It's not too late to change the situation. First, Germany must roll back high labor costs and scrap the 35-hour workweek, which hamper productivity. German leaders need to rethink the nation's antiquated model of labor negotiation. The metalworkers' union still sits down with the employers' union and inks a wage package for all industries that employ its workers, including automobiles. That consensus model functioned in a less global economy, but it doesn't now. A worker making door panels for a VW Polo in a depressed east German state and a worker who handles panels for Porsche in the rich Black Forest are both paid based on the same wage scale. This makes little economic sense.
Next, Germany's intransigent labor unions must remember that their obstructive politics in the coal and steel industries only ensured the decimation of 500,000 jobs in the Ruhr Valley. But unions aren't the only obstacle to change. To hold on to its own power, the German Employers' Assn. has blocked a national debate about overhauling the rigid labor model.
Weak-willed politicians are the third problem. Gerhard Schr?der's ruling center-left government, terrified of alienating its labor union base, has carried out only halfhearted economic reforms. Berlin has tinkered with the system, trimming long-term unemployment benefits, for example. But it has shirked a healthy discussion on transforming the postwar, consensus-driven industrial model into a more flexible system that would allow German companies to remain competitive.
As auto makers struggle with excess capacity across Europe, they are finally beginning to close down inefficient plants in high-cost countries. Of Germany's three volume producers, Ford Motor Co. and GM-Opel are reeling from chronic heavy losses, and Volkswagen is struggling to eke out a profit. The country's car industry accounts for one of every seven jobs and 10% of Germany's gross domestic product. Replacing it will be painful.