With CrossBlue in Crosshairs, VW, UAW May Seek Truce

The dispute over union representation at Volkswagen of America's new plant in Chattanooga, TN, has become entangled in the auto maker’s plans for expanding production at the $1 billion facility, which now builds the North American version of the Passat.

VWA officials say the plant was built with the expectation it would produce multiple vehicles, and they have proposed assembling a new midsize diesel hybrid-electric cross/utility vehicle dubbed CrossBlue there.

VWA officials originally expected an announcement about increasing output in Chattanooga in second-half 2013, and they have asked the State of Tennessee for financial aid to help prepare the plant for an additional product. But Frank Fischer, CEO of the Chattanooga operation, recently indicated he didn’t think there would be a decision before January.

Part of the holdup is that the underutilized plant is the United Auto Workers’ latest target in its long and so far unsuccessful battle to organize employees at foreign auto makers’ plants in the Southern U.S.

“I tell my team this is a great success,” Fischer, citing the plant's smooth startup and awards for quality, says in an interview. Nonetheless, he acknowledges the factory had to lay off some 500 temporary workers in May because Passat sales were slower than expected.

Bernd Osterloh, chairman of the VW Works Council, which in the past has offered employees’ perspective on a broad range of issues to the auto maker’s management, has indicated the council wants the question of worker representation resolved before VW commits to building another vehicle in Chattanooga.

“Volkswagen has a corporate culture in which employee participation is a key success factor,” Osterloh tells the Handelsblatt German-language business newspaper. “That's why we are determined, as a council, to enforce participation in Chattanooga after the Volkswagen (business) model.”

Osterloh has not openly advocated for the UAW, which is campaigning to represent the 3,000 Chattanooga employees. “Our colleagues in the U.S.A. should make a decision for or against the UAW,” he has told German media.

But the influential labor leader notes union representation generally may be the only way to guarantee “stable protection for the interests" of workers at the Chattanooga plant.

Osterloh also is vice chairman of VW's board of supervisors and deals regularly with Ferdinand Piech, VW’s leader for the past two decades. His influence was apparent last week when he publicly rebutted speculation in the German press that Piech was preparing step down as chairman of the company's supervisory board, which by German law hires and fires senior managers.

Meanwhile, Berthold Huber, first chairman of IG Metall, the powerful union in Germany, who also sits on the VW supervisory board, openly has advocated for UAW representation for Chattanooga workers.

Harley Shaiken, a labor expert from the University of California-Berkeley, says the intervention of Osterloh and Huber is unprecedented.

“CrossBlue (production) is up for siting and the UAW wants (the CUV) to come to U.S.,” particularly if the union is representing Chattanooga workers, adds Alan Baum, a consultant based in West Bloomfield, MI. A position on the supervisory board and works council would allow the union to “illustrate its progressive attitude to help in the siting of CrossBlue,” he says.

“Given pause in Passat sales, current workers may be more receptive than they might have been in the past and/or more receptive than workers at other plants that are growing without pause," Baum says. “And of course, VW management (along with BMW and Daimler) is more comfortable with works council/union representation than Asian companies.”

Osterloh and Huber’s comments have had an impact on VWA managers, who had assumed Chattanooga would be a non-union operation like those operated by other foreign-owned auto makers in the Southern U.S.

“As a general principle, Volkswagen supports the right of employees to representation at all its plants and is in favor of good cooperation with the trade union or unions represented at its plants,” VWA officials say in a statement emailed to reporters last week.

“In the U.S.A., the representation of employees by trade unions is highly controversial. For this reason, Volkswagen is currently working on an innovative model for the representation of employees’ interests which will be suitable for the U.S.A.,” the statement says. “This model will be based on positive experience in Germany and other countries where the Volkswagen Group is active.”

But in a letter distributed last week to employees in the Chattanooga plant, Fischer, for the first time, indicated UAW representation is a distinct possibility. The letter confirms the auto maker and union are discussing “the possibility of implementing an innovative model of employee representation for all employees.”

“The UAW commends VW management and the Global Works Council for their record of recognizing global human rights and worker rights and looks forward to working with them collaboratively in Tennessee,” the UAW says in a statement after Fischer's letter became public.

However, VWA management is concerned about Tennessee officials’ reaction to the UAW, which traditionally has faced enormous resistance in its bid to organize workers in the South.

“VW's response is very different than Nissan,” notes Kristin Dziczek of the Center for Automotive Research in Ann Arbor, MI. Workers at the Japanese auto maker’s Smyrna, TN, plant have voted twice against UAW representation.

Tennessee Gov. Bill Haslam and U.S. Sen. Bob Corker, both Republicans, have argued that inroads by the union would hurt the state’s ability to lure other large manufacturers to Tennessee.

With aid for the CrossBlue project still facing final approval from the state, there is a concern the assistance could be scrapped. 

Southern states from South Carolina to Texas, which are dominated by conservative legislatures, have spent millions of dollars on subsidies for plants built by European and Asian auto makers over the past two decades.

Tennessee gave VW more than $500 million in “incentives” to build the Chattanooga facility. “Where will we be if we don't get the subsidies?" says one VWA official, who asks not to be identified.

The auto maker’s plans to increase sales in the U.S. also are hanging in the balance. For one thing, the Chattanooga plant needs another product and more production volume to raise its utilization and make it more competitive, VWA officials acknowledge.

“Restarting in the U.S. has succeeded,” notes Osterloh, who is privy to the auto maker's strategic plans and discussions. “But the market is growing, especially for SUVs. “That's why we need in this segment a suitable offer. I expect that we will have a decision (soon).”

“Meantime, we should have made significant progress on the issue of workplace employee representation.”