BERLIN/STUTTGART (Reuters) - Volkswagen's (VOWG_p.DE) first leadership crisis in a decade has burst into the open with Chairman Ferdinand Piech's surprise public denunciation of CEO Martin Winterkorn -- but the standoff is now more likely to play out behind closed doors.
Piech, 77, will meet cousin Wolfgang Porsche and other family members within days, company sources said, to discuss the rift his comments appear to have opened between their branches of VW's controlling clan.
A full board meeting is likely to follow.
"A phase of diplomacy will set in now," said one source. The company declined to comment through a spokesman.
The turmoil at the top of Europe's biggest carmaker reflects Piech-Winterkorn tensions that have escalated in step with the chief executive's growing confidence, insiders say.
It has also shifted attention from VW's growth ambitions to governance and performance problems, as challenges pile up and the earnings outlook darkens following a run of gains.
VW shares edged lower to close at 242.70 euros on Wednesday, extending their decline since Piech's outburst to 2.8 percent. Any feud lasting beyond the company's May 5 shareholder meeting could prove more damaging.
"Change is coming anyway," Barclays analyst Michael Tyndall said, with Winterkorn's contract expiring in 2016 and Piech expected to retire the following year, as he turns 80.
A degree of strategic reassessment is to be welcomed, Tyndall added in a note, "providing the resolution is speedy".
The last big intrigue to divide the founding family, Porsche's failed move to seize control of VW in 2008-9, dragged on for months and triggered years of investor lawsuits.
Under the delicately balanced -- some say dysfunctional -- ownership structure that emerged, the Porsche and Piech families together command 50.7 percent of VW voting rights, with the state of Lower Saxony controlling a further 20 percent.
In practice, strategic decisions also need support from German unions occupying half of the 20 supervisory board seats.
Echoing his ruthless 2006 ouster of Winterkorn's predecessor Bernd Pischetsrieder, Piech opened the hostilities on Friday with a German magazine interview in which he confided that he was "at a distance to Winterkorn".
His comments put an instant damper on expectations that Winterkorn would be reappointed as CEO beyond 2016, or else named to succeed him as chairman.
At board meetings over the past five months, Piech has aired growing criticism of the company's performance under his former protégé, sources told Reuters -- particularly in the United States, where the VW brand has fallen far short of sales goals.
Ballooning plant and investment costs are another concern cited by analysts, along with the lack of progress on a low-cost vehicle architecture to rival Renault's (RENA.PA) budget cars.
Balancing these shortcomings, however, is the sheer pace of an expansion that has almost doubled group revenue and tripled profit during Winterkorn's eight-year tenure, propelled by roaring sales in China as well as acquisitions.
Piech met immediate resistance from VW stakeholders including Lower Saxony and labor chief Bernd Osterloh -- who said Winterkorn was "one of the most successful automotive managers" at the group and should have his contract extended.
Wolfgang Porsche, who chairs the family holding, said his cousin's outburst was only a "personal opinion".
Their reactions have led some to ask whether Piech is finally losing his grip in the final straight of a career spanning more than half a century.
Concerns were raised in 2012 about Piech's judgment and VW's governance, following the appointment of his second wife Ursula, a former kindergarten teacher, to the board.
But Piech, an engineer by training who transformed Audi from a struggling volume brand into a luxury car powerhouse, has ended several high-level careers with a few softly spoken words.
Former Porsche boss Wendelin Wiedeking is among axed executives who discovered their fate in his public comments. And Pischetsrieder, like Winterkorn, initially commanded family and union support under fire, yet was gone within months.
"My desire for harmony is limited," Piech explained in his 2004 autobiography.
The Volkswagen patriarch, who keeps a dagger collection, has professed a fascination with Japanese military tactics in World War Two, according to people who have worked for him.
"Piech is a fox," said one. "He may now just wait tactically and wear his opponents down."
Among VW investors, even fans of Winterkorn concede privately that a new CEO appointment now looks likely.
"The succession was bound to be tough," said one Frankfurt-based fund manager with a sizeable VW holding.
"Winterkorn's track record is extremely convincing but if this impasse can't be solved in an orderly way, new management might offer the chance of a clean break."
The Qatar Investment Authority, VW's third-biggest shareholder, disapproves of the move against Winterkorn but believes he may now have to go, Handelsblatt reported on Wednesday.
Arndt Ellinghorst, a London-based analyst with Evercore ISI, is less admiring of a CEO who has allowed investment to claim a larger share of sales at Volkswagen than at pure-premium rival BMW (BMWG.DE), despite his company's superior scale.
"Almost every cost ratio at VW Group has increased and stands at a historically high level," said Ellinghorst, who now considers Porsche brand chief Matthias Mueller well placed to succeed Winterkorn.
Piech's move "forces the supervisory board to take a view," he said. "Uncertainty is bad news for shareholders in VW. Change, however, would be welcomed."
Beyond or behind Piech's criticism of Winterkorn, some insiders also see signs of a personal animus against the CEO who has come to embody VW's rise in a way he once did alone.
"A personality issue can't be ruled out," a VW source said. "Piech can be very extreme."
Those tensions were in evidence in September 2013 when, on the eve of the Frankfurt auto show, an anonymously sourced newspaper report predicted Piech's imminent retirement due to ill health, with Winterkorn to succeed him.
Piech turned up with Ursula at VW's lavishly catered media night, telling journalists that news of his death was premature.
"Is this still your press officer?" Piech asked Winterkorn as he crossed paths with the CEO and his spokesman at the event, according to Der Spiegel.
Whatever their personal dynamics, bystanders are understandably keen to stay out of the crossfire. Even Lower Saxony's Prime Minister Stephan Weil, a board member, was keeping his head down when approached by Reuters on Tuesday.
"The wisest thing to do at the moment is to say nothing," he said.
Writing by Laurence Frost; Additional reporting by Jan Schwartz; Editing by Mark Potter