Labor Strife

Dieselgate's Next Victim

Torsten Oletzky-Horst Vennenbernd-dpa BUTTING
Over the past year, the divergent views of brand chief Herbert Diess (l) and works council head Bernd Osterloh (r) have grown increasingly apparent.
  • Why it matters

    Why it matters

    • With its financial house in disarray following last year’s emissions-rigging scandal, the Volkswagen brand is in desperate need of restructuring to bring down costs and usher in a more productive era.
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  • Facts

    Facts

    • BMW’s Herbert Diess was named CEO of the Volkswagen passenger cars brand in July of 2015.
    • Mr. Diess wants VW’s workforce to boost productivity by 10 percent – a target that has put thousands of jobs on the line.
    • The head of VW’s works council, Bernd Osterloh, has spoken out against the cost-cutting strategies favored by Mr. Diess.
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    Audio

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When Volkswagen’s top labor official took to the podium in Wolfsburg last week to address the carmaker’s future, more than 20,000 workers turned out to hear him speak. Bernd Osterloh called for constructive talks between his worker’s council and VW managers over how to do away with extra costs and outmoded structures.

“The guarantor of that for us is Matthias Müller, who will attend the discussions as the head of VW,” he said. Even more telling, however, was the name Mr. Osterloh did not mention: Herbert Diess, the real chief of the core Volkswagen brand. The 57-year-old was appointed to the role last year with one mandate – to push ahead with major reforms.

During his speech to workers on Wednesday, Mr. Osterloh said only that talks with the brand’s board had unfortunately not always been constructive. Yet considering his fraying relationship with Mr. Diess, that was putting it mildly.

Over the past year, the two men’s divergent views on what to do with Volkswagen have grown increasingly apparent. When Mr. Diess came on board in July last year, Mr. Osterloh praised his expert knowledge of cars. In turn, the new brand boss praised VW’s co-determination model – which allows labor representatives to engage in high-level decision-making – so long as both partners have the business’s best interests at heart.

“Diess was brought to Wolfsburg to expose VW’s weaknesses, not to bring peace to the company.”

BMW Labor Representative

In fact, co-determination was the reason Mr. Diess was blocked from the top job at his previous employer BMW in 2014. As a labor representative there put it: “Diess was brought to Wolfsburg to expose VW’s weaknesses, not to bring peace to the company.”

At BMW, Mr. Diess developed a reputation as an effective yet calculating reformer, a combination that helped him cut costs by €4 billion ($4.52 billion) over a five-year period. And though Mr. Osterloh brainstormed ways to save billions and jobs at VW, Mr. Diess is pursuing his own agenda.

During his first months at VW, the new brand chief held his own meetings on the subject of cost-cutting, and eventually word got back to Mr. Osterloh’s camp about scenarios to downsize. “The works council is being purposefully excluded,” Mr. Osterloh said in December. “The management unilaterally announced baseless budget cuts.”

Mr. Diess responded by inviting Mr. Osterloh to his next roundtable, prompting the works council chief to change his tone and praise the brand leadership for pursuing consultations that put all of the parties on equal footing, including VW’s labor arm.

 

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The purpose of those talks: to develop strategies aimed at making VW a leader in electric vehicles and digital technology. Mr. Osterloh is hoping that the carmaker’s pivot to e-cars will create new jobs to offset downsizing in Volkswagen’s combustion engine business.

Mr. Diess, however, is looking to make more immediate changes. He wants to cut thousands of jobs, including one in 10 administrative positions. Sources close to the company said the brand boss may try to outsource production of certain parts, which could put entire plants in jeopardy.

One of Volkswagen’s shareholders, London-based hedge fund TCI, has also called for deep job cuts.” Ben Walker, a partner at TCI, told Reuters on Wednesday the company could cut about 30,000 jobs over the next two years by not replacing employees who leave.

The differences between Mr. Osterloh and Mr. Diess over jobs have reignited their feud  since their joint meeting. And though there is support for change at VW, particularly after last year’s emissions-rigging revelations, critics accuse Mr. Diess of failing to communicate his ideas effectively, even to his own managers.

The damage done to VW in the aftermath of its Dieselgate scandal has increased pressure for major reforms. Last September, the company admitted that it had manipulated some 11 million diesel vehicles worldwide, allowing them to cheat on emissions tests.

While Mr. Osterloh has praised Mr. Diess for tackling the right problems at VW, others have found fault with his execution. His overhaul of the chain of command was one example. Whereas development, production and distribution previously operated as separate departments, Mr. Diess reorganized the system according to car model.

“For the proud developers especially, this is difficult to accept,” an engineer told Handelsblatt. While it was a necessary step, the source said, Mr. Diess gave managers three months to rework their hierarchies – too little, by some accounts.

The brand boss’s critics have taken their complaints to Mr. Osterloh, who has accused Mr. Diess of trying to undertake too many reforms at once without managing outcomes. Mr. Diess’s supporters allege that Mr. Osterloh’s camp is stuck in the past, with one source telling Handelsblatt: “The works council still thinks that it can take evolutionary steps to adapt to the new times.”

The brand boss’s critics have taken their complaints to Mr. Osterloh, who has accused Mr. Diess of trying to undertake too many reforms at once without managing outcomes.

While Toyota, for instance, has been able to improve flexibility in both development and production year on year, VW has become less efficient compared to its competitors – a flaw that was initially concealed by the impressive growth of its business. Today, the carmaker has already set aside €17 billion from 2015’s balance sheet to cover Dieselgate costs.

Nearly 600,000 VW cars with rigged engines were sold in the United States, where VW has been hammering out a deal with regulators from the Environmental Protection Agency and other authorities. U.S. Judge Charles Breyer has set a June 21 deadline for the two sides to negotiate the details of a settlement. Their next closed-door session is scheduled for Thursday at a court in San Francisco.

Back in Wolfsburg, the next step is to develop a future plan for each plant, including an accounting of where things are produced and with how many workers. Those discussions appear unlikely to bring about a reconciliation between Mr. Diess and Mr. Osterloh. Far more likely, most observers seem to agree, is that the talks will keep the two men on their current collision course.

 

Martin Murphy is an editor with Handelsblatt and specializes in the automotive, defence and steel industries. Markus Fasse covers the aviation and automobile industry. Christian Schnell covers the auto industry in Germany. To contact the authors: murphy@handelsblatt.comfasse@handelsblatt.com and schnell@handelsblatt.com

 

 

 

 

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