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 But at Volkswagen's main Wolfsburg plant earlier this year, workers
had to resort to handing metal sheets to robots working on the
E-Golf, said people who saw it happen.
The improvisation came after the electric model failed a simulated
U.S. crash test. Planners at the 76-year-old plant decided to
stiffen the frame of the car. But there was nowhere to put extra
robots on the crowded assembly line, they said.
The worker-robot dance that ensued is just one sign that all is not
well at Europe’s biggest carmaker.
Relations between management and workers at VW’s global headquarters
have deteriorated to a low last seen about a decade ago when VW cut
about 20,000 jobs in Germany.
Operating profit at the core VW brand is under pressure again,
tumbling by a third in the first half of this year, due to lower
sales, a weak dollar that translated into fewer euros, and spending
on technology, including VW’s ambitious MQB modular production
platform.
When Volkswagen launched MQB in 2012, the company looked almost
unstoppable. The system - meant to help VW become the biggest
carmaker in the world - is designed to allow VW to build a huge
variety of car sizes and shapes on a single production line,
increasing flexibility while slashing assembly costs.
But as the problems in Wolfsburg show, the platform can cause
serious difficulties in the wrong environment. Rather than making it
easy to build VW’s sprawling array of models, it has caused delays
and forced overtime on some assembly lines, say company sources and
production staff.
The MQB problems have been caused by or have fed – it depends on who
you talk to – increasingly tense relations between workers and
management.
Wolfsburg is a bastion of unionized labor. Together, the state of
Lower Saxony, which owns a fifth of VW’s voting shares, and labor
leaders have majority control of Volkswagen’s supervisory board, the
powerful body that appoints and dismisses members of the management.
Any important decisions, such as the building or shuttering of
plants, need a two-thirds majority on the board.
That makes restructuring particularly problematic.
Chief Executive Martin Winterkorn has announced cost cuts of 5
billion euros ($6.43 billion), details of which are due this autumn.
"We have a lot of catching-up to do with our core competitors. That
is why we must now take action that is clear, effective and
sometimes painful," Winterkorn told managers at a conference in
mid-July.
A week later, VW’s top labor representative Bernd Osterloh retorted
that any such move would be difficult and that "sparks will really
fly." In August, angry labor leaders forced VW to dismiss consulting
firm McKinsey, which managers had hired to evaluate possible cuts
without first consulting staff representatives.
Osterloh feared McKinsey would lead VW into another bout of job
cuts, according to a source familiar with the matter, instead of
reducing research and development spending, which has surged 80
percent since 2010.
His rare public attack on management signaled a serious rift in
relations between management and labor. A week after Osterloh’s
outburst, VW production chief Michael Macht resigned.
VW will now employ Porsche Consulting, a division of its sports-car
unit Porsche, to oversee the brand’s efficiency drive, according to
two people familiar with the matter. VW and Porsche declined to
comment.
MODULAR DISAPPOINTMENT
Wolfsburg can produce about 3,800 vehicles a day, more than any
other VW plant in the world. The company will not say how many are
actually being built there. But experts estimate the number is
slightly more than 2,000, of which two-thirds are Golfs and the rest
Tiguan compact SUVs and Touran family cars.
Backed by red-hot demand in emerging markets, the Volkswagen group -
brands include Audi, Porsche and Skoda – is selling almost 10
million vehicles a year, more than twice the amount when Winterkorn
took over seven years ago. Sales have been boosted 81 percent to
nearly 200 billion euros.
But that growth masks the core brand’s flagging profitability and
troubles in some overseas markets, such as the United States, Brazil
and India. The VW brand’s profit margin of 2.3 percent is less than
half its 6 percent long-term target.
"VW's size is turning into a curse," said Stefan Bratzel, head of
the Center of Automotive Management think-tank near Cologne. "Costs
are beginning to get out of hand, inefficiencies keep growing and
troubles are looming into focus around the world."
In the past, VW was able to offset high German labor costs with
economies of scale. MQB was designed to help with that. VW has said
that MQB can reduce material costs by 20 percent, yielding potential
annual cost savings of $19 billion by 2019, according to a Morgan
Stanley estimate. The number of cars based on the system should
quadruple to four million by 2016, VW said.
"The Volkswagen group is fully on track with the introduction of the
modular production strategy," VW wrote in an email to Reuters. "In
total, there is the prospect of more than 40 different group models.
So we are just at the beginning of this success story."
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But ongoing teething problems keep troubling production.
One problem: the body shells for the top-selling Golf hatchback,
which currently has 14 variants. Production has been disrupted at
Wolfsburg because versions such as the electric E-Golf and the
Sportsvan require different underbody fittings from the base model,
sources said.
VW suspended production of E-Golf models in August for fear that
hundreds of holiday staffers, filling in for trained workers during
the three-week summer vacation period, would struggle to cope,
company sources said.
As well, a faulty internet wireless network at Wolfsburg has caused
robots to malfunction, the sources said. One worker at the plant
said that too many automatic attempts by employees’ mobile phones to
access the network overwhelm it. Other problems include a tendency
of the system to stop if overheated in the summer.
Resulting delays, together with bad maintenance and other flaws, are
likely to cause output at VW’s key factory to remain below a planned
target of almost 850,000 cars, company sources said.
VW’s problems underscore a challenge faced by all German auto
makers.
"Carmakers once thought that automation could rescue Germany as a
location of industry," Mercedes-Benz production chief Markus
Schaefer told Reuters. "But with an individualized product like what
we're offering, automation is hitting its limits."
Schaefer believes car plants should not exceed about 400,000 units a
year. At Wolfsburg, VW is trying to build more than twice as many.
WORKERS UNITE
The power of VW’s unions is another hurdle.
The works council, the body granting workers a say in corporate
decisions, upped the ante recently by refusing to work some of the
Sunday shifts that had been agreed for the third quarter, saying
there was no point in working extra shifts when technical problems
were continually causing delays and production outages.
Many managers remember the fate of former VW CEO Bernd
Pischetsrieder and VW brand chief Wolfgang Bernhard, who were forced
out after labor rebellions put an end to a previous cost-cutting
drive in 2007.
The power of labor leaders to get rid of management at that time
derived from a deal struck more than a decade earlier, in 1994, when
the company gave job guarantees and promised further investment in
German plants in exchange for pay cuts and extended working hours –
a deal that at the time ensured VW's survival.
Twenty years on, that means it is labor leaders at Wolfsburg who
will largely determine the shape of cost cuts.
VW managers in other regions have begun openly blaming Wolfsburg for
the brand’s problems. VW’s U.S. chief Michael Horn said in January
that changes were needed in Wolfsburg.
An industry source said productivity at Wolfsburg is between 20 and
35 percent behind that of its premium brand Audi’s flagship
Ingolstadt plant.
Audi’s Finance Chief Axel Strotbek declined to comment on the gap,
but said Audi had experience with an earlier modular construction
platform and so had a headstart.
VW also declined to comment on the productivity gap and said it's on
course to solving the problems at Wolfsburg.
Workers, though, are bracing for more headaches.
Yet another Golf variant, a performance-focused plug-in hybrid model
called GTE, has been added to the crowded assembly lines this
summer.
Production of the Tiguan and Touran models will be switched to MQB
next year.
"Within such a big organization, it's fair to say that some people
were made complacent by years of good results," one company official
said. "The more turbulent times are back."
(Cremer and Schwartz reported from Wolfsburg, Taylor from Frankfurt;
Additional reporting by Georgina Prodhan; Edited by Simon Robinson)
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