VW investors look for hope

February 19, 2002 Posted: 0707 GMT

CNN's Abid Ali

LONDON (CNN) -- A lot is expected of the man set to lead Volkswagen, Europe's No. 1 car maker.

Investors, who have had an uncomfortable ride under long-serving boss Ferdinand Piech, are hoping the former BMW chief executive Bernd Pischetsrieder would give them more consideration.

The outgoing CEO -- the grandson of Ferdinand Porsche, designer of the company's original Beetle and founder of the sports car company bearing his name -- has been credited with building Volkswagen's European market share to about 20 percent since taking over as chief executive in 1993.

But many observers believe profits and shareholder interests took a back seat over that period because of the influence within the company of the State of Lower Saxony, Volkswagen's home state, which is a major shareholder with about 19 percent of the equity.

Pischetsrieder -- ousted as the head of luxury car maker BMW more than 2 years ago after his decision to buy the loss-making UK car maker Rover turned sour -- has proved to investors he is the best man for the VW job. He's shaken up the board and introduced a new brand strategy, yet he does not take over officially as CEO of Volkswagen until April 17, 2002.

Its stock, an indicator of Volkswagen's future performance and investors hopes, has given a thumbs up to Pischestrieder. Volkswagen's stock under preformed the DJ European Auto Stoxx Index by 5.5 percent in 2001, but after his appointment perked up and outperformed it by 3.6 percent.

But Pischetsrieder , who trained as a mechanical engineer before joining BMW, where he became chief executive in 1993 and before being fired in 1999, has a lot of work to do.

VW's shares currently trade at about 9 times 2002 estimated earnings, while BMW trades at 19 times. The trading ratio indicates how highly a company is valued by investors.

Investors would like to see Volkswagen, which makes the New Beetle, Golf and Passat, and owns luxury marques -- Audi, Lamborghini, Rolls-Royce and Bentley, sell its stake in Swedish truck maker Scania, which reported a bigger than expected 65 percent fall in 2001 pretax profits and predicted a weak market in 2002 as demand for heavy trucks in western Europe declines.

There are concerns about excessive expenditure on Volkswagen's luxury brands and its links to the state of Saxony, which can effectively block any key decisions.

Those political issues could have a bearing on Volkswagen's future as German's go to the polls in September.

Social Democrat Chancellor Gerhard Schroeder, who was born in the Lower Saxony town of Mossenberg in 1944 and is former premier of the state, has said he would fight to keep Volkswagen independent and make sure jobs are secure.

Volkswagen's Wolfsburg plant, situated it Saxony, employs 50,000 people and produces a car every 25 seconds.

The European Union has been critical of a "VW Law" that blocks any attempt of a takeover and goes against the grains of competition policy. But Edmund Stoiber, who is challenging Schroder has no qualm in changing the law.

That could make Volkswagen a bid target and push up the stock -- theoretically. But investors are likely to give Pischetsrieder, who improved efficiency at BMW in the 90s, a chance to strengthen the car makers grip as Europe's biggest car maker as Japanese competitors -- including Toyota, Honda and Nissan -- prepare to launch new cars.

His experience at BMW should also come in useful as the European auto industry undergoes weakening demand as a global economic slowdown dents consumer confidence. Car prices could also come under pressure from the European Unions plans to end automakers' right to sell new cars through captive dealer networks.