* VW's brands compete for development, manufacturing roles
* VW making big cuts following Dieselgate scandal
* Audi main contributor to VW group profit
* But has lost out in developing some components to Porsche
* Group denies VW, Porsche-Audi rivalry getting out of hand
* GRAPHIC - VW emissions scandal tmsnrt.rs/2fYcm9Q
By Edward Taylor and Jan Schwartz
FRANKFURT/HAMBURG, Nov 27 Just as Porsche and
Audi have fought for supremacy on the race track, the Volkswagen
brands are now locked in a cut-throat battle to develop and
manufacture the next generation of electric cars at a group
embroiled in the "Dieselgate" scandal.
Volkswagen Group denies that the kind of
internal rivalry that it encouraged at the Le Mans 24 hour race
is getting out of hand in the boardroom.
But senior executives told Reuters that in-house conflict,
particularly between VW and its premium brands, is intensifying
over which factories will develop next generation cars while the
German group has to cut costs elsewhere to pay for cleaning up
its emissions cheating scandal.
"There is a cut-throat battle for resources. Every brand
with engine-manufacturing capacity now wants a leadership role
when it comes to electric motors, battery packs and battery-cell
expertise," an executive at one of the VW divisions, who
declined to be named, said.
Since returning to top-line racing three years ago, Porsche
has beaten Audi to the world championship for sportscars and at
Le Mans for the past two seasons.
Porsche will again seek to defend the titles in 2017 with
its ultra-sophisticated petrol hybrids. But Audi, whose hybrid
racers showcased the group's troubled diesel technology, has
pulled out after winning the French race 13 times.
In the broader competition, Porsche also appears in the
ascendant as Audi - which since the 1990s has achieved rapid
sales growth to rival Mercedes-Benz and BMW - now struggles with
the Dieselgate fallout and a series of negative press leaks.
Jobs are at stake as the group - whose brands also include
Skoda, SEAT, Bugatti, Bentley and Lamborghini - moves to new
technology and faces up to Dieselgate penalties and lawsuits
which analysts say could cost as much as 30 billion euros ($32
Because electric cars are far less complex to assemble than
traditional combustion engine vehicles, manufacturers may not be
able to guarantee the same level of employment in future - a
thorny issue in an industry dominated by a workforce with
multi-year collective wage agreements.
Volkswagen and its unions agreed to cut 30,000 jobs at the
core VW brand in exchange for a commitment to avoid forced
redundancies in Germany until 2025.
The executives at Audi, VW and Porsche, who all declined to
be named, said conflict between group brands is not new and
healthy internal competition can push them to greater technical
and commercial achievements.
However, some critics said the scramble has become more
intense partly because the company last year lost a powerful
central figure who controlled the balance of power between the
brands, their managers and worker representatives.
That balance is now being redefined, pitting Volkswagen, one
of the group's least profitable mass market brands, against its
highly profitable siblings Porsche and Audi.
Volkswagen dismissed this analysis, and denied that an
unhealthy power struggle was underway at all. "This is pure
speculation which lacks any kind of foundation and is something
which we emphatically reject," spokesman Eric Felber said.
Group chief executive Matthias Mueller has previously worked
as Audi's head of product management and Porsche boss. But since
getting the top job after the scandal erupted last year, he has
yet to build the level of power once enjoyed by former chairman
Ferdinand Piech, whose extended family controls the firm.
Piech, who spent years cultivating ties to VW's powerful
labour leaders, was an engineering genius who inspired fierce
loyalty from staff because of his willingness to take risks. He
masterminded the Porsche 917 racer, which starred alongside
Steve McQueen in the 1971 movie "Le Mans", as well as the
legendary Audi Quattro rally car of the 1980s.
Piech also turned Audi into one of the main research and
development hubs for the 12-brand group, although eventually he
lost a separate power struggle, quitting as chairman last year.
While the main contributor to VW group profit, Audi has lost
some battles in recent years for developing vehicle components
to the smaller Porsche brand, and is also competing with the VW
brand to develop next generation zero-emission cars.
Since diesel cheating was exposed, Audi has lost two
research and development chiefs and the head of its automotive
electronics division who did pioneering work in the area of
autonomous driving and battery technology.
It appointed a new development chief on Friday but Audi and
its Chief Executive Rupert Stadler remain under fire for the
brand's involvement in the cheating in emissions tests.
Meanwhile, Porsche - a firm that VW swallowed up in 2012 -
has emerged as a strong rival engineering centre. Porsche's MSB
platform, used for its four-seater Panamera model, has been
adopted for the next generation Bentley Continental even though
Audi had developed a similar offering.
Porsche has also taken over production of eight-cylinder
gasoline engines for large sportscars for the VW group, even
though Audi has its own engine factory in Hungary.
"For Audi, it has always been difficult to accept if Porsche
gets something. They tried to resist the Porsche platform but in
the end, a business decision was made," a Porsche source said.
Audi is not out in the cold. It remains the centre of
excellence for sports utility vehicles, a lucrative and growing
market, where it supplies platforms to Porsche and other brands
such as Bentley. With self-driving vehicles likely to play a
major future role in the industry, Audi also develops autonomous
cars for the group.
On the race track, Audi will compete in the Formula E
Nevertheless, analysts say VW must not neglect it in
allocating resources. "Some successful divisions like Audi need
to be nurtured," said Juergen Pieper at Metzler Bank.
JOBS AND BEER
A separate internal race has begun to become an engineering
hub for electric vehicles, a field which includes research and
development of battery cells, battery packs and electric motors,
in the hope of preserving local jobs.
Porsche has developed the J1 electric cars platform,
creating 1,000 jobs at its plant outside the southwestern city
of Stuttgart, while the Volkswagen brand made its own MEB
platform for conventional passenger cars in Lower Saxony, and
pledged to create 9,000 jobs in developing autonomous and
The Volkswagen brand will spend 2.5 billon euros to develop
electric cars, the company said.
Audi is working on its own electric car at its Bavarian base
but it is unclear whether it will develop its own electric car
platform now that the Volkswagen brand is to establish itself as
a centre for battery cells, battery packs and electric motors.
Some senior executives say the fierce competition between
brands is nothing unusual. But others point to press reports
that appeared during the final days of VW's future pact
negotiations as an example of a more abrasive power struggle,
although the source of the leaks remains unclear.
In July, German paper Bild am Sonntag reported that internal
auditors had ordered Stadler to repay 12,500 euros in expenses
spent on a beer-drinking contest.
Then on Nov. 6 it said California's Air Resources Board had
discovered a new software-cheating device in Audi cars. The
report appeared as Audi tried to secure a final deal with U.S.
regulators on compensating owners of cars with Audi-built
On Nov. 11, Der Spiegel weekly said VW supervisory board
members were discussing possible successors for Stadler, but a
senior source dismissed this. "There is no reason why Rupert
Stadler cannot continue as Audi's chief executive," he said.
($1 = 0.9436 euros)
(Additional reporting by Irene Preisinger, Ilona Wissenbach,
Andreas Cremer and David Shepardson; editing by David Stamp)