Volkswagen Chattanooga: UAW no, works council yes!

Volkswagen, the world’s second largest auto maker, is facing a unionisation drive at one of its newest plants in Chattanooga, Tennessee. According to news reports, the United Auto Workers union is pulling out all the stops to gain a beachhead in America’s new automotive heartland in the south. Independent of, but parallel to, this UAW push, VW is looking to establish a works council similar to those in all of its other plants around the world.

In the heated politics of 2013 America this tussle has taken on symbolism that distracts from the obvious correct answer: get out of the way and let VW do what it thinks is best.

Reading the news accounts in the American press, one might think this issue is part of a grand, diabolical scheme on the part of VW to interfere with labour relations in US industry. On one side, National Public Radio seems to pitch a story about the German auto maker’s zealous support for a modern, co-operative UAW shepherding the largely supportive workers in a future world of harmony. On the other, bloggers and some in the business press fret that VW is trying to shove nasty, northern unionism down the throats of the freedom-loving, right-to-work citizens of Tennessee. All of this is nonsense.

Lure of the south

VW, along with Toyota, Mercedes-Benz, Nissan, Kia and Hyundai, plus the big US auto makers, has invested in the non-union southeast because the business opportunity justifies it. Our research earlier this year on manufacturing footprints and plant location decisions proved one thing above all else: supply chain assets are deployed according to where they offer the best mix of market access, total cost advantage, support for innovation and risk mitigation.

VW, I’m guessing, cares about the politics only in so far as it affects the company’s ability to get a payback on the $1 billion or so it has invested in the Chattanooga plant.

Our data, represented in the chart above, shows that the US is the second most popular country (after China) for new manufacturing capacity in the next three years. It is also the most attractive location from a market access standpoint. VW built a plant in Tennessee because Americans buy a lot of cars and because the multi-factor productivity of a modern, highly automated plant located here is a money maker.

To strike or not to strike

In a recent Reuters interview with Bernd Osterloh, the head of VW’s global works council in Wolfsburg, Germany, where the company’s headquarters are located, its reporter noted that “Osterloh did not mention the UAW in his conversation with Reuters”. This says it all. He doesn’t care about the UAW, he cares about VW.

Yet the UAW is relevant, and Osterloh knows this. It is built on a political foundation, from the beginning orientated to votes more than to money. Historically, it is fair to say that the union has to take at least partial responsibility for the destruction of Detroit and the industrial heartland of the northern US.

For VW, whose capital is already stranded in Tennessee, playing this right is important. Works councils are successful everywhere VW operates in the world, but they do generally rely on unions like IG Metall in Germany for wage negotiations. So Osterloh needs to find a middle path. VW wants an organised workforce, but not a contentious, bloody-minded enemy.

If the Chattanooga plant’s workers vote openly and formally for UAW representation, Volkswagen will likely go along. If not, then it will operate a works council without the union. If this ends up being a problem because of political posturing by right-wing Republicans in Tennessee or elsewhere, VW will, in time, simply shift production elsewhere and ultimately abandon this plant.

The UAW, and hard unionism in general, somehow failed to grasp that capital moves and extortion-based bargaining can’t work as long as business can relocate its production facilities. This capital fluidity is greater now than ever before, with attractive markets all over the world and automation replacing labour everywhere.

VW’s works councils are a better way to manage industrial relations. Why does anyone else feel they have a right to interfere?

Please contact me directly with any comments, questions or suggestions. I welcome your feedback.

Kevin O’Marah
Chief Content Officer
SCM World