For as long as I can remember, and my memory goes back to the early 1970s when I first got involved in labour relations in Ireland as a young, naive trade union official, Volkswagen (VW) was always the headline setter. Not just in Germany, but across Europe.
The company had a unique governance structure with worker representatives having a real say in decision-making, and it was the company where headline pay deals were negotiated and working hours were cut.
As Ferner and Hyman put it in their 1992 book, Industrial Relations in the New Europe:
A very high union density rate among blue-and white collar workers, and the close collaboration between the union and the works council, allows IG Metall to use Volkswagen to pioneer socially progressive policies.
VW was the engine that pulled the European labour relations train. IG Metall was able to build out from VW to make German engineering workers among the best paid in the world, with working conditions par excellent.
Context is important. Union power in VW, and elsewhere in Europe, was built within protected markets, first Germany, and then Europe. Sectoral bargaining dominated, taking “wages out of competition” as the saying went, though VW always stood outside the sectoral bargaining system and negotiated its own deals, as Ferner and Hyman note.
Unions have power when employers have nowhere else to go and are forced to stay within national borders. Union power is local power.
But once they do have somewhere else to go, the balance changes, though it can take time for that to become clear.
Globalisation
It has been my view for a long time that one of the most important moments in European labour relations was the night the Berlin Wall fell in 1989. Clearly, the fall of the Wall and the ending of the Soviet Empire in Central and Eastern Europe was about the return of freedom and democracy to those countries that had been subject to Soviet tyranny for too long. The democratic backsliding that is now happening in some countries, such as Hungary and Slovakia, is a cause for concern.
After the fall of the Wall, European employers soon realised that they could now move production to more cost-effective locations on their doorstep. The entry of the newly liberated countries of C+E Europe into the European Union made that all the easier. Borders were dissolving.
This was the point when the labour relations balance changed, and the already slow decline in union density in Western Europe accelerated.
At around the same time, China decided to re-enter the global manufacturing and trading system. China became the land of the chequebook, rather than the little red book made famous by Mao.
Advances in computer and communications technology, which saw their costs reduced dramatically, made global value chains manageable. You could run a supply chain from anywhere in the world in real-time.
What we have come to call “globalisation” became the reality. China was soon the new “manufacturing workshop of the world”. Work that might previously have been done in Europe or the US was now done in China. But China was also on its way to becoming the biggest consumer market in the world. European car companies, and luxury brands, saw their opportunities to sell to the new, emerging Chinese middle and upper classes.
It was only a matter of time before Chinese industry moved up the value chain and Chinese entrepreneurs developed technologies and products that could compete with the best the US and Europe had to offer. And then outcompete them with better value and lower price products.
This is where we are when it comes to EV cars today.
Numbers
I came across an interesting figure in the Financial Times comparing VW with Toyota. “Last year, the German group sold 9.4mn vehicles, slightly higher than Toyota’s 8.8mn. But it took 684,000 workers for VW to do that against just 375,000 at the Japanese manufacturer.” This suggests that it takes about 2 workers at VW to do what 1 does at Toyota.
However, a word of caution about these numbers. It could be that VW directly employs a lot of workers, such as cleaners, security guards, caterers, and others that Toyota outsources. You would need this data to be able to make an accurate headcount comparison. Even allowing for this, 2:1 does seem somewhat lopsided.
VW management is now looking to close 3 plants in Germany, cut 10,000 jobs, and reduce pay by 10%. At the same time, IG Metall is pushing for an industry pay hike of 7%. It the plant closures go ahead it will be the first time VW has ever shuttered a plant in Germany and a Rubicon will have been crossed.
VW has already taken one step toward shutting down plants. Its Audi facility in Brussels is to stop production next February. 3,000 direct jobs will go, and many more in the supply chain. Talks on the severance package are under way and what is agreed in Brussels will be watched closely in Germany.
Never a “normal company”
VW has never been a “normal” company. Founded by the Nazis in 1937, its name means “peoples’ car”. Seized by the Allies at the end of WWII it was returned to German ownership in the late 1940s and privatised in 1960. The government of Lower Saxony has 20 per cent of the voting rights. It also has two seats on the 20-strong supervisory board. When it comes to jobs, the two government directors tend to side with the 10 employee representatives also on the board, there as a result of Germany’s co-determination laws, giving them a majority.
The single-largest owner of Volkswagen's voting stock is the Porsche-Piëch family, which holds 53 per cent of the voting rights, while Qatar’s sovereign wealth fund controls 17 per cent.
VW has the capacity in Germany to make more cars that it can sell. It is also struggling with the transition from petrol to electrical propulsion.
For a long time, the German operation was, in effect, subsidised by the sale of cars in China. According to the Financial Times:
During the same period, (the past five years) the market share in China of the entire group has shrunk from 20 per cent to 14.5 per cent. A decade ago, Volkswagen cashed in €5.2bn per year in profit from its joint ventures in China. This had halved by 2023 to €2.6bn and is expected to fall by another 33 per cent this year.
Not only are European manufacturers losing market share in China, but Chinese auto producers are building up their stake in the European market with cheaper and more reliable EV cars. The EU has just imposed a tariff of 45% of Chinese-made cars, on top of an existing 10% rate.
Chinese manufacturers may look to base some production in Europe to get around these tariff barriers, but production is likely to be located in Central and Eastern Europe, where labour costs are lower, and unions are nowhere near as strong as in Western Europe. Before the fall of the Wall trade unions were very much part of the Communist Party apparatus of control which means that, even today, workers in C+E Europe look at unions with suspicion. All the funding from the European Union for so-called “capacity building” has not moved the dial on that in any noticeable way.
Daniela Cavallo, head of VW’s works council, has said her fight with management is “existential” for the group’s 296,000 German workers.
“Economic success and safeguarding employment are corporate goals that rank equally ... We are again seeing this fantasy to turn Volkswagen into a ‘normal’ company.”
Which is fair enough for a trade union leader to say. After all, they are there to protect the jobs and living standards of their members.
But what is management to do if you are making products that consumers do not want to buy? Keep making them? Or stop making them? If you stop, what do you do with the workers that are no longer needed?
A European response?
IndustriAll Europe, the union federation that groups together European engineering unions, sees what is happening at VW as symptomatic of what is happening to the auto industry in the EU.
Judith Kirton-Darling IndustriAll Europe General Secretary says that 13 million jobs are at stake.
Commission President Ursula von der Leyen needs to show she’s on the side of industrial workers by setting up an emergency task force to end this crisis and ensure European industry has a future. Workers cannot be the one footing the bill. If we are to prepare for the future, we cannot lose industrial capacity and skilled workers in the coming months – we need a moratorium on forced redundancies now.
Whether a Brussels task force can turn around the fortunes of the industry is a moot point. Certainly, money for training packages and job transition schemes can be put on the table. But in the end, it will always be down to manufacturers coming up with products at prices that will attract buyers. You can’t make people buy cars they do not want.
The harsh reality is that in a market economy, companies come and go. What is left of the once-powerful European coal and steel industries? Who these days remembers Nortel, Cable and Wireless, Marconi, Sun, Amdahl, Woolworth? Blockbusters, Pan AM?
Looking ahead
Events at VW will be watched closely over the coming months. If a union as strong as IG Metall cannot find creative solutions at a company like VW where workers’ representatives have a major say in corporate decision-making, then that will mark a very significant turning point in European labour relations.
Trade union strength in Europe has been on a long, slow, downward trajectory for well over 20 years. As old manufacturing and extractive sectors have declined, unions have not been able to break through into emerging industries, though their strength in the public sector remains formidable.
The unions see Article 4 of the EU’s Adequate Minimum Wage Directive which requires government action if collective bargaining coverage falls below 80% of the workforce. I’m not so sure it will deliver. Ultimately, collective bargaining has to be based on collective power. You must have the leverage to force the other party to sit down and talk to you and agree terms. Absent collective power, collective bargaining is little more than collective discussions.
The union and the works council in VW have collective power. But, sometimes, maybe even that is not enough if the market has turned against you.
Unions as we know them today have their roots in the factory, extractive, and transport systems of the Industrial Revolution. They came into existence at a particular time and place. There is no guarantee that they will be around forever. Look at all those Medieval trade guilds that disappeared as technology changed old ways of working.
To go back to the start of this piece. In the early 1970s, I think there were 16 sectoral trade union federations in Germany. Now there are just 3, IG Metall, IG Chemie, and Ver.di, along with a handful of small unions. In the UK, there are three major unions, Unite, Unison, and GMB. In Ireland, Siptu and Forsa dominate. Many once proud unions are gone.
There is no guarantee that those unions still standing will forever remain standing.
Or once great companies will continue to exist.