Cost-cutter Diess seen driving change as Volkswagen CEO

FRANKFURT (Reuters) - Loved by investors and prepared to take on trade unions, Volkswagen VOWG_p.DE brand boss Herbert Diess is likely to finally get his chance to lead Germany's biggest carmaker which is expected to change faster under his cost-cutting style.

FILE PHOTO: Dr. Herbert Diess, of the BMW Board of Management, speaks next to a Z4 sDrive 35is at the North American International Auto Show in Detroit, Michigan, in this January 14, 2013 file photo. REUTERS/James Fassinger/Files Picture Supplied by Action Images

Diess is known for squeezing more savings out of suppliers than fellow managers and does not shy away from the conflicts that often arise at Volkswagen as it recovers from an emissions-cheating scandal.

Two sources told Reuters on Tuesday that Diess was to replace current Chief Executive Matthias Mueller, in the job since VW’s 2015 Dieselgate scandal, as part of a broader management overhaul.

The VW board will meet to discuss the issue on Friday, the sources said.

Diess has pushed the VW brand to cut costs and bring new vehicles to market faster, using a streamlined model-development technique he brought with him from luxury carmaker BMW BMWG.DE, his previous employer.

A native of southern Germany’s Bavaria, Diess joined Volkswagen from BMW in July 2015, just months before news broke that the carmaker had cheated emissions tests in the United States, hammering its share price, costing it billions of dollars and claiming the scalp of then-CEO Martin Winterkorn.

At the time of his appointment, Volkswagen said Diess was "the ideal candidate" to revive the VW brand, which lagged rivals Toyota 7203.T, Renault-Nissan RENA.PA7201.T, General Motors GM.N and Ford F.N on profitability.

Under Diess’s tenure, the VW brand, Volkswagen’s largest division by revenues, more than doubled its return on sales in 2017, helped by cuts in research and development spending, lower production costs and rising sales of higher-margin sport utility vehicles.

That bodes well for his role as future CEO of the company.

“Investors will like his strong execution track record and his understanding of mobility 2.0,” Evercore ISI analyst Arndt Ellinghorst said, referring to a shift away from car ownership to alternatives like car-sharing.

“Put simply, we see no better alternative to Matthias Mueller to make the company fit for the future by dealing with some of the legacy businesses as well as making the right investments in future technologies.”

Diess, 59, studied vehicle technology and mechanical engineering in Munich from 1977 until 1983 and worked for Bosch [ROBG.UL], the world’s largest car supplier, before joining BMW in 1996.

Diess, who has a doctorate in assembly automation and spent eight years on BMW’s executive board, came to VW with high ambitions. A source said at the time he had only accepted VW’s offer after being passed over for the job of BMW CEO.

But any hopes of becoming VW CEO were seen depending on whether he could secure backing from executives, and from labor representatives who occupy half the 20 supervisory board seats.

Winterkorn gave him the task of slashing 5 billion euros ($6 billion) a year in costs at the brand within two years, which resulted in clashes with Volkswagen’s powerful labor bosses who said he was using the emissions scandal as a pretext to push through job cuts.

Management and labor leaders agreed in late 2016 to cut 30,000 jobs via natural attrition at the VW division in exchange for a commitment to avoid compulsory redundancies in Germany until 2025, a deal that still left profitability lagging rivals.

Last year, powerful labor chief Bernd Osterloh changed tack, telling a German newspaper that the dispute with Diess over how to implement reforms at the brand has been laid to rest and that the two sides aimed to “enter calmer waters”.

($1 = 0.8097 euros)

Additional reporting by Irene Preisinger, Maria Sheahan and Andreas Cremer; Writing by Christoph Steitz; Editing by Georgina Prodhan/Keith Weir