Brainfood: Behind the spin

THE DILEMMA

by
Last Updated: 31 Aug 2010

The titillating hookers 'n' bribes scandal that engulfs VW is much more than just an embarrassing glitch in the firm's history - it has shaken the very way Germans do business. In June, allegations were made that VW had bribed its union leaders with holidays and prostitutes in return for co-operation over management decisions. Claims were also made that VW execs had accepted kickbacks. Helmut Schuster, personnel director of VW's Skoda unit, and Klaus Volkert, VW's works council chief, both quit.

Then Peter Hartz, VW head of personnel, resigned, denying everything yet accepting overall responsibility. Trade unionism in Germany remains powerful and the Mitbestimmung system - works councils made up of workers and managers - is enshrined in law as a pragmatic way of getting decisions through.

The furore revealed just how cosy it can get. Mitbestimmung may have worked in the '50s but is it right for today's global businesses?

THE SPIN

Things are so dire, there isn't any. Wolfgang Bernhard, ironically hired from flagging DaimlerChrysler to revive the VW brand, boldly told investors in July: 'There is nothing positive coming our way, there is no warm wind coming from behind, a cold wind is blowing in all our faces and this is how we see our immediate future.'

THE STRAIGHT TALK

VW has a lot to worry about. Although the latest scandal is embarrassing, a more pressing concern for the company is its finances. Last year, it lost EUR44 million, compared to the EUR3 billion it made in 2001. The carmaker has been hit by lacklustre sales, high production costs and a loss of focus. Cost-cutting remains difficult too - last year, VW agreed with union leaders that 100,000 German jobs would be guaranteed until 2011.

'If we can't survive here in Europe, then industrial Europe will not survive,' warned Bernhard.

THE VERDICT

Bernhard is focusing on the light at the end of the tunnel, no matter how faint it might be. 'We will leave no stone unturned ... and there will be no sacred cows,' he promises. He recently announced a EUR7 billion package of cuts and 'growth improvements' by 2008, and in August, VW announced a 5.2% rise in first-half pre-tax profits to EUR672 million. Whether Germany's consensual approach to labour relations lasts the course, however, is far more iffy. The VW scandal has political repercussions too - Hartz is a close adviser to Chancellor Schroeder, who is facing re-election later this month.

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