Shortly after 4.30am every Monday, Thomas Schäfer begins his weekly commute from Wicklow to Wolfsburg in Saxony.

It seems like a tedious trek for someone with only the most tenuous ties to Ireland, but Schäfer says the former stud farm he and his wife bought here last June is now their “forever home”. Regardless of what happens next in his career, Ireland is where his future lies.

With his understated, amiable demeanour, Schäfer blends in with the early morning travellers at Dublin Airport. Yet within the VW Group he is in the driving seat for more than half its global sales.

Last year, VW Group delivered 8.48 million new vehicles, 4.1 million of which fell under Schäfer’s volume brand division that encompasses Volkswagen, Seat and Skoda.

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Before Covid, Ireland didn’t feature in the Schäfer life plan. But neither was being global boss of the eponymous car brand.

Working as a mechanical engineer with Mercedes-Benz parent Daimler, he held various international management positions before moving to VW in 2012. By 2015 he was based in South Africa, running the group’s sub-Saharan operations.

The birthplace of his wife, Wendy, South Africa was meant to be the couple’s forever home.

“Our life plan was to stay in South Africa. We had a horse farm; we built everything that we could stay there for good and there was an agreement with the company that I keep with what I was doing in Africa – moving the brands into Ghana, Rwanda, Kenya, Egypt, and we were building up our operations and developing new business in Africa like the company did in China 40 years ago.

‘Covid arrived’

“I was very happy doing this work, but then Covid arrived. I had turned down quite a few offers from our CEO at the time to come to Germany or move to America.

“Then with Covid, he called and said you have to move as I need you in the Czech Republic to run Skoda. So I said I’d do it for three years or so and then return to Africa. As you can see, that plan didn’t work out.

“After two years with Skoda, I was asked to go run Volkswagen, so we decided that we needed to find a place in Europe.

“We started looking around and we listed what we like – horses, countryside living and people – and then we realised Ireland would be the ideal fit. We spotted a house on the market and my wife was over here the next day, called me at lunchtime and said we’d take it.

“I am not here as much – just weekends – but my wife is totally integrated into the local community, like nowhere else before.”

Schäfer uses his time commuting between Wicklow and Wolfsburg “to read the documents and do emails so that when I land on Friday evening, that’s it, I’m done and free. I’m not touching anything work-related unless there is a crisis. That works perfectly for us.”

He has a lot to mull over on his commute. Moving from internal combustion engine (ICE) power to electric is just one of the challenges.

Software is becoming the next battleground in the car market, with the advent of autonomous driving and rapid advances in infotainment systems, heralding the arrival of tech giants as suppliers and competitors to the traditional brands.

Auto revolution

Keeping up with the auto revolution is costly: last year VW Group spent €18.9 billion on research and development.

All this is against a backdrop of increased economic nationalism, hampering well-honed globalised supply chains and hitting key growth markets such as China.

And for VW, there’s the legacy of “dieselgate”, the emissions-test cheating scandal. Only last month, former Audi chief executive Rupert Stadler pleaded guilty in a German court to charges tied to the scandal. So far, VW Group has paid out more than €32 billion in legal fees and fines related to the cover-up.

According to Schäfer, “as bad as it was, [dieselgate] was a wake-up call for the company.” At the time the automotive world was already advancing towards greater connectivity, electrification and autonomous driving, and VW “would have probably missed the last exit on the highway” if it wasn’t for the upheaval forced upon it by the scandal.

It has changed the culture of the organisation and given the current senior management team, including Schäfer, licence to remap the group’s future.

That future is first and foremost electric. In Europe, Schäfer has committed that VW will stop selling ICE models from 2033. That will mean streamlining the model line-up, but it also requires delivering better profit margins to cover the cost of transition.

“The challenging time at the moment is to transition between the two worlds. It’s complicated but it will happen; for us, the future is clear,” says Schäfer.

The issue for the “people’s car” brand is also how it can deliver that transition for the mainstream buyer. When are we going to see an affordable VW EV?

‘Top down’

“The cost of the battery is such that you have to work from the top down. You have to start with the higher-margin cars to offset the cost of the battery. But we are moving our way down. It’s a tedious process but with our volume and ability to scale we are getting better and better. We recently showed an EV car for under €25,000, the ID.2all. And we will bring it at that price no matter what happens. And it’s still feasible at that price.

“It has to be feasible; we are not social services. We have to make our money so we can reinvest. We are at the moment working on a car under €20,000.”

Schäfer is impressed by how well the Republic of Ireland is adapting to the EV age. “Ireland is one of the top five European markets moving consistently and strongly into electric mobility. Where other car markets are not as focused and strong, Ireland is doing really good.”

He also likes that the Irish market “is not overly huge, so you can try out stuff here”.

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One such initiative is the adoption of an agency retail model. VW Group is upending the way customers will buy its new cars. And Ireland is going to be a test case.

At present, the dealer you buy your car from has had to buy that car at wholesale cost from the manufacturer. The manufacturer issues a recommended retail price, but it’s up to the dealer how much they’re going to charge for it.

That’s why you have to haggle on the price of a new car.

Under an agency sales model, you’re buying your new car directly from the manufacturer, usually at a set, haggle-free price. The dealer simply facilitates the delivery.

Flat fee

“The key point is that we want to have the best customer experience in all this,” says Schäfer. “The main driver is that you know the price is the price. You don’t go from one dealer to the next and leave wondering, am I being taken for a ride?”

The dealer will be paid a flat fee per car delivered, and in most cases an overall contract fee to be an exclusive agent for the car maker in question.

The price you see on the website will be the price you pay for your car. And you will choose your car, pick the options on it and buy it online from the car maker’s website.

Behind all this is a desire by car makers to cut the cost of doing business. It’s reckoned the agency model will see fewer physical car dealerships, each selling more cars, which would reduce the costs of shipping as well as the cost of agency fees.

As Schäfer explains: “For companies of our size, with thousands of dealers, to change this over and have the capabilities in systems and knowledge to run this operation [takes time].

“Countries like Ireland play a very important role because here we can try it out to make sure we are right before rolling it out into bigger countries.”

Clearly these changes will concern dealers. Yet Schäfer is adamant the move is “not undermining them”.

“On the contrary, where we tried it out you already have the positive feedback that from the income point of view it’s the same. There are pros and cons, but we believe that after the first tests we have made it is positive for customers and dealers.”

Obsolete showrooms?

This new sales model raises a question over the future of the multimillion glass palace showrooms that dealers were encouraged to invest in; are they now obsolete?

“There will probably be a bit of a transition in this. Now it’s more about brand stores in the city, where there is a connection with the brand with all the aspects around it. I would say probably more of that – brand stores and experience – rather than the physical locations.”

Schäfer says that while the future relationships with customers will be with VW rather than the dealer, they will still stay in the mix. “It’s a triangular relationship. It’s important that we have a direct relationship with the customer because of the data and online services; we need this direct link. At the same time, the dealer will play a role continuously because they are the service partners, the go-to people.”

The growing importance of data is behind a lot of the current changes. And it is proving a massive challenge to the car giants, and Schäfer.

Cars are quickly becoming more like computers, and tech giants are starting to see the opportunity to have motorists using their in-car apps and paying them subscriptions for the services, leaving the car companies as mere hardware suppliers. It’s the fear of being left out of this lucrative future revenue stream that has driven many car makers to try their hands at software development.

Schäfer estimates in the medium term, 10 per cent of VW Group’s revenue will come from subscription services, though he admits that is a conservative estimate.

VW Group set up a software subsidiary, Cariad, under former CEO Herbert Diess. It failed to meet goals and exceeded its budget, contributing to Diess’s departure last September. Problems at Cariad have also delayed the arrival of important new models such as the Porsche all-electric e-Macan and Audi’s Q6 e-tron, and pushed out the launch of advanced autonomous driving tech by two years.

“There is a lot in the media about Cariad, asking are we doing the right thing. But if you are not controlling the data that is collected and processed off your vehicle – the vehicle is going to be the biggest data collecting device out there – if you don’t do that and use it for the good of the customer, to optimise the automated driving functions and give them features that help getting daily life better, then you are losing a major part of your business.

“Yes, it’s complicated; yes, it costs a fortune to be in that game; and it feels a lot easier to say, ‘okay tech companies, here’s the key and you go do it,’ but it’s a mistake. You have to be the master of this, but at the same time it doesn’t stop you from doing collaborations. It’s not black and white.

‘Collaboration is key’

“You have to get in with the tech companies because that’s what customers want. They want a certain level of integration, of familiarity with the devices they have in their pockets and homes. So collaboration is key. If you are not playing with those folks, then you are not in the market.”

Across the industry there have been reports of cultural clashes between the highly process-driven world of new car development, honed over the last century, and the chaotic world of software development.

“To get into it was quite difficult for us; everybody is battling their own battles, but we are a car company and it was quite a step.

“The way we do the process in the existing businesses for good reason differs from the way they work. And we do those processes for good reason. Failing once with a little thing can be a catastrophic event for your company.

“In the software world, speed is the other side. And that’s why I am so pushy with governments; we need to create this environment in which we can try out things, especially autonomous driving.

“In China, we can bring something on the road, test it, review it, optimise it. In the European space specifically, we are still too slow.”

Schäfer sees this as another opportunity for Ireland to take a lead and allow for advanced autonomous testing, though perhaps not on our rural roads, where he struggles to comprehend 80km/h speeds can be warranted.

In weighing up the differences between life in South Africa and Ireland, Schäfer says: “In South Africa, the sun might shine a little more but that’s about it. We always had issues with not enough water, not enough electricity, safety issues. You are always at a certain level of alarm. Here, the only alarm you have is when the speed limit says you can drive 80km/h and you cannot for anything drive 80km/h on that road.”

CV

Name: Thomas Schäfer

Age: 53

Job: Member of the Board of Management of Volkswagen AG (Brand Group Volume), CEO Volkswagen Brand

Family: Married to Wendy Schäfer

Pastimes: Running, horse riding

Something you would expect: He has over 30 years’ experience in the automotive industry and has lived and worked in the USA, Malaysia and South Africa, among others.

Something that might surprise: Runs at least 10km every day, starting at 5am (when he’s not commuting between Wicklow and Wolfsburg).