Unions vs Companies in Germany vs US

Today two very interesting stories about unions appeared in the newspapers, an US and a German firm and two very different approaches to worker representation. VW is is negotiating with the United Automobile Workers union (UAW) about representing workers at their US plant in Tennessee; and in Germany Amazon is fighting against Verdi (German union).

Sen. Bob Corker (R) today told Handelsblatt that he believes that the negotiations at VW would lead to one of the "biggest mistakes" in the history of the company. He thinks it would be "very naive" to think that the German model of not demonizing unions the management and unions working together to improve the company could work with UAW. He fears a second Detroit, he said in a pretty silly attempt to blame the union for the demise of the US car makers.

From a German car engineer´s perspective it seems a bit more likely that producing very mediocre cars for decades might have been at the core of the US car manufacturers´ problems. The engines weren´t efficient enough, the suspension was just laughable, and then there was and still is the interior. American car makers don't seem to realize that you typically sit in your car; beautiful on the outside and lowest possible quality on the inside pretty accurately describes even US "luxury cars". The modern US muscle cars for example show that sometimes Americans are able to build quite good engines, combine them with a suspension that even allows to go around corners (a big problem in most other US cars), a pretty awesome exterior; and an interior that is inferior to the one of a 1980ies VW Golf. 

The US model of producing cheap cars with low quality was also tried at the GM subsidiary Opel/Vauxhall, with even worse results than in the US. Today, the brand is still suffering from the damage done almost twenty years ago. The only reason why the US car industry still exists is that Americans don´t get that "buy American" goes against the core of capitalism. Still: when German and Japanese cars came along, the US manufacturers did not have any answer; but to keep lowering their prices to the point where they lost money on every single car sale. But, hey let's blame UAW.

VW has an excellent history of working together with unions to achieve good results in the long term. For example together with the German IG Metall, they decided to introduce a 28.8 hour work week for a while, so they did not have to fire their workers during a downturn. Now they are back to 35 hours for the most part. German car producers pay their workers more money than negotiated with the unions during good times and the unions accept that pay can't be increased during a slowdown. Of course the US model of firing all the workers that the company has trained for years is also a approach, not the smartest one, not one that has worked in the past, or will in the future, but hey, destroying your own business is the American thing to do, I guess.

While VW will probably work out a deal with an US union; Amazon is fighting Verdi (union) in Germany.  Verdi wants that a labor contract that is currently being used for most of the retail industry including Internet retailers to also apply to Amazon. Amazon says that they chose a wages oriented on the logistics industry. The US firm might be endangering their Christmas sales in their second biggest market.

Also, Amazon will open two new logistics centers in Poland next year; and a third one is planned for 2015. These are supposed to  serve German customers. Currently, there are no border controls between both countries, but that might change next year since Merkel pushed for a change in the Schengen treaty that would allow the reintroduction of those to fight organized crime; and Germany does not have a cross border crime problem with France.

Amazon has received over €7 million in subsidies in Germany. But, the company avoids German taxes (€8.7 billion revenue in Germany in 2012 and € 3.2 million in taxes payed)  and pays lower wages than other German retailers. This seems to be a business model which is very much based on low skilled workers not having enough power to negotiate wages high enough to make a living; and the EU neglecting to close tax loopholes. I personally wish them good luck in Poland.

This is also a tale about the difference between manufacturers and service providers. In the former product quality is a deciding factor and wages play only a minor role; and in the latter the difference between the business models comes down to who has the lowest moral standards, with the winners being those who have non. Walmart's founder once said:

I pay low wages. I can take advantage of that. We're going to be successful, but the basis is a very low-wage, low-benefit model of employment.

Germany has its own share of companies like this. But only in the US and China is it possible to turn such a simplistic business model into one of the largest firms worldwide. No wonder that these people try to demonize unions. But, VW just doesn´t operate on that principle, so Senator Corker is wrong. As long as they build excellent cars, they can easily afford to pay fair wages. He is right though, that we should avoid a second Detroit: German car manufacturers should not listen to economists who tell them that lowering quality and safety standards is the future.