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 NEW YORK, Nov. 15 /PRNewswire/ -- Volkswagen AG, Europe's largest auto maker, is also the world's least efficient...according to its chairman, Ferdinand Piech.
 Speaking to Bill Sharfman in the latest edition of AUTOMOBILE Magazine, Piech agrees his company is the highest-cost volume automobile volume producer in the world.
 "We are in the most dangerous situation," the VW executive told Sharfman in the most candid interview he has given to date.
 But Piech called his most visible "situation," the controversy over the hiring of former General Motors executive J. Ignacio Lopez de Arriortua "a side issue" and a short-term legal one.
 In addition, he paints the Lopez issue as one whose primary beneficiary is the Japanese auto makers.
 "They (Volkswagen and GM by playing the Lopez affair in public) should not do a favor to the real competitor in the world."
 Piech's revelations include discussions on how VW, and the European makers, fell beyond the Japanese and domestic makers and how he has come to realize the customer is right and must call and the shots.
 But the December AUTOMOBILE Magazine is more than an explosive interview with one of the world's most influential and controversial automotive CEOs. Columns by David E. Davis Jr., Jean Lindamood, Rich Ceppos and the new technology one by Kevin Clemens supplement road tests, features and a look at a major "new" player on the world's sports-car stage.
 A trio of stories surrounds the publication's coverage of the new Porsche Carrera 911 which comes to North America next fall. George Kacher got one of the first rides in the evergreen sports car which enters its fourth decade with this new version.
 Founded in 1986, AUTOMOBILE Magazine has been the fastest growing automotive-enthusiast publication in history, having achieved circulation in excess of 500,000 within its first five years. Acclaimed by AdWeek as one of the nation's 10 hottest publications in 1992, AUTOMOBILE Magazine is published by the K-III Magazine Corporation, which also produces Premiere, New York, Seventeen and New Woman.
 The full interview follows:
 As Volkswagen AG's supervisory board was reaffirming its support for Dr. Ferdinand Piech and his lieutenant, J. Ignacio Lopez de Arriortua (late of General Motors), as huge and unexpected losses at the Spanish SEAT subsidiary were being announced, and as the Frankfurt Auto Show was about to open its doors to the public, Dr. Piech, chairman of the board of management of Volkswagen AG, sat with us for an extended interview.
 Your reputation as an innovative automotive designer and engineer is the equal of anyone's. What will we see you doing now that you're at Volkswagen AG?
 "A continuation of ideas. From the first energy crisis, we went for a very low-consumption engine. Two years ago, this target was reached in direct-injected diesel engines in a passenger car, as well as in the Audi 100 and 80. We now have this engine for the Golf and Passat family. Now it's very important for the environment to have less exhaust gas.
 "Also in racing-car building, if you want less fuel consumption, the easiest way is low drag coefficient and low weight. Like the Audi aluminum passenger-car prototype -- low consumption, as light as possible, but also with space frame, as stable as possible. Even rolling over, this new concept gives you safety and a low drag coefficient. In the past it was necessary to win races. Today it's necessary to win markets.
 "The past ten years, I had to learn to maximize the money. Early on, I needed just genius engineering. Now, I need to be a genius engineer with a feeling for low cost. And the engineer that joined me with that feeling for low cost is Lopez."
 You want to plunge into that one?
 "If you need, yes. But it's a side issue. The world has a capacity of 40 million cars and a market of 30 million cars. That works out that only 75 percent of the world's manufacturing capacity is being used. This pressures each automaker for survival. Part of that is a fight -- no, a legal issue -- between the biggest European company and the biggest American company. Only part of the tension."
 So Lopez is a short-term legal issue, and the long-term issue is market dominance based on cost?
 "Right. Who has the best man in rationalization (cost cutting) has an advantage. (Laughs.) The combination of a cost-sensitive man and somebody who can make new things -- like me -- this combination is dangerous for our competition. They don't like it. If they could separate us, or if they could make Volkswagen lose both, then the outcome would be different. That's the real issue. The automobile crisis has never been worse since the Second World War. And during this fight -- no, controversy -- Volkswagen and GM have both lost sales in the European market."
 We must focus on the Lopez question.
 "However it comes out, we are very much in support of the conclusion. But the Lopez case should not be played in public, because Opel employees and buyers, Volkswagen employees and buyers, suffer. The Japanese are very happy about that. This is something General Motors and Volkswagen should not permit. They should not do a favor to the real competitor in the world.
 "So we are open to discussion with the top management of General Motors. Doesn't have to be me. I support the prosecutor. The prosecutor in Germany is neutral. Whatever the outcome, we have to wait. But with so much discussion in Germany, the people on the road only know that there is a fight that they don't understand between two companies. So these two companies seem not to focus on the market."
 So you're resigned to the verdict vis-a-vis Lopez. But if you can keep Lopez on the job at least for a bit, much of what you want done at Volkswagen and Audi, maybe SEAT, can be started, or accomplished, as was true at GM. He didn't stay on the job very long at GM in North America, either.
 "Eleven months. Here, seven months."
 So far, counting by days. But in Detroit, he changed a great deal in eleven months. Yet there are dozens if not hundreds of people who are just as happy he's gone. And under a cloud, you, rather than GM, have him.
 "People who change culture, practices, are not very much appreciated. The fire would not burn as high if all my people liked it."
 So you're getting a similar kind of heat from friction here?
 "The fire comes on both sides. The McKinseys, the Roland Bergers, the Boston Consulting Groups made tons of paper about changes. It was like our former management to do that, spend millions of deutsche marks, consultants talked with employees about what is wrong, put it on paper, gave it to management, and management put it in the cellar -- a game played for the past ten years. (Laughs.) And now I broke this. And Lopez broke it, too. We made changes. And part of the management do not like it. I have 100 percent support of my supervisory board. They see it has to be done. I have 100 percent support on the labor side, the people who really do the work. And that's more fuel in the fire than the Opel-Volkswagen issue."
 So, you're through fighting the Lopez issue, in a sense?
 "This is short-term, yes. But people would like Lopez and me to leave. And I cannot do them the favor. I will stay."
 What happens to Lopez is another issue, then?
 "I'm sure he will stay as well. We learned in seven months to work very closely together. The only thing he brought with him is the will to do something. This is an attitude. I'm sure General Motors, as well as Volkswagen, has tons of paper from consultants."
 We believe that Volkswagen is now the highest-cost high-volume producer of cars in the world.
 "I agree. We are in the most dangerous situation. That's true."
 How did Volkswagen get so far out of line with the rest of the industry? And what are you doing about it?
 "They redesigned the Golf, and so many parts are not exchangeable between Europe and North America. They do not even fit together. This is terrible. If a tool breaks in Europe or North America, you cannot exchange. With big planes, you can have the right part anywhere in twenty-four hours. But if the parts are different, you need another engineering team, another test team.
 "To do tolerances, model changes, at the same time worldwide is very easy through satellite communication. But they didn't do it. Our subsidiaries could do what they wanted. So I saw a different air bag than here, a different supplier, a different test, everything different. Styling-wise, it was the same car. But if you take the cars apart and try to mix the sheetmetal and plastic parts from Europe and North America, you couldn't build a car. That's a waste of engineering capacity, quality people, everything. Fixing this kind of waste is easy for me as an engineer. This will be done finally the middle of next year.
 "Due to the market crisis, I'm no longer locked in like my predecessor. He had eight years of beautiful times, so we added volume. In a good market, expansion is good, and the decision of my predecessor was right. But with expansion, our break-even was around 100 percent (of production capacity), so at the first sign of a market drop, we got into a very difficult situation."
 Why have offshore operations not been in better sync with American market needs? Is it poor communications? Too much independence? Arrogance? Quality? Lack of control from the center?
 "I changed the complete management in Mexico, except one man. Two levels. I was there four times, and they only showed me what they couldn't do. I don't like this. (Laughs.) We brought 150 production people from Volkswagen and the fifteen top quality people from Audi. Both mixed in to bring what we've learned in good plants in Europe. Those people (in Mexico) knew how to build the Beetle. But today is Golf III time. The highest demand for quality is in the U.S. market. I have been there five times in less than a year to talk with customers myself."
 Why so slow getting new products out? It seems new designs are dated from the beginning, just because of slowness in introduction. Or the opportunity is partly past by the time the product appears.
 "Your are 100 percent right. In the future, we will not have more than six months' delay between first startup and other regions of the world. People who do startup in Europe will do it elsewhere. Not different people, one team."
 And in the meantime?
 "We are in big, big delay. One-year delay in manufacturing, thousands of cars. The customers are there. But Puebla (Mexico) hasn't the output. My first focus is to get Puebla to full speed."
 To what do you attribute that delay?
 "Part of it was trying to get more volume out of factories than they had been designed for. I pulled it back and worked on quality worldwide. The first thing I could fix in the first six months was to reduce output and raise quality for the U.S. market, and this had nothing to do with Mr. Lopez. They have to learn quality. I set production just under my quality target. As long as quality is above that, they can raise output. If not, we stop at my target. Also on durability. Everything that breaks under 50,000 miles is redesigned, put into test, then they get the release."
 Volkswagen has as much experience as anyone in Mexico. How will the opening of Mexico via NAFTA affect the auto industry in the United States and beyond?
 "Short-term, I don't like it. Long-term, I appreciated it very much. American plants, especially those of Chrysler and some Ford plants, are better than Mexican plants. So U.S.-made cars will flow into Mexico. Volkswagen will suffer, because we have the biggest market share there. But long-term, as an engineer I appreciate that this region gets easier. It will become a common market with one set of laws in emissions and standards.
 "I know the danger of cheaper labor, or that some manufacturing might move into Mexico. Employment for a short time in North America is a risk. But you need the change for world competitiveness. That only comes if you get cheaper labor, as we do in Europe. (Laughs.) The whole reorganization is new. But the world gets smaller, more connection, more competition."
 Is Volkswagen AG paying more attention to North America?
 "We used to have one board member responsible for overseas -- Brazil, South Africa, China, Japan, and North America together. You have to focus on a market, and America is the most demanding one. Now, one person, Jens Neumann, is responsible for North America alone."
 You wouldn't deny that historically there's been an arrogance about the U.S. market?
 (Long pause.)
 Maybe not just at Volkswagen AG, maybe Mercedes, maybe BMW as well. If we do our engineering, the market should come to us.
 "Now, look, look, look. I would say it differently. The old European culture was top down. The client dictates what we have to do. This turnaround of culture we need for Europe as well as the United States. This is nearly a revolution in my company.
 "At Audi, they gave me letters to sign to tell customers that they were wrong. When I came to the bigger company, same thing. I had to turn people around, because they thought they were on top of the mountain and the clients were waiting for us down in the valley. It's exactly the other way around. If you call this arrogance, you are right. But Europeans had to learn to listen, because the European philosophy of building cars was engineers sitting in their tower, thinking, thinking, thinking, with no connection to the market. Now, before they do the first line on white paper, I send them to talk with customers, because they never build things that customers don't pay for. Still, they see things the customers don't think of until you offer it. This is a process my engineers have to learn. It's a big change for us, our behavior."
 New advertising in the United States calls VWs "the most loved cars in the world." If you say that where they aren't, it suggests that the American consumer is out of line with the rest of the world and ought to shape up.
 "No, no, no. That's not it. I'm sure the Beetle was the most loved car in the world -- otherwise, Walt Disney wouldn't have made the film ("The Love Bug"). It's the biggest export Germany ever had. It means quality, service, and price -- three issues I focus on. It should say, `Remember the Beetle? Now the Golf III and Jetta III will have these same three things from our group.' But my criticism is to have an ad campaign and no product."
 In fact, you're producing the Beetle in increasing numbers in Brazil. Will we see it again?
 "Tradition in the United States gets attention. Think about Harley- Davidson -- they do a beautiful job. There's no decision. But I understand this feeling, and it can give us a very strong position. We are rethinking what we can do with the Beetle in all markets."
 The Beetle can also interfere with the brand personality of what you sell today, which is the third-generation Golf and Jetta.
 "You could see a third-generation Beetle. (Laughs.) We need to go back to the roots at the same time we do an A4 Audi (next-generation Audi V8), which goes so far ahead that you have to rethink where you come from."
 -0- 11/15/93
 /CONTACT: Michael Geylin of Kermish-Geylin Public Relations, 212-315-4900/

CO: AUTOMOBILE Magazine; Volkswagen AG ST: IN: AUT SU:

CK-MP -- NY125 -- 4777 11/15/93 19:24 EST
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Date:Nov 15, 1993

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