Volkswagen rules out pay rises for two years

Volkswagen demanded a two-year wage freeze for the 170,000-strong workforce at Europe's biggest car maker yesterday, provoking union warnings of imminent conflict at key pay and conditions negotiations.

Volkswagen demanded a two-year wage freeze for the 170,000-strong workforce at Europe's biggest car maker yesterday, provoking union warnings of imminent conflict at key pay and conditions negotiations.

Germany's giant IG Metall engineering workers union had demanded an across-the-board pay increase of four per cent and a ten-year job guarantee for workers at VW's ailing concerns in Germany, in advance of the wage round due to start in the middle of next month.

Peter Hartz, the head of personnel, explicity ruled out any such increase at a press conference at VW headquarters in Wolfsburg yesterday. "There is absolutely no room for manoeuvre on pay rises," he said. "It comes down to a choice between jobs and wage increases."

Mr Hartz also ruled out union demands for legally binding job guarantees, and said that the concern's six German plants suffered badly against their domestic competitors because of high labour costs. He maintained that the only way of retaining jobs was through wage concessions.

"We must have the courage to achieve solutions which are unpopular and not take the easy way out by moving production abroad," he said. "If we want to continue production in this country and secure German jobs, Volkswagen needs greatly improved cost structures."

High operating costs and weak demand in the first half of this year have obliged VW to drastically cut its 2004 profit forecasts from €2.5bn to €1.9bn.

IG Metall dismissed the management's stance. Hartmut Meine, the union's representative at VW and the official who will lead the employees' negotiations at the pay talks, warned: "If the board sticks by its exaggerated demands, then the pay round will be full of conflict. We we are well prepared for such a development."

VW's veiled warning that production could be transferred abroad if a pay freeze was not accepted echoed a similar tactic successfully employed by DaimlerChrysler this year.

In an attempt to cut labour costs, VW is proposing a radical overhaul of its wage structure which currently involves more than 400 job categories at the plant and 22 levels of pay. The measures are designed to cut VW's German labour costs by €2bn over six years.