BMW's model for the new Germany

THE GERMAN juggernaut, which has hogged Europe's economic fast lane longer than fellow-travellers care to remember, has stalled. Lumbered with a strong mark, high taxes and the biggest wage bill in the world, Germany is gliding to a halt on the hard shoulder of long-term industrial decline. Extensive servicing is needed to get the vehicle back on the road.

That at least is the impression left by a cursory reading of last week's financial pages. On Tuesday, the Paris-based Organisation for Economic Co-operation and Development (OECD) highlighted Germany's deep-seated structural problems.

In its latest annual report, approved by the German government, the OECD warned that "labour market rigidities and hindrances to competition continue to pose a threat in terms of unemployment persistence". Two years after the recession ended, the west German jobless total is still on an upward path, while the OECD reckons only 70 per cent of eastern Germans are productively employed.

For good measure, the OECD also took a sideways swipe at Germany's stakeholder form of corporate governance, where banks act as main lenders and shareholders in companies, thereby removing the need to chase short-term profits while providing long-term financial stability and ownership security.

It is a system that has served Germany well for 40 years. But as the OECD notes, it does not lend itself well to entrepreneurial, leading-edge technology businesses.

The image of Germany as a land of outdated industrial practices was underlined on the same day, when an estimated 15,000 Volkswagen workers staged strikes in support of a 6 per cent pay claim and against plans to make Saturday a normal working day without overtime.

And two days later, the German motor industry association (VDA) warned that 50,000 of the sector's 650,000 jobs were at risk, mostly in the supply sector, if the trend towards increased production abroad continued.

All this would seem to vindicate the numerous Jeremiahs in German industry who argued that the last recession was not long enough to introduce root- and-branch reforms to make the country more competitive.

Yet the image of Germany as a monolithic industrial giant may be as outdated as the industrial practices that still persist on some shop-floors. Instead of one uniform "model", German industrial relations already take on several different forms. Nowhere is the contrast starker than between Volkswagen, Europe's largest-volume car producer, and BMW, its most profitable car maker.

"Companies like BMW are making more use of their existing workforce," says Rainer Veit, senior economist at Deutsche Bank Research in Frankfurt. "Increased labour flexibility means companies can fine-tune production without hiring and firing new staff."

BMW's plant at Regensburg, 120 miles north of Munich, came on stream in 1986 and met the demands of lean production from the outset. A new work schedule, involving two nine-hour shifts a day and Saturday working, was later transplanted to BMW's main factory in Munich, and became the norm other car manufacturers aspired to.

Among the most popular initiatives is for staff to take up to six months off and continue to be paid on a monthly basis, in return for their annual income being reduced correspondingly for up to three years. Demand is also increasing for part-time work.

Such innovation allowed BMW to weather the recession better than its competitors. The decline in net profits in 1993 - the worst year - was limited to 29 per cent before rebounding sharply. And unlike its rivals, BMW avoided mass layoffs and redundancies.

These changes met little opposition from the unions. "Trade unions only care about those who have got a job," argues Mr Veit. "By making better use of the labour force, productivity increases and with it wages."

The situation at Volkswagen is altogether different. It is the only company in the automotive and engineering sector which negotiates separately with IG Metall, the powerful metalworkers' union. And for years political considerations in the state of Lower Saxony have thwarted management efforts to cut costs.

Up to a third of all jobs in the region depend directly or indirectly on VW. Not surprisingly, successive state governments have balked at using their 20 per cent shareholding in VW to rubber-stamp restructuring that would involve huge job losses and amount to political suicide.

In the meantime, feather-bedding will continue if VW's workers retain the right - enshrined on one of their banners - to "live, love and laugh" on a Saturday.

Despite fears to the contrary, the outcome of the latest dispute will not set the tone for the rest of German industry. Volkswagen will remain the exception, rather than the rule when it comes to German industrial relations.

The "model", if a new one is to emerge, is more likely to resemble BMW - the one now roaring up in the rear-view mirror behind you.

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