Volkswagen's Herr Fix-It

When Toni Schmuecker became chief executive of Volkswagen werk A.G. in February 1975, a reporter asked him what he thought of his new office. "Great!" replied Schmuecker. "Great rugs, great pictures, a great many workers and great losses." It was an accurate description at the time, but since then Volkswagen has turned around sharply enough to enhance Schmuecker's growing reputation as the Herr Fix-It of German industry. Two weeks ago, Schmuecker, 56, reported that in 1976 the company had cleared a profit of $425 million, which, with tax credits, is more than enough to wipe out its losses of the previous two years, and that it is resuming dividend payments, which were suspended after 1973. And last week Schmuecker journeyed to Pennsylvania to check on the development of a new plant that will begin turning out the Rabbit early next year--making Volkswagen the only foreign manufacturer to build cars in the U.S.

Actually, the strategy that brought the revival was not all Schmuecker's. What ailed Volkswagen two years ago was obvious enough: the work force was swollen, consumers around the world had grown tired of the company's ubiquitous Beetle, the rising value of the German mark had pushed up dollar prices of the company's cars enough to slash sales in the all-important U.S. market (they fell by about a third in 1974-75). The remedies were equally clear: cut the labor force, bring out new models, build a plant in the U.S. to make cars whose prices would not be affected by the ups and downs of the dollar.

Schmuecker's predecessor, Rudolf Leiding, tried to move in all three directions; in particular, he began phasing out production of the Beetle (only 200 a day are being made now) and shifting to the Rabbit and the sporty Scirocco. But Germany's tough labor unions are represented on VW's board, and the governments of the West German Federal Republic and the state of Lower Saxony own 40% of the company's stock. The labor and government interests formed an alliance that bitterly opposed any moves likely to cost jobs in VW's German plants, and Leiding lacked the diplomatic touch necessary to overcome their fears. He resigned at the end of 1974, at a time when VW's production was down to 60% of capacity and the company seemed paralyzed.

Enter Schmuecker, one of the few top German executives who once was a factory hand himself. The son of an assembly-line worker for Ford of Germany, Schmuecker quit school at 16 to go into the plant himself and spent two decades working his way up through the ranks to the top job (with time out to serve as a Wehrmacht lieutenant on the Russian front). Shortly after becoming head of sales for Ford of Germany, he left to take over the tottering Rheinstahl Steel Company, and by designing and executing a major reorganization, made it so profitable that it was bought by the German conglomerate August Thyssen-Huette. He was enticed to Volkswagen by the challenge. Recalls Schmuecker: "It was more than just Volkswagen at stake. I felt that if this company were to fail, in a sense our entire system would."

Swinging Deals. At Volkswagen, Schmuecker made frequent visits to the shop floor to argue corporate strategy with workers. Says he: "We have had, sometimes, very interesting and fierce and passionate discussions." He overcame worker objections to manufacturing in the U.S. by swinging deals to supply made-in-Germany engines to other manufacturers--including Chrysler and American Motors. He also promised to retool and expand the Emden plant, which was making only Rabbits for export to the U.S., to turn out other cars as well. Schmuecker continued Leiding's policy of paying workers as much as $6,000, tax free, to quit. In the past three years the work force has shrunk by 37,000, to 124,000; with Volkswagen now making about 45% of all cars sold in Germany, the company has begun some modest rehiring.

Recapturing Volkswagen's former lead in the U.S. import market may be a more difficult proposition. The Rabbit faces plenty of subcompact competition--not only from other imports but also from new small cars to be brought out soon by Chrysler and American Motors. Some, ironically, will be powered by VW engines. One selling point for the Rabbits that will be made in Volkswagen's Pennsylvania plant: about 20% will be equipped with lightweight, fuel-stingy diesel engines, the first large-scale introduction of diesels to the American market.

Volkswagen late last week suddenly gained a potent new rival. In a surprise move, Sweden's two automakers--Volvo and Saab-Scania--announced their decision to unite in a new company, to be called Volvo-Saab-Scania. By any measure, the triple-hyphenated outfit will be a giant: with sales of $5.8 billion, it will rank as Europe's fourth largest automaker (after Daimler-Benz, Renault and Volkswagen), turn out a line of vehicles ranging from compacts to huge Scania rigs, and employ nearly 104,000 workers.

The merger makes sense. Because of rocketing wage costs (up 40% in two years to $6.33 per hour) and excessive absenteeism rates (as high as 20% on any given day), Sweden's cars are being priced out of the world market. The merger will strengthen the Swedish auto industry by combining Volvo and Saab sales forces, distribution setups and parts supplies abroad. It will also enable Saab and Volvo to bring out a hew line of models, presumably based on a synthesis of Saab's sporty front-wheel drive design and Volvo's vaunted safety features.

As the larger company (1976 sales: $3.6 billion), Volvo will be the main partner, with 66% of the voting shares. Volvo's dynamic Pehr Gyllenhammar will be president, and Saab-Scania's Curt Mileikowsky will be executive vice chairman. Saabs aircraft division, which makes the Viggen jetfighter, will be part of the new company.

The marriage broker was Swedish Banker Marcus Wallenberg, whose powerful family holdings include control of Saab-Scania. Said Wallenberg of the merger: "It's good for the workers, good for the companies and good for the country." Just about everyone seemed to agree. Since no jobs will be lost, even Sweden's sometimes contentious unions expressed no opposition.

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