By on August 12, 2014

VW XL1s

Volkswagen AG execs will have to go back to the drawing board to determine where to cut costs after its works council demanded outside consultants be shown the door.

Reuters reports last month, CEO Martin Winterkorn informed his employees that he was seeking €5 billion ($6.7 billion USD) in efficiency gains by 2017 so as to close the profit gap between his company and its rival automakers. In turn, VW brought aboard consultant group McKinsey to help determine where to find the needed gains. But the pricey consultants were a point of contention with VW’s labor representatives.

The concerns over McKinsey’s presence focused upon fears of potential layoffs at factories in Kassal and Wolfsburg, Germany, where a total of over 65,000 assemble components, transmissions and vehicles. Labor leaders suggested the company focus on cutting both R&D spending and its trimming its bloated model lineup rather than reduce headcount.

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31 Comments on “VW Works Council Forces Out Consultants Amid Headcount Reduction Fears...”


  • avatar
    jmo

    They fired both Bobs?

    http://bighealthreport.com/wp-content/uploads/2011/04/officespace-bobs-consultants.png

  • avatar
    racer-esq.

    Ha, and people claim things are different in Germany. I feel like I am reading about the luddite behavior of the UAW in the 1970s and 80s.

  • avatar
    Conslaw

    I remember going for my degree in management n the early 1980s. A lot of my comrades were aiming for jobs as “consultants”. In fact, some got consultant jobs for accounting firms like Arthur Anderson etc. I chuckled to think of these people as consultants because I saw their projects in college. At best they were full of s–t; but usually the s–tsack was half empty.

  • avatar
    TheEndlessEnigma

    “Labor leaders suggested the company focus on cutting both R&D spending and its trimming its bloated model lineup rather than reduce headcount.”

    Great suggestions “labor leaders”. Cut R&D spending to guarantee you do not have competitive vehicles 5 years down the line. Trim the “bloated” model lineup; VW is not a company that can be described as having a “bloated” model line. I would suggest that VW’s “labor leaders” know full well they have a bloated workforce and probably inefficient labor practices, but these will never be allowed to be touched. Looks like VW is on its way to being the next GM.

  • avatar
    tomLU86

    Cutting manpower in the auto manufacturing is not easy, and certainly not a popular task.

    Outsourcing this thankless, underappreciated function to consultants is quite stupid.

    At the factory floor level, consutlants are simply not knowledgeable with the many details, and many variables dictated by supplier constraints, or marketing requirements, or management edicts to make a meaningful difference.

    At the macro level, where they CAN make a difference, all they are really doing is using nice charts and flowery language to state what is obvious to many middle managers, or smarter production workers. These types of recommendations must be filtered politically, to ensure future work.

    For example, VW, instead of honing the “fun-to-drive” theme of it’s best cars, the GTI, and previous Jetta’s and Passats, VW decided it wanted VOLUME, and that required giving Americans “more for less”.

    So VW came up with Americanized Jettas and Passats that are larger and don’t drive as well as the previous version. If I want an “American” sedan, I’ll buy a Camry, Accord, Malibu, or Fusion.

    What’s amazing is that VW did this in the late 70s early 80s, when they “Malibuized” the Rabbit, and met with similar results.

    THAT was when the consultants were needed, for strategy. But again, if sr. executives can’t develop a coherent, winning strategy that capitalizes on their strengths, why are they there?

    Hiring consultants to try to compensate by identifying “efficiencies”, 90% of which are based on common-sense assumptions that are not viable (ie–since only 10% of cars have manual trans, eliminate it, and eliminate the job in the plant that installs the clutch pedal and clutch hose—DUH!) is laughable.

    Far from being labor zealots, the Germans are simply trying to preserve the goose laying the golden eggs by not laying out gold for useless services.

    • 0 avatar
      racer-esq.

      I disagree. In my experience consultants suck at making marketing calls (i.e. “Americanize” the lineup or not), but the right consultants, with the right experience, can bring huge improvements in process efficiency.

    • 0 avatar
      racer-esq.

      A McKinsey alum saved LEGO, so they can’t be all bad:

      https://alumni.mckinsey.com/public_content/500169203

      • 0 avatar
        krayzie

        You definitely have never worked for a McKinsey wrecked company. There are over 200 of these enterprises that have fallen victim out there. They totally gutted the first company I worked for, and now they are doing the same to the one I’m at now.

        McKinsey will probably tell VW as a last resort to outsource their car manufacturing to a Chinese car maker or something.

  • avatar
    redav

    Hire a consultant to fire the consultants–I wonder if they will fire themselves.

  • avatar
    koshchei

    Consultants: The blunt instrument used by incompetent and risk-adverse management to make bad decisions based on incomplete data that they can’t be held responsible by shareholders for.

    That VW resorted to outside consultants to make management decisions suggests that there’s a culture of entitlement at the top of the organization, where executives are either being held to exceptionally low performance standards, or just plain aren’t doing what they’re paid to do.

    • 0 avatar
      bosozoku

      +1. It’s always easier to bash labor, but I’ll bet saving $5 billion could be achieved just as easily by eliminating under-performing and redundant management across the board versus chipping away at assembly workers.

      • 0 avatar
        Roader

        I’m guessing the union is running scared because VW is considering eliminating $5 billion in under-performing and redundant assemblers vs. chipping away at R&D and the model line.

    • 0 avatar
      redav

      “Consultants” are also temporary workers. It’s common if a company needs a short burst of effort, they will hire consultants for that time. It’s a simple way to reduce payroll risk and smooth out the highs and lows of normal business cycles.

  • avatar
    S2k Chris

    Two wrongs making a wrong, here.

    On one hand, consultants are generally a fairly poor investment, BUT they can offer some insight because they aren’t beholden to the same corporate culture and “Sacred cows” that management is, they can tell management to kill a favorite program that management has been wrongly clinging to, for instance. But generally, they’re just telling you stuff you should already have figured out.

    However, CONSULTANTS being dumb doesn’t necessarily mean their recommendations are dumb. Yeah, it’s stupid to pay $150k for a study telling you to cut workforce 10% when you already knew you needed to cut the workforce 10%, but that doesn’t mean cutting the workforce 10% is a bad idea just because the consultant suggested it.

    Maybe by marginalizing the consultants themselves, the labor board has managed to nullify their suggestions as bad because consultants are bad? Clever like a fox. Still doesn’t mean that VW should cut R&D instead of heads, though.

  • avatar
    Zykotec

    Isn’t showing the outsider consultants the door quite cost effective in thefirst place? I am most certainly biased here, because the company I worked for believed so strongly in hiring the ‘best’ consultants they could get, that they completely ‘forgot’ to find out if any of their experience or input would be relevant to our business… Not to mention, there wasn’t anyone there to teach them about our business, so the first year they were there they were mostly holding up production while going around asking us workers what we were doing…(which, may possible have been a lot smarter that trying to have our managers explain them what we were doing, as they are mostly hired on the same basis as the consultants in the first place.
    I should mention that having most of our production relying on 50-60 years olds, who refuse to learn anything new, and apprentices, that had only learned the exact limited part of the production they needed to know, didn’t make anyones job any easier at the time…

  • avatar
    RetroGrouch

    Close the profit gap? This is the long term cost of selling crappy product. VW is hundreds of thousands of units/year behind where it needs to be because of their poor reputation thanks a couple decades of poor quality. The executives and accountants who saved DM0.017 or €0.03 per unit on crappy ignition coils and plastic coolant flanges in the late 90’s have since retired to their tax haven islands. It will take a decade of shipping above average quality for public perception to catch up. Sorry, VW shareholders, you got what you deserved.

    See: GM.

    • 0 avatar
      05lgt

      +1 The widely dispersed owners collectively demand stupidity and then don’t like it when they get it. Short term profit at the expense of long term viability is the constant, stuck on stupid refrain played by the major investment groups. Buffett’s genius is in not playing unless he gets to make the rules. Then he doesn’t demand stupid.

    • 0 avatar
      krhodes1

      Uh – VW is the 3rd largest automaker in the WORLD. They did not get there by making crap. Just because what they make is not entirely suited to particularly and peculiarly American tastes does not mean that they are not a great company with great product.

      VW makes crap is an Internet meme that is just not real out here in the real world. I know far too many happy VW owners to put any stock in my brother’s cousin’s uncle’s stories on this board. Plus the griping of former VW owners who should have bought Toyotas.

      Also don’t forget – in large measure VW is a “family business” just like Ford. The Porsche and the Piech families (Mrs Porsche was a Piech) run the show. The German state of Lower Saxony owns a big chunk too, which means labor’s voice counts A LOT, but the family makes the calls. This is not GM, where ownership is spread all over creation.

      • 0 avatar
        CJinSD

        GM is the number 2 automaker. For decades they were number one, achieving the status by building crap.

        • 0 avatar
          krhodes1

          That may be true, but GM BOUGHT that #1 position by selling their crap below cost, which led to their bankruptcy. VW may not be quite as profitable as they would like to be at the moment, but they are still quite profitable.

          Everywhere in the world VW has an excellent reputation for quality, EXCEPT the US. So who is right and who is wrong? Are we wrong, or is the rest of the WORLD wrong? I’d bet on US being wrong in this case. The US is no longer the center of the automotive universe, and likely never will be again.

          • 0 avatar
            Zykotec

            As a self-proclaimed VW -‘disliker’ (nothing they make is interesting enough to hate) I actually think it’s the US market that is ‘wrong’ in this case. ‘Everyone’ around here drives VWs or Audis, and even if there are some issues, their reputation for reliability has been strong since they more or less crushed their competition in the late 80’s (when Fords and Opels really were crap)
            Their ‘perceived’ quality and build quality also sells a lot of cars, they just seem a lot better than their competition when new, especially compared to American and Japanese cars (even those built in Europe)
            I believe a lot their bad reputation in the US comes from bad or lacking servicing, and the fact that you don’t get the base models over there, that make up a lot of the sales here. And the fact that the US are used to old pushrod V8’s and Hondas and Toyotas that just go on and on, no matter the abuse.

  • avatar
    jpolicke

    Make a better product and cut warranty costs.
    Nahhhh.

    We got Americans to buy cars with rear drum brakes in AD 2010. See if we can get away with them on the front. Start with the Beetle; tell them it’s “retro” and “authentic”.

    Make the door panels cheesier. Consult Cerberus.

    We took out the gas assist struts under the hood and put in a stick. Now take away the stick. Tell customers it’s a special dealer service tool and they’re not qualified to do anything in there anyway.

    Roll the V-tex thinner.

    We’re the Works Council and we’re here to help!

    • 0 avatar
      hgrunt

      And don’t forget about the cheap, but tough and torquey engines!

      VW isn’t the only company guilty of the rear drum brake thing though. To my knowledge, the Toyota Corolla had rear drums and non-independent rear suspension, and the 2nd generation Honda Insight and Fit both have rear drums too.

      It’s stuff people really wouldn’t care to notice. If they’re saving a hundred bucks over 300k cars per year for 3 years at a time, that’s going to add up very quickly for them.

  • avatar
    guevera

    “as to close the profit gap between his company and its rival automakers”

    So the company is profitable, but managment thinks they could be more profitable if they fired a bunch of workers.

    I’m not surprised at this attitude, though it’s arguably the best argument for a revolution I’m likely to see this week, but I’m a little surprised that the company is willing to say that outload in public, even dressed up in jargon.

    How sad is it that C-level execuitves of large public companies don’t even pretend to give two craps for their workforce any more. How sad is it that they won’t face any blowback for not doing so.

  • avatar
    jpolicke

    VW is guilty of spending way too much on R&D chasing the 100km/ltr white whale. The XL1 is an extreme technical exercise with zero commercial potential. NO ONE is going to pay $146,000 for a car with 0-60 times of 11.9 seconds. I’d rather have 2 Teslas. They would have been on to something had they gone with aluminum & magnesium rather than carbon fiber, gave it just a little more power and settled for “only” an honest 100MPG combined.

  • avatar
    wmba

    You can hardly blame the Works Council for the €70 billion the VW management braintrust has spent on MQB and new models.

    VW has about 103 factories and about a year ago started faltering at installing the massive equipment required for implementing MQB in all their assembly plants due simply to the cost. This has been covered in the press, people.

    So, to justify what any fool knew was an over-reach of its resources, management hired consultants to paper over its mistakes with the usual whitewash. No surprise the Works Council is upset that the monumental waste of resources may impact them, as the dual brainiacs of Winterkorn and everyone’s favorite 80 year-old gigolo, Ferdy “I know I’m a genius” Piech try to skip blame and impose “cost-savings”.

    The usual chorus of Fox News knee jerk reactionaries and valet service providers here immediately blame the Works Council, as usual. No imagination, just frothing at the mouth.

    There are no bad unions, just bad management. These days, management hires PR apologists to deflect all blame from them, by shifting it to others. Consultants are just PR minions with MBAs for hire to make it appear legit. It ain’t, and management has had its nuts kicked.

  • avatar
    bartelbe

    Getting rid the consultants was the right call, they are an expensive waste of time and money used by incompetent management. I know a consultant, he started straight after leaving Uni. Total management experience zero, work experience virtually zero.

    No problem, he was given years of training before they let him loose on the clients. Nope, he had two weeks worth, to be blunt you could get exactly the same information he has from the idiots guide to management, that were he gets his information from.

    As for cutting R&D spending, good news for Germanys competitors if they do that.

  • avatar
    Zykotec

    No matter how profitable their cars may be, any large coorporation today also have another customer group to take care of. Our stock holders ‘demand’ a 10% increase in stock value for instance. And our management, instead of hoping for intelligent, reasonable or responsible people to buy our stocks instead, are more than willing to try to oblige.
    Until everything is sold off for profit, and the factory is not capable of upholding any sort of production…
    Offcourse, not keeping them happy will reduce the stock price, which sadly is the ‘actual value’ of a factory today.
    I’m not sure how this would work for VW or Ford which are largely still family owned, but I guess they still have to keep their share holders happy to keep the price up.

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