier of Lower Saxony state, which holds a blocking minority in the company, backed Mr. Winterkorn. Mr. Piech’s cousin Wolfgang Porsche refused to support him.

Mr. Piech acquiesced, agreeing to keep Mr. Winterkorn. Soon after, key shareholders and stakeholders told Mr. Piech they had lost confidence in him as chairman, the board said in a statement on Saturday. Mr. Piech immediately resigned, withdrawing from all company functions. His wife, Ursula, also resigned. That leaves Mr. Porsche as the family’s main representative on Volkswagen’s board.

Mr. Porsche is seen as one of the winners of Mr. Piech’s failed plot to oust the Volkswagen CEO. But he has to contend with two players in Wolfsburg’s game of thrones who have also emerged stronger.

The Volkswagen supervisory board is balanced between 10 representatives from labor and 10 representatives of the shareholders. The chairman holds two votes to break a tie, if necessary.

In the battle over Mr. Winterkorn’s future, Lower Saxony, a shareholder, supported the labor camp. By doing so, Mr. Weil, the state premier, tipped the balance in favor of labor and reasserted the state power in the boardroom.

“The union and the state of Lower Saxony are the winners of the power struggle at VW,” Ferdinand Dudenhöffer, director of the Center for Automotive Research in Duisburg-Essen, wrote in a commentary published on Sunday. “As a result of this power struggle Winterkorn has more than ever before become the man of labor.”

If Mr. Dudenhöffer’s analysis is right, it could mean that the choice of a new chairman made necessary by Mr. Piech’s departure could be the first test of the new power structure in Wolfsburg.

Mr. Piech is known for quickly getting rid of executives that have lost his favor. In 2006, Mr. Piech pulled the rug out from Volkswagen CEO Bernd Pischetsrieder by stating in an interview with The Wall Street Journal that the CEO’s future was uncertain. Mr. Pischetsrieder was replaced a few months later with Mr. Winterkorn, a protégé of Mr. Piech and then CEO of Volkswagen’s luxury car brand Audi AG.

When Mr. Piech moved against Mr. Pischetsrieder he had Mr. Osterloh on his side. But when Mr. Piech put Mr. Winterkorn in his cross hairs, labor leaders on the board rushed to defend the CEO.

“The last two weeks have created uncertainty in the minds of the workforce,” Mr. Huber, former head of the IG Metall trade union, said Saturday. “This uncertainty had to be ended today.”

Mr. Porsche moved quickly to reassure the company’s management and workers after the sudden departure of Mr. Piech.

“We have complete confidence in the management of Volkswagen AG and regret the developments of the past few days,” Mr. Porsche said in a statement, adding that the family would continue to play a supportive role as the company anchor shareholder.

Mr. Piech is still a major investor in Volkswagen and retains his seat on the board of Porsche Automobil Holding SE, the investment company that manages the Porsche and Piech family holdings.

Mr. Piech couldn’t be reached for comment.

Porsche SE controls 51% of Volkswagen’s voting capital and is itself the outcome of an earlier family feud. A few years ago, the much smaller Porsche AG tried to use its financial muscle to take over Volkswagen, using debt and financial instruments to amass Volkswagen shares. The plan blew up and Mr. Piech rescued Porsche, allowing him to set the terms of integrating the family businesses together under one roof.

But because Porsche was more valuable than Volkswagen, Mr. Porsche’s immediate family ended up with the majority of voting shares in Porsche SE. The Porsche car-making business was integrated into Volkswagen, which had management control and Mr. Piech as chairman.

Whoever emerges as the new chairman of Volkswagen, Mr. Osterloh and Mr. Weil will want a firm commitment to protect jobs at Volkswagen’s German plants—most of which are in Lower Saxony. The strength of the labor side of the table could make it harder to revive the company’s profit.

One inside candidate is Ulrich Hackenberg, the company’s chief developer, who worked closely with Mr. Piech and Mr. Winterkorn for years. He has a deep network within Volkswagen and has often been mentioned as a potential chairman. He would bring Mr. Piech’s passion for engineering and enthusiasm for the Volkswagen brands and would likely be acceptable to the works council, analysts say.

Mr. Hackenberg couldn’t immediately be reached for comment.

Mr. Piech has left, but the problems that he exposed aren’t going away. And some analysts suggest that Mr. Winterkorn is now more dependent on the support of the works council to keep his job, making it less likely that he will push through tough restructuring at Volkswagen to boost the profitability of the brand.

“It is hard to imagine there will be a new strategic orientation of VW’s core brand under such a constellation,” said Mr. Dudenhöffer.

Volkswagen makes the bulk of its profit with Audi, Porsche, Skoda and the VW brand’s business in China. Mr. Winterkorn has been unable to stop Volkswagen of America from bleeding cash, and emerging markets in Brazil, India and Russia have turned sour, further weakening the VW brand.

“The biggest development in China is in budget cars and SUVs, segments where we are not present,” Jochem Heizmann, CEO of Volkswagen of China, told reporters on the sidelines of the Shanghai auto show this month.

Mr. Winterkorn last week cancelled a planned trip to the auto show in Shanghai. VW cited flu as the reason.

Mr. Piech always placed a high premium on engineering and was driven by the desire to make VW the best and biggest car maker in the world. His departure leaves a void at the top of Volkswagen’s leadership that won’t easily be filled.

“I regret the resignation of Ferdinand Piech, but it was unavoidable in the end,” said Mr. Weil, the premier of Lower Saxony. “Without exaggerating, it is fair to say that he is one of the most important personalities in Germany’s (postwar) economic history.”