Don’t miss Orioles players, John Means & Paul Fry, as they guest host at our Brews and O’s event!

As recession grips Germany, VW is stuck in neutral Productivity sags at top automaker


Wolfsburg, Germany

Ortwin F. Witzel, an executive at Volkswagen AG, sounds like an Aesop of the auto industry when he delivers his moral: "Pessimistic people don't buy cars."

These days, economic pessimists abound in Germany, in Europe and throughout the world. Volkswagen sales have slumped dramatically.

"We are down 16.4 percent worldwide, down to 235,000 cars in January, against 281,000 in 1992," he says.

That slump has carried over to the United States, where Volkswagen sold just 4,800 cars in January -- a long way from the golden era when it sold 500,000 hump-backed Beetles annually.

But reasons for the sales slump go well beyond pessimism born of the recession. Jose Ignacio Lopez de Arriortua, a prized cost-cutter recruited last week from General Motors Corp., will confront a stumbling, flabby company as he takes his place as chief of Volkswagen's new division for production and purchasing.

Mr. Lopez's mandate covers the entire troubled Volkswagen Group, which includes Audi; Seat, made in Spain; and Skoda, made in the Czech Republic.

Although revenues climbed last year, heavy labor costs helped drive profits down to $88.3 million, from $669 million in 1991.

Last week, the company slashed its stock dividend. And with sales in Germany expected to drop 20 percent this year, Volkswagen plans to cut 36,000 jobs -- about 13 percent of its worldwide work force -- within five years.

Volkswagen remains the leading automaker in Europe, with the utilitarian Golf leading the way, and is fourth in the world behind GM, Ford Motor Co. and Toyota Motor Co. The company also is making inroads in other large countries -- it sells 100,000 cars annually in China, where it controls half the market.

But unless Mr. Lopez can boost productivity, Volkswagen's struggle is likely to continue.

Temporary shutdowns

At VW's 1,900-acre Wolfsburg plant, the world's largest automobile factory, production lines look downright leisurely these days. Workers take about a minute to press a completed dashboard into a Golf body.

The lines often run five times as fast, says a guide, Walter Fink. But with the 60,000-worker plant shut down Monday and Tuesday -- a common German tactic to avoid layoffs -- many workers have taken off the rest of the week. So there aren't enough people in the plant to allow the lines to run faster.

Wolfsburg normally produces 4,000 Golf and Vento cars during a two-shift day that starts at 5:30 a.m. and ends at 10:30 p.m. Lately, though, Wolfsburg has been turning out 3,000 to 3,500 cars a day.

Temporary shutdowns probably will continue through the second quarter if sales still lag, says Mr. Witzel, a company spokesman.

Volkswagen will shut down in Germany for 14 of the 66 working days in the first quarter. That means that 50,000 to 60,000 workers will stay home one, two or three days a week. Still, they will get about 95 percent of their pay through unemployment benefits and VW contract supplements, Mr. Witzel said.

"We hope to come through this recession reducing our work force in a social way," he says. "Which means we do not replace people leaving the company, we have early-retirement plans and we do short-time work when we have to meet lower demand. Layoffs or firing people are not part of our programs to reduce the work force."

Such policies help to explain why German labor costs are the highest in the world.

They average about $24 an hour in manufacturing. Slightly less than half the costs are benefits such as pensions, health care and worker's compensation.

U.S. workers get about $15.40 for the same package, according to German sources. That spread has led German automaker BMW to plan a plant in Spartanburg, S.C.

And the vaunted German productivity has been lagging behind that of the United States, Japan, France and Britain in the last decade.

For example, an internal Volkswagen study cited in the Frankfurter Rundschau newspaper showed the productivity of VW workers rose 3.7 percent in the late 1980s. At Renault, VW's French competitor, productivity rose 4.7 percent.

Germany once prided itself on making high-quality goods at high prices. But "Made in Germany" isn't so appealing in recessionary times, when price is the deciding factor for both consumers and manufacturers. Even Mercedes-Benz is making a smaller, down-market car.

Volkswagen shares some of the wider German problems. At VW's German plants, like Wolfsburg, building a car is estimated to cost 30 percent more than in Japan.

And the Volkswagen name doesn't carry quite the same punch when a car bought in Berlin -- or Wolfsburg for that matter -- may have an engine made in Mexico. Workers in Volkswagen's plant in Pamplona, Spain, are said to routinely have higher quality ratings than Wolfsburg's workers.

Mr. Lopez, who was credited with slicing $1 billion from GM's parts budget, may change all that.

Volkswagen reportedly will allow him to run a plant to be built in his native Spain along the lines of his own conception of high-efficiency production. His "Plateau Six" theory would cut the amount of labor to about half that required by Toyota, the model of efficiency.

And if he follows the strategy he employed at GM and previously at Opel, GM's European arm, he will force parts suppliers to give Volkswagen double-digit price cuts. That would mesh with Volkswagen's plan to link its various car models with a high percentage of common parts, as a way to achieve production flexibility and lower costs.

Grim forecast

Still, Volkswagen's base is the domestic market in Germany. And Germany is full of pessimists.

Economics minister Guenter Rexrodt says the nation's decline could be held to 1 percent of gross domestic product this year.

And he's an optimist. The Deutsche Bank's research unit in Frankfurt expects GDP to fall 2 percent.

Some good economic news appeared Thursday, when Germany's central bank trimmed a key interest rate half a point, to 7.5 percent. The cut, Mr. Rexrodt said, was an important policy signal to spark growth and end the downturn.

But most of the news is bad these days. Unemployment is running at 8.4 percent, the worst showing in nearly a decade, and industrial production is down.

The steel industry is in crisis -- Krupp closed a Ruhr Valley plant last week, putting 2,000 people out of work. The chemical industry reports losses. Every German automaker expects to sell fewer cars this year -- a grim forecast in a nation in which about one worker in six produces something for automakers.

Even the German Wirtschaftwunder, the postwar "economic miracle," is being derided. The definitive British weekly, the Economist, has dubbed it the "Wirtschaft-blunder."

Taken together, quite a challenge for Volkswagen -- and for the highly touted Mr. Lopez.

Copyright © 2019, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad