VW Faces Union Chill Over Cutbacks in Test to Cozy Relations

  • Labor boss urged to cooperate after slamming executives
  • `New conflict lines are emerging' for management and workers

Fitch Downgrades VW Credit Rating Over Scandal

Volkswagen AG has long benefited from cozy relations between management and labor leaders, but those ties are coming under increasing strain as fallout from cheating on emissions tests accumulates.

Bernd Osterloh, VW’s top labor representative, has been urged to fall into line after he publicly criticized the company’s handling of the affair. At a board meeting on Monday, Osterloh was asked to be less confrontational in his relations with executives, according to two people familiar with the matter. 

Bernd Osterloh

Photographer: Krisztian Bocsi/Bloomberg

The labor-management relationship “was dependent on growth: As long as sales were rising, the workers could get their share relatively easily,” said Stefan Bratzel, Center of Automotive Management at the University of Applied Sciences in Bergisch Gladbach, Germany. In the aftermath of the scandal, “new conflict lines are emerging.”

Osterloh’s relations with other board members have been uneven in recent weeks. He praised Herbert Diess when he arrived from BMW AG in July to take over the Volkswagen brand and even went on a joint bike tour through the Wolfsburg factory. Then last week, Osterloh circulated a letter that was leaked to German newswire dpa, in which he slammed management for not inviting workers to discussions of cost reductions. At Monday’s board meeting, he agreed to joint talks on the issue.

The growing tension with Osterloh, one of 10 labor representatives on VW’s 20-person supervisory board, reflects mounting pressure on the company after revelations it misrepresented emissions of 11.8 million vehicles. Chief Executive Officer Matthias Mueller, who was appointed to succeed Martin Winterkorn in the wake of the scandal, needs labor’s consent to push through cost savings for the 12-brand group. But he can’t risk outright confrontation as he grapples with a financial impact that Fitch Ratings estimates could exceed 20 billion euros ($21 billion).

Volkswagen declined to comment. The works council didn’t return phone calls and e-mails seeking comment.

Labor leaders are unusually powerful at Volkswagen. In addition to controlling half the supervisory board seats as in other German companies, their rights are enshrined in a special law governing VW that gives them privileges such as an effective veto over plant closures. Their clout is extended by the political weight of more than 120,000 VW workers in the state of Lower Saxony, which owns 20 percent of the carmaker’s voting shares and has two board seats. 

That influence has helped VW workers secure generous benefits. The company in March agreed to a 3.4 percent pay increase and doled out a profit-sharing bonus of 5,900 euros per employee, higher than what was called for in its collective-bargaining agreement.

Osterloh, a gruff authority figure who has served on VW’s board since 2005 and has been considered a candidate to become the company’s personnel director, has been an outspoken critic of management, with his comments growing increasingly sharp over the past two months. In an Oct. 21 interview with dpa, he said VW has sacrificed investment for the sake of profit -- though he supported management’s policies for years and VW is among the biggest spenders in the auto industry.

Even with the rifts behind the scenes, the two sides sought to present a unified front following Monday’s board meeting in Wolfsburg, saying they’re starting 10 days of talks over investment and capacity planning. Afterward, Mueller and Osterloh issued a joint statement pledging to work together.

“In the present difficult situation we must jointly make decisions that factor in economics just as much as employment,” Mueller said in the statement. “I attach great importance to the views and experience of our works councils.”

“We are seeking shared decisions in the interest of the company, shareholders and employees,” Osterloh said in the same statement. “The challenges are enormous, but the workforce will stand behind the company.”

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