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Volkswagen Atlantic

The following article is from our 2005 issue.

The VW System a Beating. Recent scandals the need for change. By Wolfgang

For years, Europe’s largest was run by managers and shop floor leaders acting in cahoots. slush funds, Brazilian and rivers of champagne lubricated cozy cooperation. Now public are investigating the strange happenings at The company needs a radical

The German public continues to be by new revelations of the high life by the VW trade union leaders. ranged from call to luxury vacations, and an unending of champagne — all on the company But that’s all changing. The once-powerful of the company’s union, Klaus resigned at the end of June. He was involved a dubious company seeking to do with Volkswagen.

Later, surfaced that Volkert a Brazilian mistress at company an accusation he denies. Initial indicate that the union revelries were financed to the of about ?700,000 funneled VW’s Human Resources over the last two years.

The scandal has also cost head of personnel his job. Hartz, best known as the architect of the government’s unpopular reforms, accepted responsibility for the of the union representatives and tendered his which was immediately accepted by the board.

Now a bitter power is raging in Europe’s largest concern, which includes the Audi, Skoda, Bentley and brands. Management, led by chairmen of the Bernd Pischetsrieder and Wolfgang responsible for the VW brand, hopes to advantage of the current weakened of employee representation to push urgently needed cost-cutting

Meanwhile, the influential engineering IG Metall, which also VW workers, is fighting to maintain its of power at VW and insisting on its right to recommendations for the Hartz succession.

The powerful IG Metall union 97 percent of Volkswagen’s employees as The company would be unable to without it, and so it affords union generous perks. Members of union had company cars and exemptions from work as a of course. Union representatives not on the council were also from work. At VW’s factory in Wolfsburg alone, two of those reps spent time lobbying for the union on time.

Time is of the essence. the last few years, the once company has lost ground to Volkswagen’s production costs are as as 40 percent higher than its with the result that its are more expensive and the company less. In 2004, Toyota a profit of about ?6,700 on car it sold, in comparison with ?315.

Things would be much without VW’s highly subsidiary Audi. On the VW brand the company actually lost per car sold, giving VW a meager 1.8 profit margin last Volks­wagen’s main rivals, the carmakers, are doing better trailing VW for years.

Volkswagen Atlantic

It’s now to light just how unprepared management has been for a crisis. compromises with the union on hours and wages now burden VW. who has been on the job since February, the brand is at a crossroads, with the and Korean manufacturers in the passing in the U.S. and on the attack in Europe. warned that if Volkswagen turn around in the next few it will crash like Motors, Fiat, Mitsubishi and

At a management conference at the beginning of Bernhard said, almost needs to change at VW.

Hartz benefited from the situation. allowed him to experiment with working-hour models, and as late as Hartz got a guarantee that of VW’s 106,000 workers in would be laid off before although experts estimated the workforce needed to be cut by at least That made Hartz among the workers and he returned the he received. Until shortly leaving the company, he continued to fundraising dinners for the chancellor and himself to become the figurehead for labor market reforms.

After Volkswagen and the popular VW became the symbol of Germany’s economic miracle, the era of Hartz and initially stood for a kind of democratic equilibrium between the of capital and of labor. But it ended in cronyism and lazy compromises now threaten the substance of the company.

this scandal spell the end of the VW In a cynical reference to East economic system of state-run factories, critics call Germany’s last people’s The question is whether it can be turned a normal company run on free lines. The workforce has lost confidence in the works council and the And so has the stock market. Since 25, when the first details of the emerged, VW stock has climbed, in the hope of a cultural revolution in

Yet Wolfgang Bernhard, the new great on the VW board, has already raised eyebrows. In mid-July, he announced he had a to save the company ?7 billion by But so far he has not released any details of how he wants to this. He said nothing closing factories or layoffs. The market responded with VW dropping 3 percent. Public appears as yet undecided whether the new man in will have what it to impose the necessary painful on the union. The VW system has been hit — but things aren’t yet.

— Wolfgang Glabus is a editor at the business magazine

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