Five key questions – and answers – about the threat to Volkswagen investment in the South

(Erik Schelzig/Associated Press, file)
(Erik Schelzig/Associated Press, file)

The head of Volkswagen’s company works council, Bernd Osterloh, recently threatened to withhold support for future Volkswagen investment in U.S. plants without works councils or in the American South. I asked Stephen Silvia, an associate professor at American University specializing in German labor relations, and the author of the recent book “Holding the Shop Together: German Industrial Relations in the Postwar Era,” to talk about the politics surrounding Osterloh’s statement.

HF: The head of Volkswagen’s works council has suggested that Volkswagen is unlikely to invest in plants that do not have local work councils, or that are located in the American South. What is Volkswagen’s works council, whom does it represent, and what kind of authority or influence does it have over major investment decisions, such as deciding where to locate new branches or plants?

SS: A works council is a body of employees elected by their peers at the workplace level. Works councils give employees limited say over big decisions that affect a workplace, such as mass layoffs or the introduction of new equipment. German companies with more than one workplace typically have a “general” works council, too, which is composed of representatives of each individual works council. Multinational German companies like Volkswagen typically have a third and fourth layer of works councils. European Union company law requires firms operating in more than one E.U. country to have employee bodies of “information and consultation,” which are informally known as European works councils. A few companies like Volkswagen, which also operate outside of Europe, voluntarily also have a global works council. The Chair of Volkswagen’s global works council, Bernd Osterloh, is also the head of VW’s German works council. Osterloh is a member of Volkswagen’s supervisory board. Volkswagen’s works councils do have a say over investment decisions. They can slow them down, but they can’t block them completely. It should also be noted that employee representatives occupy half of the seats on Volkswagen’s supervisory board. The board also must approve investment decisions. Companies go to great lengths to avoid having all of the employee representatives on the supervisory board vote against a management preference.

HF: How much do German workers at Volkswagen, and IG Metall, the trade union that looks after their interests, actually care about unionization in the United States?

SS: The German metalworkers union, IG Metall, took a particular interest in the Chattanooga organizing campaign because the recently retired Chair of IG Metall, Berthold Huber, had a strong relationship with UAW president Bob King. Most average German union members and employees would sympathize with workers in the United States, but have lives of their own to lead. The events in the United States would be distant to them. A few are aware that the United States is negotiating a free trade agreement with the European Union and have concerns about competition from relatively low-wage plants in the United States.

HF: What kinds of internal politics would you expect to happen within Volkswagen, if IG Metall and the works council mobilize against investment in U.S. plants that do not allow the company to build some version of the German model of labor-management relations?

SS: Court cases based on U.S. law banning company dominated unions stipulate that companies can’t have a works council without a union. The National Labor Relations Act specifies that a minimum 12 months must pass before there can be another unionization election. So, Volkswagen won’t have a works council for at least a year. There is a lot of discussion in Chattanooga about setting up a single-plant union to allow for the establishment of a works council. It’s anyone’s guess as to whether a single-plant union would have the support of a majority of the Chattanooga employees. It’s also unclear whether other works councilors would shun representatives from Chattanooga if the facility opted for a single-plant union. Regarding the question of retaliation, the urge to retaliate exists. Osterloh expressed it. Retaliation would not make business sense, however. The Chattanooga plant is operating below capacity and needs a second vehicle to maximize return on investment. Osterloh also sits on the Volkswagen board and has a fiduciary responsibility to the company.

HF: Can we expect knock-on consequences for other German companies with works councils at home, and non-unionized U.S. daughter companies abroad?

SS: If anything, the Chattanooga vote sets a negative precedent for the other German auto companies operating plants in the United States, which have never felt the urgent need to have a works council at their facilities. Why bring all the Sturm und Drang of a union representation election on a plant when things are operating just fine now? IG Metall may apply pressure, but the failure at Volkswagen will make it harder for the union and the works councilors at BMW and Daimler Benz in Germany to persuade those companies to go the same route as Volkswagen.

HF: If the UAW somehow won another election a year from now, how easy or difficult would it be to build some version of the German model in the U.S. system, given U.S. law and existing patterns of labor relations?

SS: It would be very hard to implement German-style industrial relations in the United States. There is a division of labor in German industrial relations between the trade unions. Unions typically bargain with employers associations at the sectoral level, while works councils handle most workplace-level matters. In contrast, American unions bargain with individual companies. Very few sectors in the United States have employers associations. As a result, the focus of American unions and works councils are both at the workplace and company levels. This overlap makes works councils an uncomfortable fit in the United States. In the mid 1990s, the Clinton administration tried to get support for introducing works councils to the United States, but both employers and unions opposed the initiative. In the current case, Volkswagen made it clear in the neutrality agreement that it signed with the UAW that it wanted a Chattanooga works council to be an exact copy of a German works council. This is hard to do, because it is German law that establishes the rights and restrictions of works councils. We can only speculate how having the UAW and a works council in Chattanooga would have worked in practice. The union would have had to cede its grievance function and narrow its role to collective bargaining. It is not clear whether the union and the works council would have been able to establish a functional division of labor.

Henry Farrell is associate professor of political science and international affairs at George Washington University. He works on a variety of topics, including trust, the politics of the Internet and international and comparative political economy.
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Henry Farrell · February 20