Volkswagen’s Board Cracks Could Disrupt Journey – Wall Street Journal

April 13, 2015 12:13 p.m. ET

A tussle to take the wheel at Volkswagen VLKAY -2.39 % may steer the car maker off course.

In surprise comments last week, published on German website Spiegel Online, VW Chairman Ferdinand Piech suggested he was losing confidence in Chief Executive Martin Winterkorn. The statement prompted others including his cousin, Wolfgang Porsche, the government of Lower Saxony and employee representatives on the board to reiterate support for Mr. Winterkorn.

The CEO's job looks safe. But Mr. Piech's interjection could reflect deeper divisions over strategy at its namesake brand.

Mr. Winterkorn set out to make VW the world's largest car manufacturer: the German firm's unit sales have risen about 77% since he took the helm in 2007. VW overtook General Motors GM -0.46 % in 2013 as the second-largest auto maker by sales and could pass Toyota TM -1.50 % this year.

One concern is that, in its pursuit of growth, the company may be sacrificing profitability. VW is consistently among the industry's highest spenders, investing about €11.5 billion ($ 12.1 billion) in research and development last year alone. But investors aren't yet seeing rewards. Operating margins have remained flat at about 6% in the past three years for the group, with the Volkswagen-branded business at about half that, Morgan Stanley MS 0.17 % estimates. In comparison, Toyota's operating margin is around 10%.

Mr. Winterkorn is trying to improve profitability by finding about €5 billion in cost savings at the Volkswagen brand. Since most of its workforce is based in Germany, that goal may be more difficult if he feels reliant on the support of his workforce to keep his job. Union representatives account for half of the 20-member supervisory board.

Other parts of the business could mean more pressure on profits. VW has been struggling with falling sales in the U.S. but still plans to expand capacity at its Chattanooga, Tenn., assembly plant. In China, which accounts for about 36% of the group's global sales, auto demand is slowing along with other emerging markets. The company will likely need to discount further.

Volkswagen shares are still trading at 10 times forward earnings, the highest level in four years. Historically, it has trailed rivals BMW BMW -0.94 % and Daimler, which trade on about 12 times forward earnings. Any division at the top over strategy could disrupt attempts to close that gap.

Write to Thao Hua at thao.hua@wsj.com