German labour. The day the factories stopped

Car workers bear the brunt of a global reality for many German employees

ADAM OPEL built his first cars in Russelsheim over 100 years ago. It was there on October 19th that thousands of German car workers marched under union banners to save their jobs. For 75 of those years, Opel has been owned by General Motors (GM), the American car giant which has demanded severe job cuts across Europe, and particularly in Germany: 10,000 people - nearly a third of its workforce - are to lose their jobs in Russelsheim, Bochum and Kaiserslautern.

For Russelsheim, a town of 60,000, it is a man-made disaster. Opel workers across Europe were determined to put on a show of solidarity. But unlike previous Opel walkouts - there have been four in as many years - this one was not about pay or shorter working hours. It was about survival. And that struggle involves employees at other German companies too, and not just those in the car industry.

The magnitude of the changes that are coming is not lost on the bosses of the usually tough blue-collar union IG Metall. At Russelsheim their tone was somewhat muted. But still their industrial action caused the machinery to stop for a week; first in Bochum, then Antwerp, then across Europe, inflicting losses estimated at €30m ($37.5m) a day on GM. The strike ended on October 20th, but without an agreement. The German workforce, in return for cost cuts, wants job security beyond 2010. But GM can make no promises.

Besides making losses again last quarter, in a Europe that is supposed to be recovering, GM has trouble back home. Its $57 billion of unfunded retiree health-care liabilities led to two out of three debt-rating agencies punishing it last week with a downgrade of its bonds to just above junk status. GM cannot afford to be sentimental.

A lesson learnt

Wolfgang Clement, the German economy minister, sees the turmoil as part of the reality of globalisation, which politicians have little power to influence. Five years ago, when bankruptcy loomed at Philipp Holzmann, a globally active building firm, Gerhard Schroder, the chancellor, stepped in. But state loans and guarantees only delayed the inevitable. The ruling Social Democrats have learned their lesson: they cannot protect jobs in Germany from a downgrade in Detroit. Their only remedy is to hasten the restructuring of the German economy.

This week the country's six leading economic research institutes gave their verdict on that. The government's reform programme, begun three years ago, is beginning to work, but not fast enough to bring recovery next year. GDP growth is forecast at a meagre 1.5% for 2005, compared with 2.3% for the European Union. The main problem is domestic demand, which has not picked up as it did in previous cycles. Companies, though building profits, mainly from exports, are not investing at home. Entrepreneurs polled recently by the German Chamber of Industry and Commerce see only gradual improvement, led by exports. The construction and retail sectors have barely recovered from the depths of 2002. Even services, which traditionally lead recovery, offer low expectations for next year. The general inclination in all sectors is still not to invest. Consumers are not buying: many are fearful of their jobs - more than in the past because, from January, a government reform will make things tougher for the long-term unemployed.

Nor is it only Opel workers who have been taking to the streets. There are problems too at KarstadtQuelle, the German group which is Europe's biggest department store and mail-order firm. Both companies may be essential stops on the road to reform, but they are further damaging consumer confidence.

The cost of labour in these two traditional German sectors has proved too high. Alarm bells rang far too late. GM has had a running battle to reduce costs while maintaining capacity for a European upswing. Now it has run out of breath. With Karstadt too it is a case of reacting too late and rattling the faith of creditors. This week, problems with securing a €1.7 billion syndicated bank loan threatened to jeopardise a restructuring plan carefully worked out only last week with the white-collar union Verdi. Karstadt's bankers are not the only ones who doubt there is much resale value in 77 smaller department stores which do not fit its strategy.

Car firms and retailers account for 10% of all private-sector employment in Germany. Many of these workers are now more concerned about holding on to their jobs than raising or protecting their pay. At Opel, managers are prepared to discuss limited job security. Karstadt cut a deal to reduce costs and trim its workforce by natural attrition. DaimlerChrysler and Siemens forced more work for less pay by threatening to relocate production. Managers at Volkswagen (VW) want to reduce labour costs by 30% by 2011. IG Metall's demands for job security for VW workers may trigger more strikes later this month.

One of the arguments used by unions - that lay-offs and wage cuts can do harm as well as good in a downturn by hitting consumption - is partly true. German car workers are big buyers of German cars. But unfortunately neither their profligacy nor that of shop assistants can sustain an entire economy.

Politicians of all stripes are coming to terms with the fact that restructuring is best left to the private sector. “All we can provide is the legal framework,” says Mr Clement. It is rather embarrassing, then, that the European Commission chose this time of crisis to file a lawsuit against the German government for its protection of VW. A law passed in 1960 prevents any single VW shareholder from exercising more than 20% of shareholders' voting rights at the firm, and gives the federal government and the state of Lower Saxony the right to two seats each on the VW supervisory board. The commission rightly claims this discourages investment and a foreign takeover of VW, hampering free capital flows in the EU.

Will globalisation see the shrinking of German car production from 5.5m cars a year to around 3m, closer to that of France and Spain? That seems to be the trend now that cheaper manufacturers can be found in central Europe. Meanwhile, Germany will attempt to turn itself into more of a service economy like Britain. New job prospects for former car workers are not great. The government's job-creation schemes remain the least convincing of its reforms. While numbers have risen in subsidised part-time “mini-jobs” and casual jobs, the takers have tended to come from outside the ranks of the officially unemployed. One-man start-up companies, the so-called Ich-AGs, though popular, have tended to fizzle out after the first year. The year to July saw a net 95,000 increase in employment and the forecasters predict 200,000 more in 2005. But despite that, net contributions to the social security pool are likely to fall.

"Don't cut our wages,” shouted one marcher in Russelsheim, “cut the hidden labour costs.” He meant the mandatory social security and insurance payments that cost employers a quarter as much again per employee. But the government cannot afford to reduce these: its budget deficit, forecast at 3.5% of GDP next year, has already attracted the wrath of Brussels. Whichever way the cake is cut, it seems, masses of German workers are doomed to lose their jobs. It is a shame that the news came to them so ill-wrapped and so late.

Car workers bear the brunt of a global reality for many German employees.

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