Uncomfortable time for VW executives

Wednesday looks set to be an uncomfortable day for senior Volkswagen executives. At the automotive group’s annual meeting in Hannover, its managers will feel the full force of shareholder ire over the “dieselgate” saga, excessive pay (executive remuneration of € 63 million compares unfavourably with total payouts to shareholders of € 68 million) and corporate governance structures that date back to the 1960s.

Ditching the special voting rights accorded to the state of Lower Saxony - which effectively tilt the composition of the supervisory board in favour of labour and away from capital – would probably prompt more of a re-rating in the shares than the “Together 2025” plan announced last week.

But it will not happen today; it will take time and relentless pressure from other shareholders. One thing that may help the process along is more transparency close to home.

Core

Disclosure about the core Volkswagen operation in particular is less than adequate. What is clear is that its operating margins are lower than those of global rivals or even subsidiaries within the group.

The company has already pledged to trim research and development costs and selling, general and administrative expenses. But that does not directly address the high cost of actually bolting Volkswagens together. Group labour costs are over 13 per cent of revenue.

At subsidiaries like Skoda and Seat, they are comfortably below 10 per cent. Clearly, German workers are more expensive than Czech or Spanish ones – but even Audi manages 11 per cent.

This suggests that bloated manufacturing costs in Lower Saxony inflate the total, although it is also the case that spending on research, development and component manufacture are disproportionately carried by the group, but without more transparency, it is impossibleto know.

That is why the proposed creation of a standalone components business is a welcome step. More detail on exactly how Volkswagen plans to reduce costs and improve efficiency at its core business would make next year’s annual meeting a less discomfiting affair.

– Copyright The Financial Times Limited 2016