He won't start his job until February--and Wolfgang Bernhard has already earned his future employer, German auto giant Volkswagen, many times his salary. When, in October, VW announced the 44-year-old turnaround specialist would become the new No. 2 under CEO Bernd Pischetsrieder, investors celebrated by raising VW's market cap by 1 billion euro in a single day.

Volkswagen obviously needs a shot in the arm. Only four years ago it was the hottest brand in America, enjoying bidding wars for its New Beetle and a cult following for its revamped Passat sedan, "the poor man's Audi." Now VW is barely breaking even, dragged down by high costs, poor sales and the aging of those once hot models. In North America persistent quality problems inspired headlines like EUROTRASH, to describe an article about a reliability report that ranked VW models near the bottom. In the United States alone, VW now loses 1 billion euro a year; if it weren't for the highly profitable Audi brand, the company would be deep in the red.

Can Bernhard put Volkswagen in the black? In his last job, as COO of DaimlerChrysler's Chrysler unit, he closed several plants, fired 26,000 workers and slashed supplier costs--while accelerating development of new models like the Chrysler 300. But he faces an even more daunting challenge now.

Decades of government ownership (the German state of Lower Saxony holds a controlling stake) have bred a slow-moving corporate bureaucracy at Volkswagen, auto-industry analysts say. At overstaffed German plants, the company still makes 40 percent of its components instead of sourcing them out. To make matters worse, VW management cut a deal with its unions last month that will complicate any effort to execute a turnaround by restraining costs: in return for lower wage increases and work-time flexibility, it guaranteed 106,000 jobs until 2008.

By choosing the high-strung Bernhard--fired by Chrysler after a reported clash with CEO Jurgen Schrempp Pischetsrieder has indicated he is serious about changing VW's course. In October the VW chief stepped up a cost-cutting plan that is now expected to save 3.1 billion euro in 2005. "If Bernhard succeeds, VW could become the biggest turnaround story in the industry since Carlos Ghosn took Nissan from basket case to the top of the industry," says Jurgen Pieper, auto-industry analyst at Metzler in Frankfurt. Bernhard's chances? Judging by the market's welcome, not bad.