Massive Restructuring Clinching a Deal for VW Austerity

Volkswagen management has reached a deal on a major new restructuring package that includes more than 20,000 job cuts, but it has backtracked on some of its measures to get the backing of employees.
VW brand director Herbert Diess (left) and work council chairman Bernd Osterloh seem to have brokered a deal. Photo: Peter Steffen/dpa

Volkswagen's management has backtracked on some of its restructuring plans in an effort to secure the backing of the powerful workers' council and pave the way for 23,000 job cuts, news agency Reuters reported Tuesday, citing VW representatives.

Workers' council chairman Bernd Osterloh told VW employees at headquarters in Wolfsburg that management has pulled some of the planned austerity measures, Reuters cited him as saying according to his written speech.

A VW spokesman confirmed the writing, telling Reuters: "When it comes to the disputed issues: A deal has been reached."

Volkswagen remains under a high level of scrutiny following the Dieselgate emissions scandal, particularly in regards to capital markets. This has increased pressure to strike a deal, as a continued stalemate could further damage the firm’s already tarnished credibility. In short: Volkswagen, the world's largest carmaker, must prove that it can actually implement its new savings and efficiency program.

The main bone of contention is temporary staff at Volkswagen, which amounts to around 5,000 workers at factories across Germany.

In November, VW said it would eliminate up to 30,000 jobs as the German company faces a mounting bill for its diesel emissions scandal. The automaker’s core brand plans to slash annual costs by €3.7 billion ($3.9 billion) by 2020 and free up funds to develop and produce electric cars and self-driving technologies.

According to the workers' council chairman, Mr. Osterloh, VW will keep a night production shift of VW Golf models in place. The carmaker had wanted to scrap the shift. VW has also decided not to limit bonus payments.

VW will also look at options to produce batteries on an "industrial scale" for electric cars and, in a second possible step, start mass-producing batteries at a factory in Salzgitter, a town south of headquarters in Wolfsburg, Mr. Osterloh was quoted as saying by news agency DPA.

Producing batteries would create new jobs at VW. Cutting jobs at the carmaker, where union members sit on the supervisory board, is not easy. One point of contention has been temporary staff, which amount to around 5,000 workers at factories across Germany. While VW brand chief Herbert Diess has insisted that the company get rid of its temporary workers as quickly as possible, the workers’ council is calling for a limited guarantee of further employment.

“Whoever has worked for Volkswagen for three years has the right to remain on the workforce for at least another two years,” workers’ council representatives insist.

The VW workers council has also accused Mr. Diess of blocking the hiring of new employees, thereby failing to provide sufficient personnel for digitization of vehicles and the construction of battery-powered engines.

In terms of a compromise, Mr. Diess is said to be willing to retain a maximum of 2,000 temporary workers. In return, he is calling for job cuts among VW’s permanent staff. As it currently stands, the “future pact” negotiated in November stipulates that 23,000 VW employees are to be laid off by 2020. The company currently has around 120,000 permanent employees in Germany.

According to sources close to Mr. Diess, no increase in personnel is envisioned in the first two quarters of 2017. VW management appears unwilling to change its mind that restructuring the company must be undertaken immediately and without reservation in order for the “future pact” to be successful.

Indeed, Mr. Diess is said to consider the successful implementation of the “future pact” his own “entrepreneurial responsibility”, and to have taken up his position at Volkswagen with an “urge to shape the company.”

The manager switched to Volkswagen from BMW almost two years ago, where in Munich he had earned the reputation of being a fearless advocate of restructuring. This appears to be the main reason why then-chairman of the VW supervisory board, Ferdinand Piëch, brought Mr. Diess to Wolfsburg.

Mr. Diess recently voiced strong criticism of the IG Metall union at VW, seeking clarification as to whether the union has a say in the promotions of company employees. It’s a stance that hasn’t helped deescalate the conflict between the company and the workers' council, with the latter boycotting last week’s discussions. For the moment at VW, it appears nothing less than the future is on the line.

Stefan Menzel is the managing editor of Handelsblatt's website and closely follows the car industry. Contact the author: [email protected].