Bloomberg News

BMW Profit Drive Ends in Court as Union Seeks Cap on Temps: Cars

February 15, 2012

Feb. 14 (Bloomberg) -- Bayerische Motoren Werke AG is taking its drive for record output to court after labor representatives opposed hiring more temporary employees, in a rare clash between the carmaker’s management and the shop floor.

The world’s largest maker of luxury cars employs about 1,100 workers without longer-term contracts at its Leipzig factory in eastern Germany, or almost 30 percent of the total. Labor representatives refused to support a new round of temporary contracts, saying the practice creates a two-tier system of employees. A first court hearing on the issue is scheduled for tomorrow.

“It’s clearly unusual for BMW to have such an argument in public,” said Juergen Pieper, a Bankhaus Metzler analyst in Frankfurt. “BMW wants to protect its well-paid core staff, and the last crisis showed the importance of flexibility.”

The confrontation underscores German companies’ push to make their workforce more nimble, in a country where rigid labor laws make hiring and firing protracted processes. Munich-based BMW aims to sell more than 2 million vehicles by 2020 from a record 1.67 million last year, as it seeks to maintain its lead over domestic rivals Daimler AG and Volkswagen AG’s Audi unit.

Jochen Mueller, a spokesman for BMW in Leipzig, said temporary workers are paid the same base salaries as long-term employees, and the mix gives the carmaker more flexibility. Jochen Frey, another BMW spokesman, said permanent staff last year got a bonus worth close to a month’s salary, which temps did not get. He said that bonus varies with corporate profit.

Permission Denied

The Leipzig factory assembles the 1-Series and X1 sport- utility vehicle and produced 186,800 units in 2010. BMW gave about 170 temporary workers in Leipzig permanent contracts in 2011 because of strong demand, and the company is spending 400 million euros ($529 million) to expand the facility.

BMW plans to hire another 350 people permanently at the factory this year and welcomes applications from current temps, Mueller said.

German companies with more than 20 workers require approval from employee representatives when hiring. Should the court in Leipzig side with the employees’ decision to refuse backing the hiring, BMW will need to consider “alternatives,” Frey said, without elaborating.

Employing temporary workers can help lower labor costs, which stood at 43.76 euros per hour in 2010 in the automotive industry, according to data from Germany’s VDA carmakers’ association. That’s 58 percent higher than in the U.S., and almost six times higher than in neighboring Poland. BMW had 11,000 subcontracted employees among its 100,389 workers as of Sept. 30.

Around the Corner

“They tell us the next crisis is just around the corner, so they need temps in order to be able to cut staff quickly and cheaply,” Jens Koehler, who heads the works council at BMW’s Leipzig plant, said. “We don’t agree with that.”

In the economic downturn after 2008, German companies responded with shortened workweeks, which was credited with avoiding major layoffs and helping kick-start production once demand rebounded. Daimler reduced hours of about 120,000 people, almost its entire German workforce.

Airbus SAS said Feb. 13 that it will cap the use of contract workers at 20 percent starting this year, and that 300 people from that pool will have the option of taking full-time employment. German labor law stipulates that temporary employment must be transient, while there is no definition for a maximum time period. Some BMW employees have been temps at the carmaker for years, the union said.

Temporary workers are more flexible because they are employed by an agency and can be removed when demand slackens. The workers often don’t get additional compensation for night shifts, Christmas and vacation pay or one-time bonuses, according to the IG Metall metalworkers union, which represents large parts of Germany’s manufacturing workers, including those working at automakers.

‘Had It’

“We’ve had it up to here with temps; we’ve been deceived,” said IG Metall Chairman Berthold Huber. “What’s happening is shameful and abusive, and we’ll no longer tolerate it.”

BMW has historically maintained a cooperative relationship with its workforce, stemming from the company’s rescue from near collapse in 1959. At the time, union officials played a key role in encouraging Herbert Quandt, whose descendants still control the carmaker, to thwart a takeover from Daimler-Benz.

Workers have more clout in Germany than in other countries because they are represented in the highest echelons of company management. Every supervisory board of publicly traded companies is evenly split between representatives for management and employees.

That system, unique to Germany, gives works councils and union members more sway over strategy, hiring and firing, as well as pay of senior executives. Huber sits on supervisory boards including Volkswagen, Audi and Siemens AG, Germany’s largest engineering company.

Falling Unemployment

Germany’s car industry has rebounded from the crisis years. Daimler exceeded analysts’ estimates last week with its profit target for 2012, propelled by record demand for Mercedes-Benz brand cars. Chief Executive Officer Dieter Zetsche has vowed to retake the luxury-car lead from BMW after slipping last year to third behind Audi. BMW reports earnings on March 13, a day after Volkswagen.

The car industry accounts for about 15 percent of Germany’s gross domestic product. Germany’s VDMA machinery industry association, which represents the country’s largest manufacturing segment, estimates the ratio of subcontracted workers on manufacturers’ payrolls stands at 6 percent, twice the amount in 2005.

With unemployment at a two-decade low and employment numbers hitting records, the number of subcontracted workers in Germany swelled to about 930,000 last year, Adecco SA, the world’s largest staffing company, estimates.

Subdued Demand

German executives at companies including Siemens have cautioned of subdued demand in 2012 as Europe continues to grapple with the fallout from the sovereign debt crisis that is weighing on consumer sentiment. Siemens predicted last month that the region may enter a recession.

Plant and machinery orders in Europe’s largest economy dropped 12 percent in November, the first annual decline in almost two years, and slid 10 percent in December, VDMA said. Companies including Siemens, Nokia Siemens Networks, and Heidelberger Druckmaschinen AG have announced thousands of job cuts in Germany in recent weeks.

Each time a company cuts jobs, temporary workers are typically among the first to go, said IG Metall Vice Chairman Detlef Wetzel.

“When the crisis hits, the number of temps will drastically be reduced,” he said. “Their assignments will simply be canceled.”

To contact the reporter on this story: Richard Weiss in Frankfurt at rweiss5@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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