HAMBURG – Just after 9 p.m. on May 2, following months of speculation and hours of final arm-twisting, Bernd Pischetsrieder emerged from a conference room inside Hamburgs luxurious Atlantic Kempinski hotel with this much clear: His future as Volkswagen group chairman was secure.
The ramifications of his five-year contract extension were less obvious.
How much did Pischetsrieder give away to get the unanimous support of the 20-member supervisory board? And how will it affect VWs future restructuring efforts?
According to union and supervisory board sources, who spoke on the condition of anonymity, Pischetsrieders extension included the promise that the preservation of jobs in Germany would be just as important as company profitability.
His deal did not go through without concessions for labor in the restructuring, a supervisory board source said. This was a pure deal between the labor and the capital side.
The deal means Pischetsrieder, 58, personally will oversee the negotiations between the union and the company over the future of VWs components plants, sources said.
Most of the restructuring at the high-cost, high-labor parts plants will be delayed until the end of the year – at the earliest. And it is likely VW will not sell off its main engine and transmission production plants.
Keeping the components plants was a concession to the unions in order to justify other changes at VWs main factory in Wolfsburg, including the change to a 35-hour workweek, the same supervisory board source said.
For the past 12 years, VWs Wolfsburg employees have worked 28.8 hours a week.
Said Arndt Ellinghorst, an auto analyst at Dresdner Kleinwort Wasserstein in Frankfurt: It means the company will try to spin off some smaller units, but not the big engine business. The majority of the business will stay at VW.
If they try to sell off something major, the union will complain, Ellinghorst said. Thats not what the company needs.
Components plants that produce axles, transmissions and engines are VWs greatest drag. Unlike most European automakers, VW still makes 40 percent of its components. Selling the parts plants would have accounted
for nearly half of VWs previously announced 20,000 job cuts. German plants under consideration were Braunschweig, Salzgitter, and Kassel.
Behind the scenes, the final deal came about only after extensive arm-twisting within the supervisory board. In the final hours before Pischetsrieders contract became public, the dealing was fierce.
According to the union source, the supervisory board meeting at the Atlantic Kempinski hotel started nearly three hours later than anticipated so the unions could cut a deal with management.
The supervisory board split up into meetings of two separate groups – unions and management. The management side agreed to support Pischets-rieder. The unions insisted on a guarantee of job protection if they were going to provide unanimous support. Ultimately, the compromise on the components plants was reached.
The decision likely means a softening of the cuts VW brand Chairman Wolfgang Bernhard promised to make when he first accepted his position last spring.
And it could prevent VW from achieving its financial targets. Last month, VW reported its first-quarter profit rose to E327 million. VW plans to more than triple pretax profit to E5.1 billion by 2008.
Some analysts say those targets are unrealistic if components plants are not closed.
What the company is predicting is a historical peak in margins when they are at the trough in their product cycle, Ellinghorst said. That is something no company has achieved in this industry.
You may e-mail Jason Stein at [email protected]
– Henning Krogh and Felix Bauer contributed