The Troubled Giant

The worst-kept secret in Germany was that the country's highest-paid manager would soon be out of a job. For months, German newspapers have been confidently predicting that the supervisory board of Volkswagen would vote this week not to renew the $180,000-a-year contract of Chairman Kurt Lotz. Recent poor earnings, a shift in the balance of power on the board and Lotz's abrasive personality had combined to make his ouster a certainty. Last week, to spare Volkswagen and himself further embarrassing publicity, Lotz, 59, quit eleven days before he was to have been fired. He is expected to be replaced by Rudolf Lieding, 56, former head of VW's Brazilian operations and now chairman of the Audi-NSU Auto Union subsidiary.

Lotz's leadership style began to irritate board members almost from the day he took over from the late Heinrich Nordhoff in 1968. A former Luftwaffe staff officer, Lotz pushed aside executives who did not agree with him, often ignored the counsel of those more expert than he, and ruled the company with an iron-hand brake. The conservative VW board usually went along with him. But in the past two years Social Democrats have replaced Christian Democrats in the governments of both the Federal Republic and Lower Saxony, where Volkswagen is headquartered. The new governments, which together own 36% of Volkswagen stock, placed four of their men on the board and tipped the balance of power to the liberal anti-Lotz faction.

Profit Fade. Lotz's ultimate undoing, however, was what he was doing to the balance sheet. Volkswagen profits are expected to drop substantially this year --to $24 million or a mere ½% of volume, according to figures widely quoted in the German press--from $56 million last year and $98 million the year before.

There were many reasons behind Volkswagen's fading profits. The rising costs of labor and materials added $150 million to the company's expenses in 1970. In addition, the 1969 revaluation of the Deutsche Mark cost the company $70 million last year. And this year the Nixon surcharge on imports has raised the U.S. price of the basic Volkswagen 111 from $1,899 to $1,978.

Much of Volkswagen's trouble is due to its dependence on the export market for two-thirds of its German production, and on the U.S. alone for one-third of it. Japanese small cars have begun to outsell Volkswagens in Norway, Finland and Switzerland, and are fast closing in on VW in the U.S. In addition, the anti-Beetle cars introduced by Detroit last year -- Ford's Pinto, Chevrolet's Vega and A.M.C.'s Gremlin -- are selling well among potential Volkswagen customers. The box score for U.S. mini-car sales during the first eight months of this year and last year:

1970 1971

Volkswagen 392,697 388,315 Toyota 120,274 200,894 Datsun 55,193 135,141 Pinto -- 221,642 Vega -- 211,267 Gremlin 20,544 46,230

25-Year Itch. Early in his reign, Lotz foresaw rough times ahead for the basic Beetle and set out to broaden the company's product base. But most of his new-look Volkswagens -- like the lengthy 411 sedan, which critics say is called the 411 because it has four doors and came out eleven years too late -- have been costly to produce or full of bugs. The front-engine K70 will lose $30 million for the company this year. Some 200,000 of the new VW 1302 Super Beetles have had to be recalled because of a variety of faults.

VW men generally agree with Lotz that the company needs a wider range of products. After turning out the same basic car for 25 years, Volkswagen chiefs have begun to worry that the bug may be losing its appeal. Indeed, in its September issue, Consumer Reports gives the Volkswagen lower marks in comfort and performance than several of its small-car competitors, including Toyota and Datsun. The VW and similar imports face serious technical problems in trying to meet U.S. safety standards for 1976. And Ralph Nader's Center for Auto Safety last week issued a 200-page report charging that the Beetle "is the most hazardous car in use in significant numbers in the U.S.," citing ac cident statistics compiled by the Cornell Aeronautical Laboratory, the New York Department of Motor Vehicles, the Garden State Parkway Authority and the Massachusetts Registry of Motor Vehicles. The report recommended that all Beetles be recalled for safety improvements and that all VW Microbuses be taken out of service.

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