Unions force VW to axe McKinsey in clash over cost cuts: Sources

Consultants' cost-cutting target reportedly still stands
By Edward Taylor and Andreas Cremer / Reuters
|labour-reporter.com|Last Updated: 08/07/2014

FRANKFURT (Reuters) — Volkswagen's 5 billion euro ($6.68 billion) cost-savings plan hit a major setback after labour leaders forced management to axe McKinsey, the consultants working out the cuts, three sources with knowledge of the matter told Reuters on Thursday.

The move underlines how much relations between management and workers have soured at Europe's biggest carmaker, which is struggling to raise profits amid stagnating emerging markets and low growth at home.

The cost-cutting target itself still stands, however, the sources said.

VW and McKinsey declined to comment.

Late last month, Chief Executive Martin Winterkorn told employees he was looking for 5 billion euros worth of efficiency gains at its core passenger-car brand by 2017, as VW seeks to close the profit gap with rivals.

According to the sources, managers then commissioned McKinsey to help implement cost cuts at VW, a company at which employees enjoy multi-year job guarantees.

McKinsey was drawing up a framework to help the Wolfsburg, Germany-based company make the savings, but labour representatives balked at the appointment of the management consulting firm, and demanded they be removed, sources said.

Labour leaders have considerable clout at VW, where together with the State of Lower Saxony, they effectively control the supervisory board, or board of directors, the body which appoints members of the management board. The federal state's representatives often join forces with companies on its patch to protect local jobs.

The clash forms part of a broader split between management and VW's powerful works council chief Bernd Osterloh, who warned that the cuts "will not be a walk in the park. It's already clear now that one or two issues will be particularly hard fought."

Labour leaders have helped scupper cost cut plans in the past. Former VW Group Chief Executive Bernd Pischetsrieder and former VW brand chief Wolfgang Bernhard — a former McKinsey consultant — were both effectively ousted after clashing with labour leaders over cost plans.

In another setback for its drive towards higher profits, VW last week replaced its production chief Michael Macht after a new modular vehicle design platform failed to translate into higher profits at its main factory in Wolfsburg,Germany.

Rather than creating greater efficiencies in production, the new vehicle assembly method used on VW's flagship Golf model has caused costly overtime work and delays, leading the company to report a drop in operating profit.

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