MUNICH (Bloomberg) -- Volkswagen AG’s lavish parties typically featured a surprise guest, from the Pet Shop Boys to Robbie Williams to Justin Timberlake. Now the music is about to stop.
The parade of global pop stars was part of a culture of spending at the world’s biggest carmaker. Confronted with billions in repairs and fines from an engine-rigging scandal, CEO Matthias Mueller vowed today to put everything that’s not absolutely vital on hold. Addressing 20,000 workers at Volkswagen’s main Wolfsburg factory in Germany, Mueller prepared the crowd for “massive savings,” in what would “not be a painless process.”
Even by the opulent standards of the auto industry, Volkswagen’s purse strings have long been loose.
Driven by engineering-crazed executives, VW spawned projects from the money-losing Bugatti Veyron supercar to the unsuccessful Phaeton sedan assembled manually in a dedicated hard-wood floor facility by technicians in white uniforms. As Mueller seeks to instill a new sense of accountability, he vowed to do away with the largesse that has created a bloated structure of underutilized employees.
“I won’t accept that dozens of experts sit in meetings or stand around during approval runs while the work at home isn’t getting done,” Mueller said in his speech.
Nowhere were Volkswagen’s extravagances more apparent than at the biggest car shows, where the company would throw lavish parties featuring A-class celebrities, open bars and opulent buffets. Visitors to Audi’s pavilion at this year’s Frankfurt motor show entered a cave-like tunnel of ice and fog through blasts of cold air. Some cars were mounted on full-wall video screens, rotating constantly to give the illusion that they were zipping along a highway or revolving on platforms such as a giant lily pad.
Like few other carmakers, Volkswagen has sought to make the act of purchasing a car a memorable experience.
In Wolfsburg, an industrial town in northern Germany built entirely around the company’s factories, buyers pick up their vehicles from a theme park-like center called the “Autostadt,” where they breeze through eight different pavilions set among water features and representing brands including Porsche and Audi. An adjacent science museum built by acclaimed architect Zaha Hadid was bankrolled by the carmaker, and the local Ritz-Carlton hotel features a three Michelin-star restaurant.
Some expenses are part of Volkswagen’s idiosyncratic culture: the carmaker operates an in-house sausage factory in Wolfsburg, where a 25-person staff processes 10 to 12 tons of meat each week, including the currywurst sausage doused in tomato sauce and curry powder the company serves at most events.
Shaking the habit may not be easy for a company that’s grown accustomed to parading its success. Even after the crisis was in full swing, Volkswagen threw a party in New York on Sept. 22 that featured Lenny Kravitz crooning to mark the U.S. introduction of the upgraded Passat.
Meaningful cuts at a company as big and complex as Volkswagen, with its 12 brands of cars, motorcycles and commercial-vehicles, will mean more than ditching some pop stars and rationing sausages. The carmaker has already said it wants to use centrally developed components across a range of different models to help it boost earnings.
“There’s a culture of spending and a lack of focus on efficiency in favor of striving to be bigger,” said Arndt Ellinghorst, a London-based analyst at Evercore ISI. “They’ll stop the over-engineering on every level.”