December 9, 2014 / 9:39 AM / 3 years ago

German carmakers unveil surprise changes to top management

BERLIN/FRANKFURT (Reuters) - German carmaker BMW and larger rival Volkswagen announced surprise changes to top management on Tuesday, with the veteran CEO of the Munich-based luxury group stepping down a year early and handing the reins to the firm’s younger production chief.

Norbert Reithofer, Chairman of the Board of Management of BMW, speaks during an event to unveil the new X4 at the BMW manufacturing plant in Spartanburg, South Carolina March 28, 2014. REUTERS/Chris Keane

BMW BMWG.DE said Chief Executive Norbert Reithofer, who has run the company since 2006, would step aside in May. Harald Krueger, a 49-year-old who has led BMW’s push into emerging markets like China, will take his place, becoming one of the youngest executives ever to run a global carmaker.

In a related move, Volkswagen VOWG_p.DE announced that it had recruited BMW’s research and development chief Herbert Diess to run its flagship VW passenger car brand.

One source told Reuters that Diess bolted to VW after failing to get assurances that he would succeed Reithofer, whose contract had been due to expire in 2016. When Diess left, BMW decided to accelerate its own succession plan.

Diess takes over responsibility for the VW brand from Chief Executive Martin Winterkorn, who has been doing that job in addition to running the broader VW group.

The move turns Diess, a 56-year-old engineer, into a strong candidate to replace Winterkorn as CEO of Europe’s largest carmaker when his contract expires in late 2016.

Investors have been seeking clarity on the succession plans at both carmakers. Winterkorn, who has run VW since 2007, is 67 years old.

Reithofer is 58, close to the regular 60-year-old retirement age for top executives at BMW.

He will become chairman of BMW’s supervisory board, a non-executive role that will nonetheless allow him to continue to exert influence over the group he joined over a quarter of a century ago. Reuters reported on Monday that BMW was on the verge of making changes to top management.

Krueger is seen as a conservative choice to run BMW. He was responsible for human resources and ran the Mini and Rolls-Royce brands, as well as BMW’s motorcycle division and after-sales services before taking charge of production in 2013.

The changes come at a time when the Bavarian carmaker is being torn between the need to satisfy regulatory demands for lower vehicle emissions and fulfill client demand for ever larger sports utility vehicles.

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As production chief, a post previously held by Reithofer and outgoing supervisory board Chairman Joachim Milberg, Krueger has overseen BMW’s strategy of cutting a dependence on Europe by expanding manufacturing into overseas markets.

This year alone, BMW announced plans to increase production capacity at its U.S. plant in Spartanburg, South Carolina by 50 percent, as well as unveiling plans to build a new factory in Mexico.

“Despite his young age, he’s been with BMW for over two decades, has a good overview of the company and appears the right choice to take on future challenges of fuel-efficiency and digitalisation,” Frank Schwope, an analyst at NordLB, said of Krueger.

At Wolfsburg-based Volkswagen, Diess will provide some relief to Winterkorn who has been the target of some criticism for heading the broader VW group, whose 12 makes include premium brands Audi and Porsche, as well as running its main passenger car division.

Profit margins are languishing at the core VW brand and the firm has problems in the United States. In July, Winterkorn announced a goal to cut costs by 5 billion euros ($6.2 billion) annually from 2017.

“Diess is very well respected and well known for his direct and straight management style which will help to trim the VW brand’s performance to move closer to its 6 percent margin target,” said Arndt Ellinghorst of research firm Evercore ISI.

The BMW executive is the second top-level executive VW has lured from a German rival within a year. In February, it hired Andreas Renschler, previously head of production at Mercedes-Benz and CEO of Daimler Trucks, to head its own truck operations.

The recruitments are part of VW’s broader efforts to strengthen management ranks as it overhauls production and work processes to narrow a profit gap with rivals.

Reporting by Edward Taylor and Andreas Cremer; writing by Noah Barkin; editing by Philippa Fletcher and David Stamp

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