Volkswagen AG is reshuffling the management of its namesake VW brand in a response to the botched launch of the latest Golf, the company's top-selling model, and persistent troubles readying the new all-electric ID-3 set to go on sale this summer.
The company said Monday that Herbert Diess, CEO of the Volkswagen company that includes the VW, Audi, Porsche, Lamborghini and Bentley brands, would give up his role as chief of the VW brand. Ralf Brandstätter, currently No. 2 at the VW brand division, will become CEO of the division on July 1 while Mr. Diess will focus on steering the group.
Mr. Diess, a former BMW AG executive who joined VW in 2015 and became CEO of the entire Volkswagen company in 2018 in addition to his role as CEO of the brand, "will now have more freedom for his tasks as group chief," Volkswagen said in a statement.
The move, which could weaken Mr. Diess's influence over the day-to-day operations of Volkswagen's largest single division, comes after he faced mounting criticism from labor leaders, who have 10 seats on the 20-person board of directors, in recent weeks.
Mr. Diess's job as CEO doesn't appear to be threatened, but people familiar with the situation said he needs to improve his frosty relationship with the company's top labor leaders and fix problems that have plagued the launches of the company's two most important products.
"Diess still enjoys the solid backing of the shareholder representatives on the board, but he needs to get VW's problems under control," one of the people said.
Mr. Diess has pursued aggressive cost cuts at the company while also making a big bet on electric vehicles in an effort to rebuild the group--whose brands include Volkswagen, Porsche, Audi, Skoda, Seat, Lamborghini and Bentley--into the world's leading maker of full-electric cars, overtaking the upstart Tesla Inc.
He has been operating in a brutal environment. Global demand for cars dipped last year and was hit again after the start of the coronavirus pandemic, which also disrupted supply chains, forcing the company to close its plants for weeks.
Last week, Germany adopted a giant €130 billion stimulus package but didn't endorse a cash-for-clunker incentive to encourage the purchase of combustion-engine vehicles--a lobbying debacle for the once influential industry, which had been clamoring for the measure.
Volkswagen has also struggled with both its upcoming ID-3 and the eighth generation of the Golf. The cars have experienced glitches in the increasingly complex software powering vehicles with advanced driver-assistance features connected to the internet.
The Golf has also seen weak sales, and some of the ID-3's basic software features still don't work, causing concern among Volkswagen shareholders and senior labor leaders that the failure of the company's two most important product launches could hit profits and lead to job losses.
In addition to the technical snafus, Volkswagen's image suffered after it recently published an embarrassing marketing video on social media aimed at boosting Golf sales, raising questions about managers' judgment.
The short film showing a giant white hand pushing aside a black character to let a Golf drive through the frame has drawn criticism of racism and forced the company to apologize and withdraw the ad.
Volkswagen's compliance department is reviewing the incident, which is expected to be discussed at a meeting of the management board under Mr. Diess's leadership on Tuesday, the people familiar with the situation said.
The snowballing of technical troubles and reputational damage facing the company in recent weeks ignited an uprising of labor leaders, who put the issue on the agenda of a meeting of directors at the end of May.
The confrontation at the board meeting came after the company's union shop stewards published an open letter criticizing Mr. Diess and the company's management for what they saw as the failed launch of the Golf and troubles with the company's electric-vehicle development, which they said threatened jobs.
