VW starts talks to win worker backing for cutbacks

Christoph Rauwald and Birgit Jennen
Bloomberg News

Volkswagen AG’s top management is starting the difficult task of getting workers’ consent for the cutbacks it needs to emerge from the emissions crisis.

The two sides sought to present a unified front after a daylong board meeting in Wolfsburg, Germany, on Monday, saying they’re starting 10 days of talks. Chief Executive Officer Matthias Mueller and Bernd Osterloh, the powerful head of the works council, said Volkswagen will prioritize future products and technologies and strike a balance between savings and investments.

Mueller must walk a fine line as he tries to shake up the company while maintaining a functioning relationship with workers eager to protect their privilege and pay as well as politicians in Lower Saxony, Volkswagen’s home state, which owns a fifth of the carmaker. Even before the gathering, Osterloh had demanded that workers not bear the brunt of restructuring as Volkswagen puts investments and its stable of 300 models under review.

“In the present difficult situation we must jointly make decisions that factor in economics just as much as employment,” Mueller said in a statement late Monday. “I attach great importance to the views and experience of our works councils.”

The stakes are rising for Volkswagen to navigate through the scandal, which began in September with revelations about software designed to hoodwink pollution tests in 11 million diesel cars. As the meeting took place, Fitch Ratings lowered the company’s rating by two levels, joining Standard & Poor’s and Moody’s Investors Service in cutting VW’s creditworthiness. Volkswagen has said it needs to deepen savings and review its product portfolio to maintain financial flexibility, saying the money already set aside to cover the initial hit won’t suffice to service fines or compensate customers cheated on millions of cars.

“We are seeking shared decisions in the interest of the company, shareholders and employees,” Osterloh said.

Workers play a central role on German supervisory boards, making up half of the panel to ensure that employees voices are heard. Major shareholders and loyalists to the company constitute the other half, with the Porsche-Piech family and the Lower Saxony government holding key positions on the board.

Underscoring the urgent need for action, Fitch downgraded the carmaker’s credit rating Monday to BBB+ from A, saying the cut reflects “corporate governance, management and internal control issues.” The new rating puts Volkswagen at the third-lowest investment-grade scale. Standard & Poor’s and Moody’s both rate the carmaker one level higher.

“The latest findings unveiled by the company’s ongoing internal investigation are increasing the damage to Volkswagen’s image and reputation,” Fitch said in a statement. Volkswagen has said irregularities on carbon-dioxide emissions disclosed last week will add about 2 billion euros ($2.15 billion) in financial risk to the 6.7 billion euros it already set aside.

Volkswagen will need to perform significant engine repairs on 540,000 cars in Germany in a recall planned to start by early next year, according to the Federal Motor Transport Authority. In the U.S., the company said it would give owners of rigged diesel cars $1,000, split between a prepaid Visa card and dealership credits.