Volkswagen's Ouster of Chairman Piech Boosts Stock and Turnaround Hopes - TheStreet

NEW YORK (TheStreet) -- Investors around the world cheered Monday newsVolkswagen (VLKAY) Chairman Ferdinand Piech had been forced to resign. VW's stock rose sharply on expectations that confusion over the German automaker's direction might be over, at least for now. 

A transitional chairman, Berthold Huber, a senior trade unionist, will take Piech's place until VW's supervisory board can name a new one. Martin Winterkorn, 68, likely will stay in place as chief executive, perhaps for a few more years. 

Volkswagen's American depositary receipts are up over 4% to $52.70 Monday. The ADRs are up over 22% for the year to date.

How quickly might Volkswagen adjust strategy in the post-Piech era? Piech, who dominated the company for several decades, was regarded as a visionary who handpicked Winterkorn two decades ago to carry out his plans, such as the long and successful campaign to elevate Audi into a legitimate peer of the BMW and Mercedes-Benz luxury brands. Audi is now highly profitable, while the flagship Volkswagen auto division's finances are a drag on the company, which aims to top Toyota Motor (TM) - Get Report as global No. 1 in terms of vehicle sales.

Piech had pushed Winterkorn and others to elevate VW's standing to premium status from its usual middle-market position. Analysts estimate VW may have lost $1 billion with the ill-fated VW Phaeton project on which Piech insisted against internal warnings that the model wouldn't succeed. A Phaeton II is in the works though now it might be scrapped. 

Piech is said to have been behind the recruitment of Herbert Diess, a former BMW executive, who is about to take over global management of the VW brand. Lately, the German press has speculated Diess and Winterkorn could find themselves at odds now that Diess's purported backer is out.

Piech liked buying foreign, non-VW brands like Skoda, Seat and Bugatti, and reviving them with his company's engineering and design prowess. The strategy worked well, in large part, although it was despised by labor unions representing VW workers, which saw German jobs lost. Piech had been looking at buying Fiat Chrysler Automobiles' (FCAU) - Get Report Alfa Romeo brand, but that idea now may be moot.

"The sheer complexity of VW is starting to hit the wall," Ingo Speich told Reuters. Speich, a fund manager at Union Investment, which holds 0.6% of Volkswagen's preference shares, noted, "There are numerous trouble spots at VW that urgently need to be tackled now."

A few equity analysts said Winterkorn might soon be named chairman of VW's supervisory committee, with a new CEO recruited from inside or outside the automaker to frame a new strategy. Others said the chairman's job could go to an outsider, perhaps a seasoned veteran from German industry.

Arndt Ellinghorst of ISI Evercore guessed that a corporate type such as Wolfgang Reitzle, formerly of BMW and now chairman of Continental AG (CTTAY) , would be favored by institutional investors, who are looking for an independent viewpoint.

There's still a chance that Piech may try to buy more VW shares. As a major stockholder, he currently controls just under 25% of the voting shares, which means he could be in a position to make a comeback.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.