Volkswagen Crisis Tests German Economic Model

After losing access to affordable energy from Russia and grappling with growing uncertainty over its trade with China, Volkswagen and other German industries face a crucial test. The third vital component of Germany’s economic success, consensual industrial relations is now at risk.

Germany’s industries, the trade unions and political leadership have made bargains on labor and production for several decades hence the progress of the nation’s economy since the post war period. But, Volkswagen (VW) has signified it could close factories in Germany and thus it brings into equity whether this consensus retains in a competitive world economy.

“De-industrialization is taking place here in Germany,” added Daniela Cavallo, head of Volkswagen’s works council. There she insisted to do something in order to guarantee that “There will be industrial jobs in Germany in the future”.

While the manufacturing as a part of the total attitude has reduced from 32% to 27% over the last two decades, Germany still has a better proportionate employment as compared to most developed countries. According to reuters, of the 200000 Volkswagens employees 120000 are based in Germany.

Volkswagen Faces Tough Choices

Negotiations between unions and management are set to begin next week. They face significant challenges, including rising labor and energy costs and stiff competition from cheaper Asian manufacturers. With workers holding half the votes on Volkswagen’s supervisory board, forced closures may be difficult, yet management insists tough choices are needed.

“If further like this, will not be successful in the transformation,” Volkswagen’s Chief Financial Officer, Arno Antlitz said to Volkswagen’s employees. He underscored the fact that enhancing the economic prospects of the German plants was a collective endeavor.

Union leaders including IG Metall have suggested that factories can be effectively saved by putting forward a four day working week instead of closing factories. This idea is reminiscent of another scrapped effort of the 90s which was geared towards cost reduction. At the same time, the question of how the state fills the support of industries stays open. Olaf Lies, Lower Saxony’s Economy Minister, has supported the cause of 100% renewables petition and said that greater public investment is now needed.

Germany’s Chancellor Olaf Scholz and his coalition government under increasing pressure. In the view of Karsten Brezki, the global head of macroeconomics, of the banking giant ING, the Volkswagen(VW) debacle could well be the signal to beef up the economic policies before it is too late. Other major companies such as Thyssenkrupp and BASF are also starting to say that more restructuring may be required.