Family Ties still rule the world’s big automakers

Nov 28, 2012

Family first

A recent disclosure came as jarring reminder that -- at a surprising number of the world's most prominent automakers -- family come first.

Ferdinand Piech, chairman of Volkswagen's supervisory board, announced that he was planning to remain on the job for another five to seven years, and that his protégé, Martin Winterkorn, chairman of the management board, would do the same. That wouldn't have been so surprising since VW has enjoyed a very successful run lately -- except that Piech is 75 years old, and Winterkorn is 65, and the decision had apparently been reached with no prior discussion with any other board members or shareholders.

But then Piech seldom has to look any further than a mirror when making a decision about VW. Following this year's acquisition of Porsche, which is controlled by the Piech-Porsche family, Porsche owns 50.7% of VW's common stock. Since Piech appointed his wife to the VW supervisory board last summer, members of the Piech and Porsche families now control five of the ten management seats.

With VW the only profitable volume manufacturer in Europe and headed toward becoming the largest auto company in the world, its non-family shareholders have little to complain about. The same can't always be said of other family-run automakers.

PSA Peugeot Citroën

PSA's family ties go all the way back to 1810, when a predecessor company manufactured coffee mills and bicycles. Its lion trademark first appeared in 1858, and Armand Peugeot built the its first internal combustion car in 1890. The family, which holds about 46% of the voting shares, seldom asserts itself, though it unsettled France's sedate corporate world a few years ago when it fired its CEO with a phone call.

Long the second-largest automaker in Europe but little diversified beyond its borders, PSA has suffered mightily this year as Western Europe's car market has shrunk by 7.3%, while the company is said to be burning though $200 million a month. It will close one factory in France this year, but its plan to lay off 8,000 workers has run into opposition from France's powerful unions and the government.

Looking for a life preserver, the Peugeot family recently decided to reduce its holding to 40% as it formed an alliance with General Motors to jointly purchase parts and develop new models with GM's Opel. But new models are several years away, and the worsening economic situation has reportedly forced the two companies to suspend talks about expanding the alliance. Peugeot's future remains murky.

Fiat

Fiat is faring little better. The European market collapse has forced CEO Sergio Marchionne to delay his plans for a full takeover of Chrysler and to use his cash to fix the Italian automaker, whose European operations are expected to run at a loss for several years.

That's a blow for the Agnelli family that controls Fiat with a 30.4% stake. The company was founded in 1899 by a group of investors including Giovanni Agnelli. His grandson, Gianni Agnelli, was Fiat's chairman from 1966 until 1996, and his grandson, John Elkann became chairman in 2010 at age 30.

Fiat's problems are acute. In 2012's first nine months, Group unit sales fell nearly 17% in a total market down 7%, as its plants in Italy are running at 50% of capacity. Three years ago, Fiat saved Chrysler by rescuing it from bankruptcy. Now that Chrysler is profitable, the tables may be turned.

BMW

When BMW was close to bankruptcy a half-century ago, industrialist Herbert Quandt decided at the last minute not to sell his 30% stake in the automaker, and in fact increase it to 50%. Good move. When Quandt died in 1982, his stake in BMW passed to his widow Johanna and their two children, and it is now worth more than $20 billion.

BMW has enjoyed a consistent run of success that continues even now. While other European automakers are suffering, BMW says it is heading for its best sales year ever, thanks to robust luxury car sales in the U.S., its largest market, and China. The company's October global volume increased by a hearty 13.2% to 157,618 vehicles.

The past few years haven't been all clear sailing for the Quandts, however, as details about their ties to Nazi Germany have come to light. Years before the family invested in BMW, they employed tens of thousands of slave laborers in plants making weapons and ammunition during World War II. A Quandt ex-wife married Nazi propaganda minister Joseph Goebbels in a wedding at which Adolph Hitler was a witness. A family member has admitted it was "wrong" for the family to fail to acknowledge this part of its history.

Ford Motor

You could hear the champagne corks pop all over Dearborn earlier this month when Ford Motor (f) executive chairman Bill Ford announced that CEO Alan Mulally would delay his retirement until at least the end of 2014. Since taking over in 2006, Mulally has rescued the Ford family's investment in the company Bill Ford's great-grandfather founded in 1903 -- one that they had considered divesting if Mulally had not been successful in rescuing the floundering automaker.

The Ford family works quietly, but its influence is particularly evident when it comes to selecting -- and sometimes disposing of -- the executives who will run the company. Through its special super-voting shares, it controls 40% of shareholder votes and two seats on the 16-member board of directors. It surprised no one when Mark Fields, a close ally of Bill Ford's, was moved into position as Mulally's heir presumptive.

Ford has been moving aggressively to resize its operations in Europe in line with the shrinking market and to catch up in China, where it got a late start. And Ford, Mulally, and Fields will be keeping a close eye on North America, where the automaker has been losing market share -- and particularly on the fate of the F-150 pickup, which accounts for most, if not all of Ford's N.A. profits.

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