It is a shame that VW appears to be so scared (11.09.2016)

The US government previously held back from criticising VW. But now Labor Secretary Thomas Perez is venting his anger: Where one is facing a scandal such as Dieselgate, one should act very differently in the United States, he says.

By Nikolaus Doll and Philipp Vetter


Volkswagen CEO Matthias Müller has ambitious plans for the US Market – despite the emissions scandal: By the end of the year, the company’s factory in Chattanooga, Tennessee is expected to start delivering its new series of SUV cars. The initiation of Tiguan’s big brother is meant to jump-start a new era in the United States. This may now become difficult. Volkswagen has not only fallen out of favour with its car dealers and consumers but the federal government has also harshly criticized the car manufacturer. If Volkswagen maintains its current course of action the chances of regaining the trust of American citizens and getting back into the market are very low, Labor Secretary Thomas Perez told German daily Welt am Sonntag.

 “I think VW shouldn’t only listen to its lawyers but also apply its common sense”, Secretary Perez said. “Their current strategy might in the short run buy VW time in the court, but every day that passes adds another dent on the Image of Volkswagen”. Its reputation is of huge value to the company. “If you lose your good name, what do you have left?” asks Perez, a former consumer rights lawyer.

What infuriates the US Labor Secretary in particular is that besides the emissions scandal, Volkswagen is currently locked into another power struggle, namely with the United Auto Workers Union in Tennessee that is now being fought out in front of the court. The Union aims at establishing a workers’ union to exercise their collective bargaining right. To this date Volkswagen has refused to recognize the Union and engage in negotiations with representatives. The dispute, which has lasted for months, has been referred to the National Labor Relations Board (NLRB), the federal agency that monitors compliance with labor legislation. A few days ago, the NLRB ruled that VW’s actions in Chattanooga violated federal labor law and called on the car manufacturer to engage in negotiations with UAW. The Wolfsburg based company, however, announced after the NLRB decision it would contest the ruling.

When it comes to the emissions scandal, the Obama administration preferred to remain – for most of it – on the sidelines. The investigation is being driven by the environmental agencies EPA and CARB who had previously negotiated a billion dollar settlement with Volkswagen. And now, as the Chattanooga dispute unfolds, Volkswagen appears to have crossed a red line. The Labour Secretary has moved into action. “I am very irritated with Volkswagen. The emission scandal has substantially damaged their reputation. Yet, they continue to make it worse and have refused to negotiate with the trade unions. In Perez’s eyes Dieselgate and the labor conflict are interlinked. “It seems like they make one bad decision after another”.

Following the emissions scandal, the public would have expected that the car manufacturer would show more modesty and adopt a more conciliatory attitude: “After the massive problems Volkswagen encountered and having broken US emissions laws, I would expect that the company would first try to reach an agreement with their employees as part of their efforts to restore their good name” says Perez. Instead, the VW-brand appears to have received a further blow.

“I am truly disappointed that Volkswagen is refusing to negotiate with UAW in Chattanooga. I was hoping that they would abide by the NLRB ruling” Perez added.

This being said, voicing his public appeal towards VW is the only means by which the Labor Secretary can intervene in the dispute. “There is nothing the US government can do at this stage to compel Volkswagen to comply with the NLRB ruling”. The case will most likely be referred to an appeals court. “I very much hope that Volkswagen will abide by the ruling of the United States Appeals Court” Perez said.” Ignoring the decision would strengthen those amongst the American consumers who believe this company thinks itself as being above the law”.

The Secretary is particularly angered by the fact that VW closely cooperates with trade unions in almost all of the other countries, apart from the US. Three years ago Perez even visited VW headquarters in Wolfsburg, where he was briefed on the participation of employees in union representation. Volkswagen is known to be a group, where employees tend to have a decisive influence on strategic decisions – including if and where new plants open. “The partnership between the Management and Unions seems to be at the core of their global business model, apart from the United States”. It is a “great pity” that this model is not applied in the US. “I hope that VW will reconsider its decision: The [VW] company I know knows better than this.”

In principle, Volkswagen does not oppose the formation of a union in Chattanooga. Though the situation on the ground is somewhat complex: a majority of employees voted to oppose representation for the maintenance department, partly because local politicians have warned that it may create a precedent and put jobs at risk. The fact that most car manufacturers are based in the Southern part of the US is also linked to limited organized labor representation in the region.

In a second vote held among skilled workers, a small majority voted for representation. However, VW afterwards announced that it would not recognize the union and therefore will not negotiate with them. The company fears that representation of a small elite group of workers might create appetite amongst other employees to join them. Moreover, the company does not want to enter into collective bargaining with the unions, something that is unusual in Germany and in particular given that UAW is known to be a tough opponent.

Of course, the Secretary of Labor is aware that local politicians continue to put pressure on VW to take a hard stance against UAW. Among those fighting to avoid creating a precedent in Chattanooga is Republican Governor of Tennessee Bill Haslam. “I believe exerting such pressure is very unfair” says the Democratic Secretary of Labor. The US Presidential campaign is currently in full swing and the votes of car manufacturer employees are seen to be a valued commodity. By now even the Democratic nominee Hilary Clinton joined the ring by tweeting back in May “Volkswagen employees in Tennessee are raising their voice for the rights they deserve”. She added that ”VW should engage with them on the negotiation table.”

Clinton’s fellow Democrat Perez continues to harshly attack the Tennessee Governor and indirectly suggested that VW should look for another location in the US, if in doubt.”We are a big country, there are 50 States and many other governors that would welcome a partnership between Volkswagen and UAW, which stands for job creation and shared prosperity” the Labor Secretary said. “It is a great pity that Volkswagen has been so badly advised and appears to be so scared […] Of course the company must decide for itself where it wants to locate its plants.”

Perez is not convinced by the widespread criticism of UAW within the automobile industry. “At the heights of the economic recession they entered into a partnership with three big American car manufacturers in order to work on a common vision of shared pain” he said. “All parties have made sacrifices and these sacrifices should lead to success. That’s exactly what happened”. VW is depriving itself of this opportunity by refusing to cooperate with UAW.

This open criticism by the US government is extremely problematic for Volkswagen. The company is still negotiating with authorities over the level of fines for the emissions scandal. VW had already been struggling on the US market even before the Dieselgate scandal. While VW produced cars had been selling extremely well in Europe and Asia – which made the company one of the world’s largest car manufacturers – only very few Americans have shown interest in acquiring a VW car. Perez knows that. VW’s market breakthrough in the US is “extremely low” he notes.

To enter into a dispute with trade unions at the stage in which it wants to increase market share is „very strange” from a strategic standpoint, because many customers also take into account the values that a company represent when making a decision which car they buy. “Those people will look at Volkswagen and see a company that cheated when it comes to emissions and now refuses to negotiate with its own employees” argues the Labor Secretary. “I do not think it is an image that you want to portray if you aim to increase your market share in America”.

Basically there are “huge growth opportunities for Volkswagen in the United States – if they succeed in improving their image” One bad decision after another.

US Labor Secretary in Die Welt – English version