VW's hometown defies auto industry gloom
Automotive News Europe
April 6, 2009 09:56 CET
WOLFSBURG (Reuters) -- Inside one of the world's biggest car plants, there is no sense that global auto demand is in freefall as Germany heads into its worst recession for six decades.
Volkswagen's presses here in Wolfsburg thud and hiss as they crush metal into shape, orange sparks fly and workers whistle to music on the radio as they screw on headlights and radiators.
Few towns rely as heavily on the auto economy as Wolfsburg in northern Germany. Built in 1938 to make the "peoples' car," about half the town's workers have a job directly linked to VW. Yet the mood is far from depressed.
"Things are positive, order books are bulging," said Claudio Gravina, who has worked in several departments at the plant. "There's no panic."
So far, a government bonus scheme has been shoring up demand -- German new car registrations jumped 21.5 percent in February and it was one of only two western European markets to grow, according to the European auto industry association, ACEA.
But another factor underpins the confidence. With some 178,000 workers in Germany, VW is too big to fail and the town knows it.
"VW is so crucial that no-one would let it collapse. The consequences would be unimaginable," Siegfried Kayser, head of Wolfsburg's Chambers of Industry and Commerce, said.
Among top VW models are the Golf, Passat, Touran and Jetta although its best known is probably the Beetle, originally the "peoples' car," which became a symbol of the 1960s hippie era as the "Love Bug."
The cafes are busy and shops are full in Wolfsburg's center, which is typical of German towns built up in the decades after World War Two 2 with its concrete, gray buildings.
"So far I can't see the financial crisis you read about in the papers," said baker Katja Hering, whose shop relies largely on VW employees for custom. "Next year might be bad but we've had our ups and downs before and we'll get through."
Wolfsburg is defined by VW. The factory -- which VW says is the world's biggest auto plant under one roof -- is big enough to house the principality of Monaco. Its brown brick facade and tall chimneys dominate the skyline.
Wolfsburg's main shopping street is named after Ferdinand Porsche, who designed the Beetle.
VW sponsors Germany's top league Wolfsburg football club; schools and colleges bear the name of VW or Porsche.
After World War Two, during which VW employed forced laborers for the Nazi war effort, the town flourished as the carmaker became synonymous with West Germany's economic miracle.
Now, the factory, which can make 3,400 cars a day, employs around 44,000 people. Another 11,500 work at suppliers in Wolfsburg, according to town statistics.
"Wolfsburg wouldn't be here without VW," said Kayser at the Chamber of Commerce. "There can't be a Plan B if the unimaginable were to happen to VW."
Investors have long criticized VW's above-average labor costs and have called on the state of Lower Saxony, which owns a 20 percent stake, to loosen its grip and allow a takeover.
A political battle is raging between the German government and the EU over a plan by Porsche to take full control of VW. The sports carmaker has raised its direct voting stake to just over 50 percent and said that could rise to 75 percent this year although under existing rules, Lower Saxony could veto that.
But others see VW as a vindication of the German social market model, which shuns the more aggressive shareholder-value focus of Anglo-Saxon capitalism.
They point to the problems being faced by General Motors and other U.S. carmakers and say Wolfsburgers are fortunate compared with workers at GM's German unit Opel, which is seeking billions in state aid and faces an uncertain future.
Wolfsburg mayor Rolf Schnellecke says state involvement has guaranteed a social approach among VW workers.
"VW has always been aware of its social responsibility and taken steps to avoid redundancies," Schnellecke said.
German government policies to save jobs are also helping. The government is, for example, subsidizing companies that put workers on short time and avoid layoffs. In February, around 15,000 Wolfsburg workers were on short time.
VW is also the biggest beneficiary of a measure in the government's stimulus package offering 2,500 euros ($3,304) to people who scrap old cars and buy new, fuel-efficient vehicles.
"(Investing in the) VW group is the best place to be to benefit from the scrapping incentives-related boom on the German car market," said Sal. Oppenheim analysts in a research note, citing VW's high exposure to Germany and the small car segment.
VW's underlying problems
VW's relative strength cannot mask underlying problems.
CEO Martin Winterkorn has warned VW faces one of the toughest years ever and has said he expects vehicle sales, revenues and earnings to decline.
"Wolfsburg isn't immune to the global crisis, we are not an island," Schnellecke said. "The incentives are keeping us going for now but the big question is what happens after that."
The town has sought to reduce its dependence on VW, which also owns Audi, Skoda and Seat, by building up services.
"We have known since the 1990s that jobs in the auto industry are heading down rather than up and we have branched out into other areas," said Schnellecke, a Wolfsburger by birth.
The service sector makes up 28 percent of Wolfsburg's economy, up from about 16 percent 20 years ago, but that is still a far lower share than in other cities, says Kayser.
Wolfsburg has tried to become a regional tourist centre and now has a science museum, art gallery and sports facilities.
But all roads lead back to VW. One of the top draws is the Autostadt, a VW theme park boasting 2 million visitors a year, who include car fanatics, buyers and children.
"Wolfsburg is where Volkswagen eats and sleeps," said Kayser. "It's impossible to free ourselves from such a colossus."
