German carmakers unveil surprise changes in top management

Investors seeking clarity on succession plans
By Edward Taylor and Andreas Cremer
||Last Updated: 12/09/2014

FRANKFURT/BERLIN (Reuters) — In a surprise move, BMW said on Tuesday its long-time chief executive Norbert Reithofer would step down in May, one year early, and hand the reins of the Munich-based luxury carmaker to 49-year-old production chief Harald Krueger.

The change came as larger rival Volkswagen announced it had recruited another top BMW executive, R&D chief Herbert Diess, to take over the running of the VW passenger car brand from CEO Martin Winterkorn from next October.

This turns Diess into an instant candidate to replace Winterkorn as CEO of Europe's largest carmaker when his contract expires in 2016.

Diess, a 56-year-old engineer, may have bolted to VW after failing to get assurances that he would succeed Reithofer, whose contract was also due to expire in 2016, prompting BMW to announce its own succession plan earlier than it had intended, one source told Reuters.

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

Reithofer has run BMW since 2006 and is 58. The company said he would slide over to become chairman of BMW's supervisory board, where he is likely to continue to exert influence over the firm he joined over a quarter of a century ago.

Krueger is seen as a conservative choice to run BMW. He comes from the production side, like Reithofer did.

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

"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," said Hanover-based NordLB analyst Frank Schwope.

The appointment of Diess relieves Winterkorn of his dual responsibilities as head of the broader VW group and of its flagship brand.

It comes at a time of languishing profit margins at the core VW passenger car division and troubles in the United States. In July, VW announced a goal to cut costs by 5 billion euros 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 firmEvercore ISI.

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