By Victoria Waldersee, Ilona Wissenbach and Christoph Steitz
BERLIN/FRANKFURT (Reuters) – Volkswagen boss Oliver Blume, already struggling with falling demand for electric cars and Chinese rivals, must now abandon his role as a team player and face another tough opponent: Germany’s powerful unions.
The pressure on Europe’s largest carmaker became clear this week when Volkswagen announced that it was not only planning to scrap a 30-year-old job protection program, but was also considering closing plants in Germany.
Moritz Kronenberger, portfolio manager at Volkswagen shareholder Union Investment, calls them the group’s “two sacred cows”.
With this takeover, Blume is entering into a confrontational relationship with one of Germany’s most powerful interest groups, IG Metall, whose main goal is to secure jobs and locations and to preserve the favorable working conditions in Europe’s largest economy.
VW works council chairwoman Daniela Cavallo said unions would “firmly oppose” the plans and ruled out any plant closures during her term in office. She said a staff meeting on Wednesday, at which management would confront workers, would be “very unpleasant.”
Volkswagen has not closed a plant since 1988, when it closed its Westmoreland plant in Pennsylvania. In July, the company announced it might close an Audi plant in Brussels due to a sharp drop in demand for high-end electric cars.
HIGH COSTS IN GERMANY
The problem: German industry is falling further and further behind in global competition due to high energy and labor costs. Some of the most renowned companies, including Thyssenkrupp, are now forced to review their agreements with employees that were long considered sacrosanct.
Investors are taking note of this: Volkswagen’s share price has lost almost a third in the past five years, making it the weakest among the major European car manufacturers.
The problem for 56-year-old Blume, and the reason why he has no choice but to take on IG Metall, is the fact that the expanding VW Group has become increasingly thin in the face of growing competition, especially from China.
The company is behind on a 10 billion euro ($11 billion) cost-cutting program at its namesake brand, while also having to finance key international projects, including a potential $5 billion investment in U.S. electric car maker Rivian and a partnership with China’s Xpeng.
“If more investments like those in Rivian and XPeng are to be made, those savings have to come from somewhere, and it seems that underutilized plants are no longer taboo. This marks a massive cultural shift,” said Matthias Schmidt, an analyst for the European auto markets.
“Decades of CEOs who have wanted to do something similar will feel vindicated if Blume can push through the move.”
Former Volkswagen bosses, including Herbert Diess and Bernd Pischetsrieder, failed in their attempts to implement radical changes at the Wolfsburg-based carmaker because the unions refused to be dissuaded from their plan.
‘UNGOVERNABLE’
Blume, who took over as CEO of the group in 2022, maintains good relations with the unions as well as with the powerful Porsche and Piëch families that control Volkswagen. This is an important prerequisite for reconciling the different interests of stakeholders.
He succeeded in implementing changes in the Porsche AG division he headed, while generally avoiding spectacular clashes with employee representatives.
“At Volkswagen, there is always this tension between what is necessary and what is achievable. That’s why we have taken this path many times,” says Stephen Reitman of Bernstein, who has covered Volkswagen since the mid-1980s.
“Oliver Blume should be the peacemaker, the one who can build a bridge between the different voting groups,” he said, adding that the current situation suggests that this approach does not necessarily work.
Volkswagen’s decades-old management structure gives the state of Lower Saxony and the unions enormous influence.
Lower Saxony still holds 20 percent of the voting rights and can block important decisions after the company fell into the hands of the federal government – which later sold its share – and the state after the Second World War.
Half of Volkswagen’s supervisory board consists of employee representatives. Decisions regarding production locations require the approval of two-thirds of the members.
The law stipulates that a two-thirds majority is required for the “construction and relocation of production facilities”, but does not refer to an actual closure.
This could give management leeway, while unions could argue that relocation would amount to closure, people familiar with the matter say.
Volkswagen shares rose 1.2% following Monday’s news that management would consider closures suggested the market supported Blume’s willingness to take on the task.
However, Kronenberger of Union Investment said a major rally was unlikely without signs of union involvement.
Its management structure “paralyzes VW, makes it ‘ungovernable’ and destroys it,” says Ferdinand Dudenhöffer, head of the CAR think tank at the University of Duisburg-Essen.
“That’s why we’ve been experiencing VW crises for 40 years, including today.”
(1 US dollar = 0.9047 euros)
(Reporting by Victoria Waldersee, Ilona Wissenbach, Christoph Steitz and Christina Amann; editing by Miranda Murray and Jason Neely)
