clock menu more-arrow no yes

Filed under:

Volkswagen will cut jobs in Germany

FRANKFURT, Germany — Volkswagen said Monday that it planned deep cuts in jobs in Germany, injecting a combustible element into a German election campaign already driven by fears about unemployment.

The company, Europe's largest carmaker and one of Germany's more important employers, did not disclose how many jobs would be affected, though analysts and news reports put the figure at 10,000.

"In view of global competitive pressure, we need far-reaching cost reductions in all areas," the Volkswagen chairman, Bernd Pischetsrieder, said at a meeting with workers at the company's flagship factory in Wolfsburg. "This also applies to labor costs."

Volkswagen's announcement came the morning after a televised debate between Chancellor Gerhard Schroeder and his conservative challenger, Angela Merkel, in which unemployment was the dominant topic.

Merkel assailed Schroeder for not cutting the ranks of Germany's jobless. Earlier this year, the number of people out of work rose to more than 5 million, a record in the years since World War II.

The cuts at Volkswagen are likely to further hobble Schroeder, whose Social Democratic Party is trailing the opposition Christian Democrats by a double-digit margin in the polls two weeks before the elections. "Germans have always voted for the party with the most competence in economic affairs," said Reinhard Schlinkert, the chairman of Dimap, a polling firm in Bonn.

Adding to the sting, Schroeder has close personal ties to Volkswagen, having sat on its supervisory board when he was premier of Lower Saxony, which is the company's largest shareholder.

Volkswagen executives said the timing of the announcement had been dictated not by politics, but by the need to make a decision by Sept. 26 about where to assemble a new compact sport utility vehicle.

Workers in Wolfsburg, a north German city that is also corporate headquarters, are eager for the job. But Volkswagen says that labor costs are lower at a plant in Palmela, Portugal. An internal strategy committee has recommended building the vehicle there; Volkswagen executives said Wolfsburg had one more chance to make its case.

The company warned that there were "several thousand" surplus employees at its German factories, particularly in Wolfsburg. Analysts viewed this as a negotiating tactic with the unions, which wield considerably more influence at Volkswagen than at other German carmakers.

Last September, Volkswagen and the largest union, IG Metall, signed a contract guaranteeing factory workers seven years of job security in return for accepting a 28-month freeze in wages.

Volkswagen's chief representative from labor on its supervisory board, Bernd Osterloh, said employees were willing to negotiate further on costs "because we know the difficult market conditions and the fierce competition."

The reductions announced Monday would be achieved through early retirements and buyouts, the company said. It said that the cuts would include white-collar jobs at headquarters.

"We'll see how tough they can be in negotiating with the unions," said Ferdinand Dudenhoeffer, director of the Center for Automotive Research in Gelsenkirchen. "They recognize now that the contract they signed last year was not very intelligent."

By locking in its workers at high salaries, he said, Volkswagen can reap cost savings only from new employees, which it can hire for less. But there are not enough of these at this point to lower costs substantially.

Keeping plants in Germany imposes a heavy burden. In a study, Dudenhoeffer calculated that the hourly cost of an autoworker in Germany was 33 euros ($41.37), compared with 23 euros in France. That amounts to an additional $1.88 billion a year in costs over Peugeot and Renault.

With sales lagging, Volkswagen's German factories are suffering from overcapacity. Dudenhoeffer suggested that it close one of its most troubled factories, in Brussels, Belgium, where the compact Golf is made, and move production to Wolfsburg, where it could be absorbed "overnight."

Company finances deteriorated sharply in the last year. In the United States, Volkswagen lost 1 billion euros ($1.25 billion) last year and expects to lose money in 2006. Worldwide, it earned $848 million in 2004 compared with some $3.6 billion in 2001.

Volkswagen's remedy is to reduce annual costs by more than $6 billion by 2008, which it says would help increase its net profit by some $5 billion. Wolfgang Bernhard, an aggressive former Chrysler executive recruited last year by Pischetsrieder as his No. 2, is leading that campaign.

While analysts applauded the latest proposed cutbacks — and Volkswagen's shares rose nearly 3 percent in Frankfurt — some said that even a reduction of 10,000 employees would not enable the company to achieve its profit goal.

For one thing, Volkswagen's plan to winnow its ranks through early retirement and other voluntary measures is more costly than layoffs and the savings take longer to reach the bottom line.

"It's simply impossible to fire people at Volkswagen," said Jens Schattner, an analyst at Dresdner Kleinwort Wasserstein.

Volkswagen would save $700 million if it reduced its payroll by 10,000 jobs, Schattner calculated. But labor costs accounted for only 17 percent of Volkswagen's automotive sales last year, while materials accounted for 73.7 percent.

"These are small steps," he said. "The big steps are on material costs — reducing the complexity of their cars and offering fewer features."