VW boss Oliver Blume takes on Germany's unions, threatens plant closures

BERLIN/FRANKFURT — Volkswagen boss Oliver Blume, already battling slowing demand for electric cars and Chinese rivals, must now put aside his mantle as team player to tackle yet another tough opponent, Germany’s powerful labour unions.

The pressure on Europe’s top carmaker was laid bare this week when Volkswagen disclosed it was not only planning to scrap a 30-year old job security scheme but weighing the closure of plants in Germany.

Moritz Kronenberger, portfolio manager at Volkswagen shareholder Union Investment, dubs these the company’s “two holy cows”.

By taking them on, Blume sets a collision course with one of Germany’s mightiest stakeholder groups, the IG Metall union, whose main goal is to protect jobs and sites and safeguard the favorable working conditions in Europe’s biggest economy.

VW works council head Daniela Cavallo said unions would “fiercely resist” the plans, ruling out any factory closures on her watch. She said a staff meeting on Wednesday, where management will face workers, would be “very uncomfortable”.

Volkswagen has not closed a plant since 1988 when it shut its Westmoreland site in Pennsylvania. In July it said it might close an Audi factory in Brussels citing a sharp drop in demand for high-end electric cars.

HIGH COSTS IN GERMANY

The problem: German industry is falling further behind global competition due to high energy and labour costs, forcing some of its most storied companies, including Thyssenkrupp, to review deals with workers long seen as sacrosanct.

Investors are taking note, with Volkswagen shares down by almost a third over the past five years, making it the worst performer among major European carmakers.

The problem for Blume, 56, and the reason he has little choice other than to square off with IG Metall, is how thinly spread the sprawling VW Group has become amid growing competition, most notably from China.

It is behind schedule on a 10 billion euro ($11 billion) cost-cutting programme at its namesake brand while needing to fund critical international projects, including a potential $5 billion investment in U.S. EV maker Rivian and a partnership with China’s Xpeng.

“If more investments, such as in Rivian and XPeng, want to be achieved, those savings need to come from somewhere, and it appears underutilised plants are no longer a taboo, marking a massive cultural change,” said Matthias Schmidt, a European auto markets analyst.

“Decades of CEOs who wanted to do something similar … will feel vindicated if Blume can make the move stick.”

Former Volkswagen bosses, including Herbert Diess and Bernd Pischetsrieder, failed in their attempts to make far-reaching changes to the Wolfsburg-based carmaker as the unions stood firm.

‘UNGOVERNABLE’

Blume, who took over as CEO of the group in 2022, has maintained good relations with the unions as well as with the powerful Porsche and Piech families that control Volkswagen, a key requirement to navigate different stakeholder interests.

With the group for three decades, he is credited with implementing change at the Porsche AG division he also heads while usually avoiding high-profile clashes with labour representatives.

“With Volkswagen, there’s always this tension between what’s needed and what is achievable, and so this is why we’ve been down this road many times before,” said Stephen Reitman of Bernstein, who has covered Volkswagen since the mid-80s.

“Oliver Blume is meant to be the peacemaker, was meant to be … the one who could bridge all the different constituencies,” he said, adding the current situation suggested that approach was not necessarily working.

Volkswagen’s decades-old governance structure hands massive influence to the regional state of Lower Saxony as well as labour unions.

Lower Saxony retains a 20% voting share and can block key decisions after the company was placed in the hands of the federal government, which later sold its stake, and the state, following World War Two.

Labour representatives make up half of Volkswagen’s supervisory board, where decisions about production sites require two-thirds approval.

The law on the matter specifies that the two-thirds majority is needed for the “construction and relocation of production facilities”, without referring to actual closure.

That could leave wiggle room for management, while unions could argue that a relocation is similar in nature to a closure, according to people familiar with the matter.

The 1.2% rise in Volkswagen shares on the news on Monday that management would countenance closures suggested market support for Blume’s willingness to take on the task.

Yet Union Investment’s Kronenberger said a bigger rally was unlikely without an indication that the unions will play ball.

Its leadership structure is “paralyzing VW — making it ‘ungovernable’ and destroying it”, said Ferdinand Dudenhoeffer, head of the CAR think tank at the University of Duisburg-Essen.

“That’s why we’ve been seeing VW crises erupting again and again for 40 years, just as is the case now.”