By Stephen Wilmot
To hear Volkswagen union boss Daniela Cavallo tell it, the standard rules of capitalism shouldn't apply to the world's second-largest carmaker.
"Volkswagen is no normal company," she said in a September speech to thousands of workers.
Labor is unusually powerful at VW. Cavallo's explanation was historical: In the 1930s, the Nazis used union money to build the company's first factory.
"Volkswagen doesn't just belong to shareholders. Volkswagen also belongs to us, the workforce," Cavallo said.
The 49-year-old has shot to prominence in recent weeks for her central role in negotiations over what could be a wide-reaching overhaul of the car giant. VW has proposed wage cuts and raised the specter of factory closures in Germany for the first time in the company's history as it battles a host of troubles.
Cavallo, who as head of VW's works council represents more than 680,000 employees and has a seat on the company's board, has vowed to fight plans for a major restructuring.
Tensions are set to rise further this week with another round of wage talks. The works council didn't make Cavallo available for this article.
By her own admission, Cavallo is an unlikely leader at an abnormal company.
The diminutive daughter of Italian "guest workers" -- immigrants invited to fill labor shortages during Germany's postwar "economic miracle" -- Cavallo only received German citizenship in 2021. In the male-dominated, doctorate-driven German business world, she didn't study at college, instead pursuing a professional training program at VW.
VW, though, is the Cavallo family business: Her father worked there and now she does, alongside her husband and two sisters.
At VW, Cavallo embodies the German tradition of Mitbestimmung or co-determination -- the principle that rank-and-file employees help steer the companies where they work.
Large German companies are typically governed by supervisory boards split equally between representatives of workers and shareholders. These factions are jointly responsible for appointing the chief executive and other top managers, though the chairperson comes from the shareholder side and has a casting vote.
Labor's influence at VW is further enhanced by public ownership. The state of Lower Saxony owns just over 20% of the company's voting stock, and typically sides with workers. A special "VW law" requires a four-fifths majority vote for important shareholder resolutions, giving politicians a blocking minority.
Now the power of workers is being put to its toughest test in decades. The company is asking workers to help shoulder the pain amid a bumpy transition to electric vehicles, a shrunken home market in Europe and rising competition from lower-cost Chinese EVs.
VW has said significant changes are needed to boost the competitiveness of its core European operation, which it says has roughly two factories' worth of excess production capacity.
In response, Cavallo has taken a more combative tone, shedding her reputation as a pragmatist during rhetoric-filled speeches to big crowds. She is set to address workers at Wolfsburg's soccer stadium on Thursday before joining a third day of formal wage discussions between the union and management.
Cavallo is no stranger to tricky negotiations, having worked for VW's union body for almost 20 years before assuming its leadership in May 2021.
She was a crucial negotiator in the "pact for the future" that followed VW's 2015 diesel scandal, when the company started to invest heavily in electric vehicles and made an early plan to reshape its labor force that included 23,000 job losses in Germany.
Cavallo's predecessor and longtime mentor, Bernd Osterloh, fully embraced his role in helping to run VW, earning the nickname the "King of Wolfsburg" during his 15 years running the union body.
When Cavallo succeeded Osterloh, observers saw a new approach. She was a "smart cat" to Osterloh's "barking dog," according to someone with insight into Wolfsburg's inner workings.
A less assuming style seemed a good match for Oliver Blume, who became chief executive in 2022. Both are VW lifers who at first appeared to favor quiet consensus-building over noisy disagreement
Cavallo last year agreed to a wide-ranging cost-saving program. But the mood soured after management said the business needed bigger cuts to withstand a deteriorating market. VW's net profit is forecast to fall by more than one-third this year.
Cavallo has argued that savings need to be found by cutting corporate duplication and bureaucracy instead of jobs and factories. Members of her team, which numbers a few dozen people, are working on an alternative company strategy. Details are set to be disclosed on Wednesday.
The tough industry backdrop might give Blume a stronger hand in the negotiations than when former CEO Herbert Diess pushed for job cuts three years ago. Cavallo shot down that move and withdrew union support for Diess on the board, helping to trigger his eventual ouster the following year.
VW's management hasn't yet published detailed restructuring plans, beyond calling for a 10% general salary cut and other pay-related measures as part of the continuing wage negotiations.
How far the company can go depends in part on Lower Saxony. So far, Minister President Stephan Weil, who leads the state shareholding, hasn't come down clearly on Cavallo's side, as he did in her 2021 conflict with Diess.
"At the end of the day, a company needs to be competitive," he told a German talk show last month, underlining how some capitalist norms do apply to VW.
Union power at VW also rests on the same foundation as at any other big industrial company: the threat of strikes.
Workers downed tools this month at a small factory. Most of the company's German plants are governed by a labor agreement that bars strikes before the end of November.
Cavallo has started to dangle the possibility of a mass walkout. "It is always the same at VW: When we stand together as a workforce...then we are not just strong but unbeatable," she told thousands of workers in a speech in Wolfsburg last month.
"I can only warn all board members and everyone at the top of the company: Don't mess with us."
Write to Stephen Wilmot at stephen.wilmot@wsj.com
(END) Dow Jones Newswires
November 20, 2024 05:30 ET (10:30 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
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