6. Fleeing high labor costs Detroit has spent decades searching for the low-wage nirvana that will allow it to cut production costs. General Motors thought it had found an answer in 2002 when it took over the assets of the bankrupt Daewoo and started building small cars in Korea. Now the Asian nation accounts for more than 20% of GM's total production, and more than 80% of those cars, like the Chevrolet Cruze and Buick Encore, are exported. But here comes word that GM wants to start phasing out Korean production, partly because labor costs there have risen sharply . No word on where it might go next in search of cheap labor -- Southeast Asia? Sub-Saharan Africa? GM seems to have learned little from mighty Volkswagen, which remains firmly tied to its manufacturing complex in high-wage Germany.
Photo: Seokyong Lee/Getty Images
By Reuters
April 24, 2016

Volkswagen’s top brand executive is confident that management and labor will solve a dispute over cost-cutting at the core autos division and signaled readiness on Sunday to meet some of workers’ demands.

Volkswagen’s powerful labor leaders earlier this month accused brand chief executive Herbert Diess of betraying workers and trying to use the diesel emissions scandal as a pretext for job cuts.

Management and labor leaders have since pledged to jointly map out a strategy and agree “mandatory packages” to secure the plants in high-cost Germany, but details have yet to be worked out.

“VW is changing rapidly, very much for the better in my opinion, and I am very confident that we will together get this done,” Diess told reporters on Sunday ahead of the Beijing auto show which starts on Monday.

VW has struggled to raise its profitability because deep-seated reforms have been blocked by a supervisory board dominated by representatives from Lower Saxony, where VW is based, and the labor unions.

Pressure has mounted to make cuts at its core operations in Germany since the emissions scandal broke in September with U.S. and California environmental regulators saying they were investigating VW for violating clean air rules.

Works council boss Bernd Osterloh has accused Diess of poor communication and of excluding labor leaders from efforts to increase cost savings, for instance steps to streamline development at the VW brand.

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Asked on Sunday whether he needs to do more to tie the unions into his plans, Diess replied: “We are already doing a lot. But of course we can do even more.”

The automaker said on Friday the 16.2 billion euros ($18.18 billion) it was setting aside to pay for the emissions scandal would drive it to a 1.4 billion-euro net loss, the biggest in its history and the first on an annual basis since 1993.

“We are faced with a high need for change,” said Diess. “At one place or another, that is causing a high (level of) edginess among workers and burdens the workforce.”

Osterloh, who leads the nine labor representatives on VW’s 20-strong supervisory board, has repeatedly clashed with Diess over how to achieve greater cost savings ever since the former BMW executive took office last July.

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The dispute has stoked speculation in the media that the 57-year-old Diess might quit VW. Asked whether he was planning to leave the Wolfsburg-based group, Diess replied: “No.”

Separately, Chief Executive Matthias Mueller said VW was bracing for another tough year as it expects only “little tailwind” from world auto markets.

“2015 was a tough year for VW. And 2016 will be no less severe, because we have to handle the crisis and its consequences,” the CEO wrote in a letter to staff published on Sunday.

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