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VW crisis as a litmus test: Is the "Volkswagen system" reaching its limits?

(dpa) Pay cuts, layoffs, plant closures: Volkswagen is in upheaval - and the fact that VW is not a company like any other does not make it easier. Is the "Volkswagen system" reaching its limit? An overview.

Emergency brake in Wolfsburg? The Volkswagen system was successful for a long time, now it seems to be reaching its limits. | Photo: dpa/Moritz Frankenberg
Emergency brake in Wolfsburg? The Volkswagen system was successful for a long time, now it seems to be reaching its limits. | Photo: dpa/Moritz Frankenberg
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When Volkswagen and IG Metall meet for the next round of negotiations on Thursday in Wolfsburg, things are likely to get heated. The union is calling for a large rally where employees will once again loudly express their dissatisfaction with the cost-saving plans. Meanwhile, solutions for partial problems are already being worked on in the background. However, the starting position is complicated. An overview:

The "Volkswagen System"

Volkswagen has always been a very special company. Former CEO Herbert Diess spoke of the "Volkswagen System" - in which he eventually failed. It is characterized by a strong works council and the state of Lower Saxony as an important stakeholder. Thus, the state always sits at the negotiating table as an "invisible third party," says industry expert Frank Schwope, who teaches automotive economics at the University of Applied Sciences for Small and Medium Enterprises in Hanover. "That makes the whole thing a bit more complicated." Conflicts are often loudly aired in public but are usually resolved by consensus in the end - often with expensive concessions. VW has now breached this consensus by canceling the job guarantee, says works council chairwoman Daniela Cavallo. "This is a breach of taboo."

The State of Lower Saxony

The state of Lower Saxony, with 20 percent of the voting rights, is the second-largest shareholder after the Porsche and Piëch family holding (53 percent). For important decisions, Lower Saxony has a veto right at the general meeting, with Minister President Stephan Weil (SPD) and Education Minister Julia Willie Hamburg (Greens) sitting on the supervisory board. This also has advantages for VW, Schwope believes: "Lower Saxony is a reliable anchor shareholder, something many other companies long for." However, the state is often in a dilemma: "On the one hand, as a shareholder, it naturally has an interest in a high dividend. On the other, it is interested in the largest possible number of jobs." In the current discussion, Weil has repeatedly spoken out against plant closures.

The VW Law

The state's position is even enshrined in its own law: the VW Law. The Bundestag passed this in 1960 during the privatization of the group. Up until then, VW - founded in 1937 for the construction of the "KdF-Wagen" - was a purely state-owned company. "KdF" stands for the Nazi organization "Kraft durch Freude." The law was weakened in 2008 after a ruling by the European Court of Justice. The provision that Lower Saxony could claim seats on the supervisory board with even a single "golden share" was scrapped. This had no practical consequences. With its 20-percent share, the state continues to appoint two representatives. However, the provision that 20 percent is enough for a veto against important resolutions remained. Usually, 25 percent is required.

The Works Council

The strength of the works council is mainly due to the high degree of organization: More than 90 percent of the workforce is in IG Metall, and those who start at VW often join the union immediately. Cavallo also points out the history of its formation: The money for development once came from the unions, which the Nazis had previously expropriated. Therefore, according to Cavallo, VW is not a normal company. After that, in Schwope's view, things always went uphill. "The company has been flourishing for 75 years." After all, the workers also have an interest in the brand's success. "Every 10 years, there's a problem; every 20 years, it explodes, but the years in between have been very profitable."

The Supervisory Board

The power structures in the supervisory board are actually clearly regulated: Half of the 20 members are the capital owners, including the two state representatives, and the other half are the workforce. In alliance, the state and works council could thus outvote the owners, says Stefan Bratzel from the Center of Automotive Management (CAM) in Bergisch Gladbach. "So to speak, there is blocking power." However, VW hardly ever allows it to come to contentious votes. As a rule, discussions continue until everyone agrees - although this does not always work. It is disputed whether the board would have to approve plant closures, as are currently under discussion. The VW Law provides for the "establishment and relocation of production facilities." It is unclear whether this also applies to a pure closure.
 

The In-house Collective Agreement

Wages at VW have traditionally been higher than in the rest of the metal and electrical industry. Since 1948, a separate in-house collective agreement has been in place. To attract skilled workers to Wolfsburg, VW simply had to pay better, said Bratzel. "And it still does today." How large is the gap? There are varying reports on this. According to the works council, VW claims a lead of 15 to 20 percent - and is now demanding a uniform reduction of 10 percent. The works council, however, calculates that the starting salary of an engineer is only a little over two percent higher than that in the regional collective agreement. And a skilled worker in production earns only a few euros more than a colleague in the regional collective agreement, provided that the latter receives all performance bonuses.

The Crisis

According to Bratzel's assessment, there are a number of reasons for the crisis at VW: A too half-hearted start in e-mobility, high costs, weak capacity utilization, and new competitors from China, whom VW long underestimated. Most of this is not new but has been delayed for years - thanks to long-flowing profits in China that covered everything. "But that's over now." Accordingly, the pressure is now great to address the problems. "And I think that’s correct." However, it is not comparable to earlier crises like in 1974 and 1993, when VW recorded deep red numbers, explains Schwope. VW continues to make billions in profits. The reason for the savings course is rather the concern for the future and upcoming challenges. "This is not yet a major crisis. But everyone is afraid of a crisis."

Possible Solutions

Schwope is confident that the parties involved will come together again this time in the end. "There have never been compulsory redundancies at VW, and there won't be this time either. I'm sure of that." A possible solution: "I believe that a four-day week or a four and a half-day week, meaning 80 or 90 percent working hours, will be introduced." The model would be the four-day week with wage sacrifice from 1993, which at the time prevented job cuts. Bratzel, on the other hand, warns against too much reluctance. He fears that, in the end, people will only agree on a few small measures that are not sufficient. "You tweak here a little, tweak there a little. But not fundamentally enough for VW to get back to the top. In my view, this would be the worst variant." The problems would then only be greater in a few years.

Translated automatically from German.
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