Volkswagen AG responded to criticism from activist investor Chris Hohn with promises to improve profitability and review management pay, seeking to avoid a confrontation as criticism mounts in the wake of the emissions-cheating scandal.
The German carmaker agrees with much of the investor’s analysis and is working on a strategy, including financial targets, that will be presented this summer, Chief Financial Officer Frank Witter wrote in a letter to Hohn that was obtained by Bloomberg. The founder of TCI Fund Management earlier this month slammed Volkswagen for excessive executive pay in light of poor stock performance and bloated costs.
“We are under no doubt that our financial performance needs to improve,” Witter said in the letter. “Volkswagen can and should be the most profitable company in the automotive world.”
Witter, who took over the CFO job as part of a series of management shifts spurred by the scandal, said he welcomes “constructive dialogue” with investors. The more open approach could potentially help the company raise money to pay for scandal. Volkswagen, which owns brands including Audi, Bentley and Porsche, has thus far set aside 16.2 billion euros ($18.3 billion) to fix rigged vehicles and pay fines.
The response to TCI, which led a shareholder revolt against Deutsche Boerse AG’s top executives in 2005, is an unusual step for Volkswagen. In the past, the carmaker has generally had a cool relationship with outside investors, who generally hold non-voting preferred stock, while its common shares are dominated by the Porsche-Piech clan and the German state of Lower Saxony.
“It’s a letter of fine ambitions, but the key point now is that the unions and in particular Lower Saxony have to now fully back the new management team,” Ben Walker, a partner at TCI, said by phone, adding that the company could cut about 30,000 jobs over the next two years by not replacing employees that leave.
“Every investor that we have spoken to has fully supported all of the points that we have made.”
Volkswagen has been under increasing criticism.
In addition to TCI’s May 6 letter, Norway’s $850 billion wealth fund said earlier this week that it plans to join a class-action suit in Germany against Volkswagen over its disclosure of the scandal. Investors accuse the carmaker of being slow to reveal that it rigged the diesel engines of 11 million vehicles worldwide to pass official tests, reacting only after U.S. regulators went public with the violation in September.