Volkswagen Risks Clash with Union

For the tens of thousands of protesting Germans who have filled streets on the past five Mondays, the name “Hartz“ has come to epitomize drastic benefit cuts for the long-term unemployed. For about 100,000 employees at Volkswagen, the name is gaining an added association with company-desired cutbacks - and with the possibility of a head-on clash between the work force's employer and Germany's biggest industrial union.

The name of Peter Hartz took on the added significance this week as he sketched the outlines of a Volkswagen proposal that could fuel the year's third major conflict between a leading German company seeking to lower costs and unions trying to protect benefits.

Hartz, the former head of the government's labor market reform commission and the current personnel director at Europe's biggest carmaker, presented a seven-point program on Monday that would cut Volkswagen's personnel costs by EUR2 billion (USD2.4 billion) over the next six years. The proposal, announced nearly three weeks before the start of official negotiations, includes a two-year pay freeze for all VW employees.

The cleft between the demands of the two bargaining sides is greater than ever before in VW wage negotiations. In an unequivocal warning to worker representatives, Hartz said on Monday that the IG Metall union would have to choose between jobs or raises.

That idea did not sit well with the union. “If the management board sticks to its exaggerated demands, this will be a bargaining round filled with conflict,“ IG Metall district head Hartmut Meine said.

Meine called the demand for a two-year pay freeze “totally unrealistic.“ IG Metall calls for a 4 percent raise and a 10-year job guarantee for workers at VW's six German plants. The union may call strikes if no agreement is reached by the end of October.

VW employs about 176,000 people in Germany and is trapped in a sustained earnings crisis. Profits dropped by an additional one-third in the first half of this year. At the same time, the average pay level at VW is about 20 percent higher than the collective bargaining rate. Hartz said VW's personnel costs are as much as 80 percent higher in Germany than comparable costs in Argentina or the Czech Republic. “Given worldwide overcapacities, we could build a lot of our cars elsewhere,“ Hartz said.

Hartz, who has already pioneered a number of innovative programs allowing VW to lower costs without shedding workers, has again spiced his cost-cutting program with a range of forward-looking proposals that experts say could make it more difficult for the union to adopt a hard-line stance. These proposals include a “demographic working-hour model.“ Under the plan, younger employees would work longer hours, and this time would be booked in a personal “life work time account“ for use as time off later in the employee's work life.

IG Metall said on Tuesday that a strike with Volkswagen could be avoided. But observers consider a collision course likely. For one reason, they say the union wants to push through its own demands. For another, it has to ward off an acceleration of a chain reaction in which one major company after the other is trying to crack open Germany's rigid labor rules.

In early summer, electronics giant Siemens traded a promise to keep jobs in Germany for lower pay and longer working hours. Shortly thereafter, the automaker Daimler Chrysler followed suit with a similar deal, which was reached after confrontational negotiations that were accompanied by massive walk-outs across Germany. Both of these deals were interpreted as defeats for the union.

Volkswagen this week showed that the postures are still getting tougher. Unlike Daimler Chrysler, VW has so far declined to issue a formal job guarantee in return for pay cuts. At Opel, the tone is more conciliatory. But the carmaker also asked its German employees this week to accept severe cutbacks.