German state conservatives take tougher line on VW oversight

BERLIN (Reuters) - The party expected to win control of the German state of Lower Saxony, which owns 20 percent of Volkswagen, will push for tougher board oversight of the scandal-plagued carmaker, its regional leader told Reuters on Tuesday.

FILE PHOTO - A Volkswagen logo is pictured near Poznan, Poland September 9, 2016. REUTERS/Kacper Pempel/File Photo

But Bernd Althusmann cautioned there would always be a conflict of interest between Lower Saxony’s role as VW’s second-biggest shareholder and its focus on preserving the jobs of more than 100,000 people employed by the carmaker in the region.

Althusmann is the leading candidate for Chancellor Angela Merkel’s conservative CDU party in an October state election it is favorite to win - a result which would make him state premier.

His comments followed news at the weekend that the current Social Democrat (SPD) premier Stephan Weil, one of two Lower Saxony representatives on the VW supervisory board, allowed the company to censor a speech he gave in 2015 about the emissions-cheating scandal that had just erupted.

Althusmann said he wanted an independent expert to take one of two seats on the board reserved for Lower Saxony, and to hire more staff at its state office to oversee the carmaker.

“Lower Saxony is obliged to provide sufficient oversight of Volkswagen and manage its stake effectively,” he told Reuters in a telephone interview. “That’s not happening and we will do what we can to change this.”

However Althusmann said the CDU, which ran the state government for a decade prior to 2013, would not divest Lower Saxony’s VW holding.

He also said it would stand by the 1960 Volkswagen Law, introduced when the carmaker listed on the stock market, under which Lower Saxony earned a veto right over key decisions such as factory closures, mergers and acquisitions.

“One will never be able to completely resolve this conflict of interest,” Althusmann said. “We will try to position ourselves more effectively to better cope with it.”

Asked to comment on the implications of a potential shake-up in the relationship between VW and Lower Saxony under a CDU-led government, the carmaker and its works council both declined to comment.

The snap Oct. 15 election was triggered by the defection of a Green party member to the CDU, eliminating the SPD-led coalition’s one-seat majority.

The CDU was pegged at 41 percent in Lower Saxony in a May 27 poll by opinion research institute INSA, compared with 27 percent for the ruling SPD, with the FDP and Greens at 9 percent and 8 percent respectively.


The state's privileges under the VW law were designed to shield the carmaker from hostile takeovers and to protect jobs. But the threat of the former has ceased to exist given VW's size and because the Porsche-Piech clan has built up a majority stake through its Porsche SE PSHG_p.DE holding company.

Lower Saxony traditionally cooperates with unions to water down restructuring efforts and safeguard jobs.

The state in western Germany has repeatedly said its close ties with VW have helped both sides for many years, pointing to the company’s rise to becoming the world’s biggest carmaker.

However it has long been criticized by other shareholders for putting local interests, primarily job preservation, above those of investors or customers.

Ingo Speich, a fund manager at Union Investment which holds about 0.6 percent of VW preference shares, said Lower Saxony’s focus on jobs thwarted effective control of management by the supervisory board. “In my view this conflict of interests cannot be resolved,” he told Reuters.

In 2009, a CDU-led government teamed up with unions on Volkswagen’s supervisory board to rescue insolvent parts maker Karmann in Osnabrueck, about 190 km (118 miles) west of Wolfsburg, safeguarding 2,000 local jobs.

The business logic of the deal was widely criticized by industry experts at the time.

“The government’s most effective way to help VW and prepare the business for the future would be to liberate the company from excessive political influence,” Evercore ISI analyst Arndt Ellinghorst said.

“If the government would sell its 20 percent capital stake in VW, it would be the biggest bull signal for investors,” added Ellinghorst, who has a “Buy” recommendation on the stock, citing VW’s restructuring potential.

The CDU’s likely junior coalition partner would be the liberal Free Democrats (FDP), who have publicly questioned the suitability of former finance chief Hans Dieter Poetsch to serve in his current role of chairman without a cooling-off period.

Asked whether the CDU agreed with FDP on Poetsch, Althusmann said it was “an unfortunate decision” to name him board chairman but stopped short of backing the FDP’s outright criticism.

Reporting by Andreas Cremer and Andrea Shalal; Editing by Pravin Char