The VW savings model

Stefanie Müller. Correspondent. Wirschaftswoche

23 December 2003

For years, German carmaker Volkswagen has pioneered flexible labor organization. Its successful Auto 5000 project reincorporated unemployed workers as lowcost personnel within the enterprise.

VW revolutionized the industry when it introduced the four-day week with no loss of pay 10 years ago. “We won a lot of recognition for this, because it let us safeguard 20,000 jobs,” says the promoter of this model, personnel manager Peter Hartz. Hartz’s name is also on the job-market reform program of Germany’s red-green government. “A breathing factory” is how he now describes Volkswagen, operating in accordance with market demands and not as the shift timetables dictate.

This means sometimes switching from a four- to a six-day week, or at times even working only three days. According to the plan, in the future, those who work more should be younger employees, while older staff should work low overtime and enjoy more free hours. Employees, and the trade unions - which are still very powerful in Germany - all agree.

Hartz’s latest model is likewise a success. Since 2001, under the Auto 5000 scheme, VW has been taking on unemployed workers who earn 20 percent less than the standard Volkswagen wages. This has created 3,500 jobs. These workers do not receive the other usual extra benefits. Falling within the Auto 5000 plan is the current production of the Touran minivan in Wolfsburg, and the microbus production due to start shortly in Hanover. This will help produce a further 1,500 new jobs.

The concept was called Auto 5000 because workers earn a gross wage of 5,000 deutschemarks for a 35-hour week, while the company norm is the 29-hour week. To make this wage dumping possible, Volkswagen set up a new subsidiary, Auto 5000 GmbH, which operates within the company plant in Wolfsburg. The trade unions also agreed to the wage drop, because they believe that, ultimately, VW has the well-being of all – not just its own profit figures – in mind. The salary is still above the collective agreement wage and is sweetened by addition of a profit-sharing scheme. This will be established each year, in line with orders placed and revenues earned.

“Not only have we lightened the state’s load of social security payments, but we can also produce our cars more economically, which makes Volkswagen more competitive,” Hartz says. “We can thus maintain Germany’s position and create more jobs in the long term.” There are savings on both the wage bill and miscellaneous benefits. Not everything has been accepted by workers without some teeth-gnashing, but most still prefer a job to being unemployed.

The dream factory

That the VW offer is attractive, despite its shortcomings, is evident from the number of applicants. Personnel departments have already had 40,000 letters from, among others, engineers and skilled workers new to the industry, such as Katharina Butler, who sold insurance before coming to Auto 5000.

Things were chaotic at first, because most workers had to be trained. Some could not keep up with the demands of their jobs, and as a result, reject rate was high. Nevertheless, since then, the mood has been upbeat. “We have developed a team spirit and grown used to the conditions,” says Ms Butler. She reckons that there is greater worker participation on product development and manufacturing than elsewhere. And that, she believes, is what motivates them.

Industry experts and labor market reformers are already speaking of the “dream factory” Volkswagen has created. Hartz wonders if his pilot project can so easily – and, above all, rapidly – be transferred to other companies and sectors. “For many years, we have been heading down this road of flexibility and compromise with trade unions,” he says. “Our business philosophy has changed enormously and the process has cost us much sweat and tears.”

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