Analysis-From peacemaker to taboo breaker, VW boss Blume takes on unions By Reuters

By Victoria Waldersee, Ilona Wissenbach and Christoph Steitz

BERLIN/FRANKFURT (Reuters) – Volkswagen ( ETR: ) chief Oliver Blume, already struggling with falling demand for electric cars and Chinese rivals, must now put aside his mantle of team player to tackle yet another tough opponent, Germany’s powerful trade unions.

The pressure on Europe’s biggest carmaker was highlighted this week when Volkswagen revealed that it not only plans to scrap a 30-year-old job security scheme, but is also considering closing factories in Germany.

Moritz Kronenberger, portfolio manager at Volkswagen shareholder Union Investment, calls them the company’s “two holy cows”.

By taking them on, Blume is setting a collision course with one of Germany’s most powerful stakeholder groups, the IG Metall union, whose main goal is to protect jobs and construction sites and protect favorable working conditions in the largest economy of Europe.

VW works council chief Daniela Cavallo said unions would “fiercely resist” the plans, ruling out any factory closures on her watch. She said a staff meeting on Wednesday, where management would confront workers, would be “very uncomfortable”.

Volkswagen has not closed a plant since 1988, when it closed its Westmoreland site in Pennsylvania. In July, it said it may close an Audi factory in Brussels, citing a sharp drop in demand for high-end electric cars.

HIGH COSTS IN GERMANY

The problem: German industry is lagging behind global competition due to high energy and labor costs, forcing some of its best-known companies, including Thyssenkrupp ( ETR: ), to overhaul contracts with workers long considered sacrosanct.

Investors are taking note, Volkswagen shares have fallen by almost a third over the past five years, becoming the worst performer among major European carmakers.

The problem for Blume, 56, and the reason he has no choice but to take on IG Metall, is how thinly the expanding VW Group has spread itself amid growing competition, particularly from China.

It is behind schedule on a 10 billion euro ($11 billion) cost-cutting program at its namesake brand, while it must finance critical international projects, including a potential $5 billion investment in the U.S. vehicle maker Rivian Electric (NASDAQ: ) and a partnership with China’s Xpeng. (NYSE: ).

“If more investments are to be made, such as in Rivian and XPeng, those savings have to come from somewhere, and it seems that underutilized plants are no longer taboo, marking a massive cultural shift,” said Matthias Schmidt, a european car. market analyst.

“Decades of CEOs who have wanted to do something similar … will feel vindicated if Blume can make the move stick.”

Former Volkswagen bosses, including Herbert Diess and Bernd Pischetsrieder, failed in their attempts to make sweeping changes to the Wolfsburg-based carmaker as unions stood firm.

“UNGOVERNED”

Blume, who took over as group CEO in 2022, has maintained good relations with unions as well as the powerful Porsche and Piech families that control Volkswagen, a key requirement for navigating different stakeholder interests.

With the group for three decades, he is credited with implementing changes at the Porsche AG division he heads, usually avoiding major clashes with labor representatives.

“With Volkswagen, there’s always this tension between what’s necessary and what’s achievable, and that’s why we’ve gone down this road many times before,” said Bernstein’s Stephen Reitman, who has covered Volkswagen since the mid-2000s. 80.

“Oliver Blume is meant to be the peacemaker, he was meant to be … the one who could unite all the different constituencies,” he said, adding that the current situation suggests that approach isn’t necessarily working.

Volkswagen’s decades-old governance structure gives massive influence to the regional state of Lower Saxony, as well as the unions.

Lower Saxony retains a 20 percent voting share and can block key decisions after the company was placed in the hands of the federal government, which later sold its stake, and the state following World War II.

Labor representatives make up half of Volkswagen’s supervisory board, where decisions on production sites require two-thirds approval.

The relevant law states that a two-thirds majority is required for the “construction and relocation of production facilities”, without referring to the actual closure.

That could leave room for management to operate, while unions could argue that a relocation is similar in nature to a shutdown, according to people familiar with the matter.

The 1.2 percent rise in Volkswagen shares on Monday’s news that management would endure the closures suggests market support for Blume’s willingness to take on the task.

However, Union Investment’s Kronenberger said a bigger rally is unlikely without some indication that unions will play ball.

Its management structure is “crippling VW – making it ‘ungovernable’ and destroying it,” said Ferdinand Dudenhoeffer, head of the CAR think tank at the University of Duisburg-Essen.

“That’s why we see VW crises breaking out again and again for 40 years, as is the case now.”

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