COMMENT: Reforms are long overdue

VW wage negotiations are crucial test

Franz W. Rother is Editor-in-Chief of Automobilwoche

Bernd Pischetsrieder is not the type of man to rant or rave. His decisions evolve from joint discussions, say colleagues past and present. That's why he gets along with unionists and large shareholders alike.

But is his laid back way of leadership -- which once led to his downfall during the debate over the future of the Rover brand -- condusive to solving problems that the VW group has been fighting with for more than 10 years now?

During the two years as head of the VW group, Pischetrieder tried, in his usual diplomatic style, to turn around some of the decisions made by his predecessor Ferdinand Piech. Now there seems to be a change in attitude with calculated attacks on the traditional Wolfsburg "consensus corporation."

He has no choice. The Group's profit fell by 50 percent during 2003 and decreased by a further third during the first half of 2004. Despite top quality products and an excellent image, VW has its back to the wall on almost all markets worldwide.

The reason for the downturn is that production at Volkswagen's German plants is too expensive and ineffective. Plans to balance the significant disadvantages over the Group's competitors through repositioning the core brand and adding a premium surcharge on all products has failed.

After pressure from international shareholders, the Group's board of directors is starting to sort out the structural problems.

The "5000 times 5000" project is paving the way. It was initiated by personnel director Peter Hartz in 2001 and is an innovative plan. There will be no more lucrative in-house contracts. Instead, there will be more performance-oriented wages, competitive unit labor costs and staff planning tailored to the company's needs.

The unions, however, still seem to have their heads in the sand. Their demand for a 4-percent wage increase and guaranteed jobs until 2011 is illusory and only proves that some people are still not aware of the seriousness of the situation.

If VW does not quickly reduce the cost disadvantages of its West German automobile plants -- it is up to 20 percent more expensive compared with East German locations, and up to 80 percent more expensive compared with plants in Eastern Europe and China -- Wolfsburg will, in 10 years, be no more than the group's head offices.

Klaus Volkert, head of the general works council, plans to focus on securing jobs during the forthcoming pay talks. He knows that a few bitter pills are still better than a slow death.

It is to be hoped that Pischetsrieder and his personnel director will show further courage and determination during the coming weeks and will stick to their aim of reducing personnel costs by 30 percent by 2011. They will face obstructionist tactics from the unions and attacks on the VW board of directors from the tabloids.

The hot topic this autumn is not only the largest German automobile group's future, but Germany's future as a manufacturing location. Reforms are long overdue.

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