Volkswagen is in crisis and needs to cut costs. But VW functions differently from any other carmaker in the world because it's not just management calling the shots, but also workers.
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00:00These are my parents on their wedding day in a Volkswagen Golf.
00:06And Arthur, my childhood dog, riding his Volkswagen Beetle.
00:10And this is me in my first car, also a Beetle.
00:14Here in Germany, Volkswagen has been a part of everyday life for families like mine.
00:19And a pillar for the economy.
00:22It's been the dominant car brand for decades.
00:27But now it's desperate.
00:30Its market value has plummeted to lows last seen after the 2008 financial crisis and the
00:36dieselgate scandal.
00:40Volkswagen needs to cut costs.
00:42And its management has been pushing for plant closures in its German heartland.
00:47But VW functions differently from any other car company in the world.
00:51It's also workers who call the shots.
01:07Until now, VW had been locked in a stalemate.
01:11They have tried over years to become leaner and more efficient, but the unions have stepped
01:18in and prevented those job cuts.
01:21After the longest collective bargaining in VW's history, unions and management came
01:26to an agreement.
01:28Volkswagen is cutting jobs, but leaving its plants in Germany open.
01:32But the question that remains, is this a sustainable path for the future?
01:38Experts are sceptical.
01:39This is maybe the final attempt to revive the old model without really going where it's
01:50very painful, without really thinking about, are our models still correct?
01:54Is our production still correct?
01:56Or should we rather go for abrupt but more painful change?
02:02VW's fate could seal Germany's future as a car nation.
02:06Coming up on this episode of Business Beyond.
02:11Before we keep going, let's get something confusing out of the way first.
02:15There are two types of Volkswagen.
02:18There's the Volkswagen Group, which is a conglomerate that owns 10 different car and
02:22truck brands.
02:23But in this explainer, we will be mainly focusing on the Volkswagen brand.
02:29So the maker of these cars.
02:34Volkswagen is one of the forces that turned Germany into Europe's industrial heart.
02:39The carmaker has 10 factories across the country.
02:43Almost half of VW's global workforce is employed here.
02:49Volkswagen is a highly symbolic company for Germany.
02:53It represents the car industry.
02:55The car industry stands for 15% roughly of value added within the industrial sector,
03:01which is roughly 25% of German GDP.
03:05Right now, Volkswagen is facing a crisis on multiple fronts.
03:09The brand is struggling with profitability.
03:12It's lagging far behind its target.
03:16The European market is underperforming.
03:18China is shrinking for foreign brands.
03:22And the electric vehicle uptake is taking far longer than people expected.
03:26Most companies will say, OK, we need to cut plants.
03:28We've got far too many employees.
03:30We've got far too many production plants.
03:32People are sitting around on their hands not doing anything.
03:36And that's what VW management did.
03:38In September, it nixed a decades-old job guarantee for its German workers
03:42and for the first time in its 87-year history,
03:46planned on closing factories in Germany, according to the Works Council.
03:51The announcement prompted the biggest strikes in the carmaker's history.
03:55But at Volkswagen, it's not that simple.
03:58VW functions differently from all of its rivals.
04:01It's not just management that has the final say here.
04:05In accordance with a law written just for VW,
04:08regional government has voting powers in the company's decisions.
04:12Most of the time, they ally with workers' interests
04:16and at odds with investors.
04:18The state of Lower Saxony has two seats on VW's supervisory board.
04:22Those, along with the 10 seats given to the labor side,
04:25mean workers' interests have a majority.
04:29Today, VW workers have some of the strongest organized labor power in the world.
04:34Works Council leader Daniela Cavallo has been called
04:37the second most influential person in the company after the CEO.
04:41Now, she helped prevent the first-ever VW plant closures in Germany.
04:47So, how did we get here?
04:501930s Germany, the country was far from being the order nation it is today.
04:56Just half a million cars were driving on its roads.
04:59France had three times as many.
05:02When Adolf Hitler seized power, he set out to change that.
05:06He hired engineer Ferdinand Porsche to come up with a car affordable for most people.
05:16But Hitler's car plants needed a car plant.
05:19And money.
05:20To finance the construction of the first VW plant in Germany,
05:24he turned to workers' wallets.
05:27The Nazis had confiscated all workers' union offices,
05:31uniting them under the German Labor Front.
05:34The expropriated union funds collected by the German Labor Front
05:38were used as the starting capital for Volkswagen.
05:4150 million Reichsmark.
05:44But as the Second World War started,
05:46weapons, not cars, rolled off the VW factory floors.
05:51A look at Volkswagen's history reveals a company built on extorting its workers.
05:56From stolen union funds to forced labor.
05:59When the Second World War ground to a halt,
06:02British allies took control of the plant.
06:05Again, workers played a decisive role.
06:08They cleared the factories of rubble and recycled the waste.
06:12But the workers' union funds were not enough.
06:15Again, workers played a decisive role.
06:17They cleared the factories of rubble and restarted production.
06:23Quickly, the carmaker turned into the symbol of Germany's post-war economic miracle.
06:28The Volkswagen, literally translated to people's car,
06:32became known as affordable and reliable.
06:36By 1955, VW had produced its one millionth Beetle.
06:40The car was being exported to almost 100 countries around the world.
07:01Business was booming and VW was hiring.
07:04Perks were meant to lure in more workers.
07:08Like higher wages and sick pay.
07:10Not a given in Germany at the time.
07:12Volkswagen became synonymous with safety and prosperity.
07:20But one question remained.
07:22Who owned Volkswagen?
07:25Until now, the German government had acted as an interim trustee.
07:29But in 1961, VW went public, becoming Germany's biggest company.
07:34In the same year, the VW law was passed.
07:37It was meant to protect the carmaker against outside influence.
07:41Like this.
07:43And it did so by mandating that no shareholder can have more than 20% of voting rights,
07:48no matter how much of the company they own.
07:52Many VW workers bought shares at a discounted rate.
07:55And the German state of Lower Saxony became one of Volkswagen's biggest shareholders,
08:00giving it 20% of voting rights.
08:03So both the state and workers became ingrained in the new VW structure.
08:11This is Hans Wilhelmi, the Minister of Economy at the time.
08:23The founding families, the Porsche Piechs, eventually became the largest shareholder.
08:29So, based on its complicated history, Volkswagen created its very own brand of capitalism.
08:35A hybrid between state-run and family-owned, with special protection for its workers.
08:42Since the VW law was passed, the need for management-worker consensus has been a fixture.
08:48And so have above-average wages.
08:51At 15.4%, Volkswagen spends more on labour than all of its competitors.
08:59They're earning much more than all the other workers around in this country.
09:06Even they're earning more than someone working for Daimler, Mercedes or BMW.
09:14During good times, it's a deal that worked.
09:17In 2011, Volkswagen Group raked in record profits.
09:21And as the company did well, it's not just shareholders who benefited.
09:25Workers did, too. Wages rose.
09:30But now, Volkswagen is struggling on multiple fronts.
09:34And its unique form of capitalism has been put to the test.
09:37Take electric vehicles, for example.
09:42This is its plant in Zwickau, in the east of Germany.
09:46In 2019, the production of combustion engine cars here was turned on its head.
09:51Now, only electric vehicles roll off the assembly line.
09:55The workers at the plant were retained and retrained.
10:14To produce the software for its EVs,
10:17Volkswagen spent billions on an in-house software maker, Carriot, headquartered in Germany.
10:23But VW's plans haven't worked out.
10:26In Zwickau, there's too little work for the 10,000 employees.
10:30Instead of three shifts a day, workers here are currently only putting in two.
10:46But low demand isn't the only problem.
10:50VW's electric cars are pricey.
10:52The ID.3 is the cheapest model, but it still costs more than many of its European competitors.
10:58Just as cheap Chinese cars are rolling onto the European market.
11:20And sometimes it costs five or six times as much.
11:24On top of that, VW's electric cars have become infamous for software glitches.
11:30You get to the car, the keyless entry doesn't work, the car doesn't unlock.
11:34You have to use the key to unlock it, which still works.
11:38And the app doesn't work.
11:46Jens Dralle's job is testing cars.
11:49So if that is just black, then you can't control the major functions of the car.
11:55So this is the major issue.
11:57A look at VW's factory in Zwickau shows the car maker needs to reform.
12:02To turn its software struggles around, Volkswagen recently spent five billion dollars
12:07outsourcing its software production to Rivian, an American company.
12:13But when it comes to the money VW spends on its workers, drastic changes aren't in its DNA.
12:20After 70 hours of negotiations, Volkswagen management and workers found a way forward
12:26without shutting factories.
12:43Volkswagen is still cutting jobs, 35,000 in the next five years.
12:49But those cuts are meant to happen without terminations, through early retirements, for example.
12:55VW has also put its workers on leave,
12:58so that they don't have to work in the factories anymore.
13:01But that's not the end of the story.
13:03It's the beginning of a new era.
13:06Cuts are meant to happen without terminations, through early retirements, for example.
13:11VW has also put its job protection scheme back in place.
13:15This is a very mild outcome, at least in the shorter run,
13:20and clearly therefore positive for Volkswagen employees.
13:24Employees like Torsten Donnermeyer, who has worked at VW's factory in Kassel for 40 years.
13:31It's a bit like this. It's also our factory.
13:35You can tell by the history that it's also our factory.
13:39And we won't let it collapse.
13:45The new agreement includes other changes.
13:47For example, Volkswagen's EVs will no longer be produced in Zwickau.
13:51But experts are sceptical.
13:54When you look at the agreement, it indeed looks more like a short-term fix.
14:00And I think you can have a lot of question marks behind the question
14:04of whether this is sufficient to really bring Volkswagen back on track.
14:10What this agreement does is it will reduce the cost position for Volkswagen,
14:17but not with a sledgehammer, not appropriately, but more gradually.
14:22Volkswagen's deal to protect its workers stays true to its history.
14:27Some say it is not staying true to the economic future of the country.
14:31What we observe in the car industry is a process where increasingly car production,
14:36so the physical assembly of cars, takes place in other countries more than in Germany,
14:42whereas Germany focuses more on research and development
14:47and everything related to services within the industry.
14:50I think this trend will continue.
14:53And one of the implications is that Volkswagen will not be able to maintain
14:57all its production plants in Germany.
15:00While the standoff between management and workers is over for now,
15:04pressure for Volkswagen to reform will likely last.
15:22For more UN videos visit www.un.org