Labor Dispute

Elon Musk vs. the Unions

Electric carmaker Tesla has had its wings clipped by unions in Germany. Source: Tesla [M]

Welcome to Germany, Elon Musk. This is not meant to be sarcastic. The founder of the electric carmaker Tesla is currently getting an intensive course in social market economics. After Tesla acquired automotive supplier Grohmann Engineering last fall, Mr. Musk traveled to the company’s headquarters in the far west of Germany. Addressing employees in the work cafeteria, he promised a bright future together.

But the works council and IG Metall, Germany’s most powerful union, want to talk about other things. They’re demanding collective wage agreements for Grohmann employees and worried about job stability, since the supplier is supposed to produce exclusively for Tesla from now on.

The German automotive industry is strong because of its works councils and the unions, not in spite of them.

You can only imagine how it went down recently when Mr. Musk sent a letter to employees complaining, “I do not believe IG Metall shares our mission.” The Tesla founder doesn’t want a union-based wage agreement, but he nonetheless is offering employees more money, a five-year guarantee of work and Tesla shares distributed over four years.

In reality, Tesla has the opportunity to learn something from Grohmann. The German automotive industry is strong because of its works councils and the unions, not in spite of them. It is often the case that employee representatives determine the long-term outlook for investment decisions.

Collective wage agreements prevent salary conflict on a company level, while Germany’s strict labor laws – that guarantee six weeks’ vacation and paid sick leave, among other things – bind employees closely to “their” company. This bond fosters the innovation processes that have kept the German automotive industry competitive for so long.

Tesla, like all of Silicon Valley, represents a more radical way of doing things. The German automotive segment would do well to assimilate some of this start-up spirit, especially if it doesn’t want to miss the switch to electric mobility. But the opposite is also true. To make Tesla a profitable company in the long-term, Mr. Musk should be interested in how things are done in Germany.


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