How German Labor Could Kill VW's Southern Expansion

Moneybox
A blog about business and economics.
Feb. 19 2014 9:23 AM

How German Labor Could Kill VW's Southern Expansion

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Das idle threat?

Photo by Sajjad Hussain/AFP/Getty Images

We had an interesting fight last week where the United Automobile Workers were trying to organize a Volkswagen plant in Chattanooga, Tenn., under unusually favorable conditions because VW corporate wasn't fighting the unionization effort. Nonetheless, the UAW was hardly uncontested—Republican politicians throughout the state argued that a union at the VW plant would kill the auto industry in Tennessee—and the workers narrowly rejected the union in a vote.

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This is probably an idle threat that isn't going to come to pass. But it's at least possible that it could. And there are three reasons for that.

  • The biggest is that the background conditions in Germany and the United States are quite different. German firms, by law, have boards of directors that represent both workers and shareholders. The price-to-book ratio of publicly traded Germany companies is systematically lower than in the United States for this reason. In America, in the long run the shareholders get there way. In Germany, the workforce is able to override shareholder perogatives at key times.
  • The second reason is unique to Volkswagen, namely that one of the largest shareholders in the company is the German state of Lower Saxony. So the board is split 50-50 between labor representatives and shareholder representatives. But one of the shareholder representatives is Stephan Weil, the minister-president (prime minister, basically) of Lower Saxony, and another is Olaf Lies, the minister of economic affairs and labor for Lower Saxony. Weil and Lies took office about a year ago, leading a coalition of Social Democrats and Greens after 10 years of center-right rule in the province.
  • The third reason is that in big picture German politics, the Social Democrats entered Angela Merkel's coalition in December. Andrea Nahles, the new labor minister, is a member of IG Metall—the same German union that represents Volkswagen's workers—and I know that American labor groups have for years been talking to her and other IG Metall players about the long-term threat to German labor posed by the possibility of using the United States as a platform for low-wage manufacturing.

All that said, it's long been the case that the management of German firms has been able to finesse these kind of tensions. German labor unions are ultimately accountable to German workers, not to American unions or American labor interests. Lots of companies, ranging from BMW to Deutsche Telekom (known in the U.S. as T-Mobile), have been able to practice union-friendly codetermination in Germany, and union-hostile American-style management in the United States of America. But a fired-up IG Metall plus a fired-up Social Democratic Party do currently have the objective leverage to force policy decisions on Volkswagen.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.