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VW talks with union break down, leaving costs deal in limbo

Volkswagen
Ashlee Espinal | CNBC
Volkswagen

Volkswagen's talks with unions over the implementation of its turnaround plan broke off on Monday, both sides said, leaving in limbo a deal on cost-cutting following the carmaker's damaging diesel emissions scandal.

Labor bosses at Volkswagen halted cooperation with management on issues including overtime work, efficiency gains and apprenticeships last week, saying executives were trying to squeeze greater savings than agreed in November.

And on Monday VW's works council indicated that tensions between its head Bernd Osterloh and VW brand chief Herbert Diess, who have clashed over how to achieve greater savings, had not eased and called for VW group Chief Executive Matthias Mueller to play a greater role in resolving the dispute.

Staff representatives "are clearly committed to the contents and core values of the future pact," a works council spokesman said by email. "They are also expecting this from management."

Diess pledged to make proposals for solving the controversial issues by next Monday when both sides will resume the talks, the works council spokesman said.

Unions say Diess, who established a reputation for cutting costs at BMW, wants to cut temporary workers more quickly and deeply than agreed.

VW has said it cannot keep a large number of temporary staff on its books the way it used to because of shrinking demand for core models such as the Golf hatchback and Passat saloon which accounted for almost a third of the brand's 5.9 million models built worldwide in 2015.

"We would welcome if the group's management would more strongly deal with the implementation of the future pact and the compliance with agreements," the works council spokesman said.

A spokesman for the VW brand confirmed that talks had been postponed, but declined further comment.

But Mueller, in a letter to staff on Monday which was seen by Reuters, indicated he may get more directly involved.

"We as group management and I personally will continue to do everything, so that conflicts are resolved in a constructive manner and VW will be protected from harm," he said.

Shares were up 2.3 percent at 145.40 euros.

The so-called future pact will lead to 3.7 billion euros ($3.9 billion) in annual savings by 2020 and foresees 30,000 job cuts at the VW brand without forcing layoffs until 2025.

This plan is seen by analysts as critical to raising profitability at VW's core division, which is lagging rivals including Renault, Peugeot and Toyota. Apart from VW, Volkswagen also owns the Audi, Skoda, SEAT, and Porsche marques.

Europe's largest automaker is having to make cuts to its high-cost operations in Germany to fund a strategic shift and shed costs following the diesel emissions affair, which is costing it billions of dollars in settlements.

Separately, Mueller said the latest infighting was damaging the carmaker's public image as it struggles to regain consumers' faith.

VW last week turned on its ex-chairman Ferdinand Piech and signaled the possibility of legal action against the former patriarch after a report said he had informed top players about potential cheating of emissions tests months before the scandal became public.

"You are all certainly as irritated as I am because VW now needs something completely different: Concentration in order to overcome the diesel crisis in a proper fashion," the CEO wrote in the letter.

"Some of the speculation recently had more in common with a bad movie script than with reality."