VW agrees to 8.5% pay hike, less than inflation

HAMBURG, Germany -- Metalworking union IG Metall said it had struck a wage deal with Volkswagen Group for the automaker's western German factories that will raise wages by 8.5 percent for about 125,000 workers.

The deal announced Wednesday would have been considered exceptionally generous until recently but is now below inflation, which was 11.6 percent last month in Germany, Europe's largest economy.

Under the two-year deal, workers will receive a 5.2 percent wage hike from June 2023 and an additional 3.3 percent from May 2024, as well as a lump-sum payment worth 3,000 euros ($3,093) after tax to help offset soaring inflation.

"In combination with political relief measures such as the electricity and gas price brakes as well as further one-off payments from the state, the result is an overall package that curbs the impact of inflation," IG Metall negotiator Thorsten Groeger said in a statement.

Unions across Germany and Europe are demanding higher pay to give workers relief from record inflation, but employers are resisting, citing rising material and energy costs.

In Italy, unions representing workers at automakers including Stellantis and Iveco requested an 8.4 percent pay rise, which the companies described as "heavy."

Daimler Truck said earlier this month unions were asking for an 8% increase but that others in the industry were offering 6-6.5 percent, and that it would offer somewhere in between.

Holger Schmieding, chief economist at Berenberg Bank, saw the Volkswagen deal as "overall a bit high" but saw no risk of a "wage price spiral -- it's more of a hump," he said.

IG Metall, which is Germany's largest trade union, had initially demanded an 8 percent wage increase over 12 months for the workers at six German VW plants as well as at subsidiaries including Financial Services.

The agreement at VW is similar to an earlier agreement for the wider metal engineering industry in Europe's biggest economy.

IG Metall this month agreed to a below-inflation pay hike that set the benchmark for 3.9 million metal and electrical sector workers across Germany, in a deal that pointed to containable wage pressures in the broader euro zone.