Will German Labor Be The First To Blink?

Porsche, the luxury sports-car maker, has fought hard for three years to slash large losses, with measures from layoffs to lean production. Now, with sales up 23%, to $790 million in the first half of fiscal 1995, CEO Wendelin Wiedeking told the company's Jan. 27 annual meeting that breakeven is within sight. But three days later, workers at Porsche plants near Stuttgart walked off the job for half an hour.

It's showdown time in labor negotiations in Germany. The guerrilla-style "warning strikes" against Porsche and dozens of other industrial companies are a tactic by Germany's largest labor union, IG Metall, to back its demands for 6% wage hikes, shorter work weeks, and extra Christmas bonuses for its 3 million members. But though IG Metall officials are talking tough, companies seem well positioned to resist. Labor-market analysts expect them to hold wage increases to around 3%, just a smidgen above the current inflation rate.

TIGHT SQUEEZE. That's crucial for Germany's recovery. Led by exports, the economy appears headed for a solid 3% growth in gross domestic product this year. But hefty wage raises now would prompt the Bundesbank to hike its 4.5% discount rate, putting the economic upswing in danger. Contract negotiations this year for an additional 7 million workers will be patterned on IG Metall's.

Union leaders are in a squeeze. They need to sound militant to workers in order to gain recruits. Since 1991, the 16 big unions grouped in the Deutscher Gewerkschaftsbund (DGB) have lost 17% of their total membership. But union officials also know that overblown wage demands will price more jobs out of existence. With unemployment now 3.6 million, or 9.9% of the workforce, that's a powerful motive for labor moderation.

A lot of union taboos are dropping. In Jan. 25 discussions with employer and government representatives, DGB leader Dieter Schulte offered major concessions. He was ready, for instance, to talk about four-day weeks at lower pay and Saturday work without overtime premiums--a pattern set by Volkswagen. But employers are unwilling to give the job guarantees that unions want.

While trying to sound combative to their rank and file, union leaders are arguing to employers that their demands are modest compared with workers' real income losses over the past three years, including bigger social-security and income-tax bites.

Employers feel just as overburdened. They will fight hard to hang on to the double-digit gains in productivity they made last year. At stake for companies such as Porsche is the payoff from restructuring undertaken to survive in world markets. Insists Heinrich von Pierer, CEO of electronics giant Siemens: "We cannot pass on [as wage hikes] the full amount of productivity increases."

Amidst fierce global competition, the costly German mark, up 14% against the dollar since the end of 1993, is a severe price handicap for German producers. "In many ways, Germany remains a highly uncompetitive place," warns London-based Morgan Stanley & Co. economist Brian V. Mullaney.

That worry is keeping a rein on German union demands as the economy turns up. Labor's restraint is leaving room for employers, particularly companies producing for export, to earn higher profits. It is Germany's best hope for success in its competitive makeover.