Volkswagen Production Threatened as Pay Talks Snagged

Oct. 22, 2004; Bloomberg reported that Volkswagen AG, Europe's largest carmaker, faces production stoppages in November after the company and the IG Metall workers union failed to reach an agreement over planned cost cuts, job-security measures and pay raises.

Chances of averting temporary walkouts next month at Volkswagen's German plants are ``comparatively low,'' Hartmut Meine, IG Metall union's chief negotiator, said after more than 12 hours of contract talks in the western German city of Hanover.

Workers are resisting as Volkswagen, aiming to reverse seven consecutive quarters of declining profit, plans to cut costs 30 percent over the next seven years at its six western German plants. IG Metall, Germany's second-largest union, is allowed by law to stage warning strikes from midnight on Oct. 28, when the next round of talks is scheduled, if no accord is reached by then.

``A day we started with confidence has ended in disappointment,'' Josef-Fidelis Senn, Volkswagen chief negotiator, told journalists. ``Our expectations shrank to a minimum during the talks.''

Shares of Wolfsburg, Germany-based Volkswagen fell as much as 3.2 percent to 33.77 euros and were down 2.2 percent at 34.15 euros as of 11:43 a.m. in Frankfurt. The stock has declined 23 percent this year, the third-worst performance on Germany's 30- member benchmark DAX index.

Chief Executive Officer Bernd Pischetsrieder, 56, said last month that a strike by workers in Germany may bring the automaker's production to a stop worldwide.

Investment, Job-Cut Threats

The carmaker is threatening to stop expanding production at its German factories without an agreement. Volkswagen said on Sept. 30 that it may cut as many as 30,000 jobs, or almost one- fifth of its German workforce.

Volkswagen is calling for a two-year pay freeze while IG Metall, which has scaled back its pay-increase demand from an initial call for a 4 percent raise, is seeking to preserve carmaking jobs for a decade.

The carmaker has never had a strike at its German operations, Pischetsrieder said last month. Volkswagen's workers in Mexico staged strikes three years ago and in August.

The company may say on Oct. 28 that third-quarter net income fell 13 percent to 188.5 million euros ($238 million), according to the median estimate of 10 analysts surveyed by Bloomberg News. The company has lost market share in its three largest markets of Europe, China and the U.S.

Forecast Scaled Back

Pischetsrieder in July cut the company's 2004 earnings target because of ``weak demand'' in the U.S., Germany and China. He plans to cut 4 billion euros in costs and cut 5,000 jobs by 2005 to boost profit.

IG Metall wants Volkswagen to guarantee jobs for the next 10 years for 103,000 workers at the carmaker's western German plants.

The union trimmed its pay demand to a 2.2 percent raise for 12 months and a 2.7 percent raise for the subsequent 14 months to match compensation levels agreed on earlier this year for metalworkers at other companies. IG Metall also would accept lower pay for all new hires and greater flexibility on working hours.

``The company is keeping to exaggerated demands,'' Meine told reporters. ``That's a clear escalation of the dispute.''

Volkswagen, which plans to reduce spending on labor by 30 percent through 2011, said IG Metall's proposals would inflict ``considerable'' costs on the carmaker. Volkswagen workers are paid about 11 percent more than other carmakers' employees in Germany, according to Senn.

Opel Strike

IG Metall's threat to stage a series of walkouts at Volkswagen lasting a few hour at a time comes a day after employees at Adam Opel AG, General Motors Corp.'s German unit, resumed work following a seven-day wildcat strike against the Detroit-based carmaker's job-cut plans in Europe.

Opel's plant in Bochum, Germany, shut down on Oct. 14, the day when General Motors said it intends to cut as many as 12,000 jobs in Europe, of which about 10,000 are to be eliminated at factories in Germany, the region's largest economy.

Volkswagen employs a total 177,000 people in Germany, including those at the luxury carmaker Audi in Ingolstadt, compared with the 167,000 workers at Siemens AG's German operations and the 104,000 people on DaimlerChrysler AG's Mercedes Car Group's German payroll as of the end of 2003.