A General Motors works council’s response to the capitalist global financial crisis: A case study from Germany

Abstract

The 2008-2009 global financial crisis (GFC) has negatively impacted on banks, financial institutions and companies such as General Motors (GM), bringing the latter’s European subsidiary close to insolvency and highlighting some of the US car manufacturer’s long-term problems, which were solved through a partial takeover by the US government. In Germany, GM’s strongest presence in Europe, the company had a close encounter with bankruptcy in the spring of 2009, narrowly averted when the sale of GM’s Opel subsidiary (GMO) was actively sought. This paper is about the conflict between one company’s management and one works council, in one location. The empirical field research focuses exclusively on the position of GMO’s works council, reporting its views and perspectives on GMO’s management and the GFC. On this basis, two arguments are presented: first, that the relevance of GMO’s works council was reflective of a version of capitalism that has been associated with the model of a ‘coordinated market economy’ (CME) rather than an Anglo-Saxon model of a ‘liberal market economy’ (LME); and second, that despite the eventual cancellation of the sale of GMO by GM-USA (2010), the case highlights how key labour actors coordinated their activities in order to prevent GMO’s bankruptcy.

Keywords

Germany General Motors works councils global financial crisis variations of capitalism

Introduction: A short overview of IR at GM-Opel, and varieties of capitalism

Unlike Anglo-Saxon industrial relations (IR) that reflect a ‘liberal market economy’ (LME), German IR has been closer to a ‘coordinated market economy’ (Hall and Soskice, 2001; Klikauer and Donn, 2004a; Frege, 2005; Jackson, 2007; Towers, 2007, Thelen and Hall, 2009). According to Hall and Soskice’s Varieties of Capitalism (2001: 8ff; cf. Hodgson, 1995; Becker, 2009), economic affairs inside LMEs are coordinated via hierarchies and competitive arrangements based on market relationships. This has created an arm’s-length exchange of goods and services arranged under competition and formal contracting, where price signals are generated by markets. LMEs are based on supply and demand on the basis of margin calculations. This follows neoclassical economics in enshrining market institutions to coordinate economies.

CMEs, on the other hand, have adopted exchange mechanisms and information transmission inside networks with a high reliance on collaborative relationships. This occurred in Germany despite the current fashion for ‘erosion assertion’ in German IR (Abrahamson, 1996; Rehder, 2003, 2006; Streeck, 2005a, 2005b, 2007, 2008; Thelen and Kume, 2006; Thelen and Martin, 2007). Business affairs and IR in CME’s more social-market oriented economies tend to exclude competition in favour of coordination. Coordination among companies in CMEs occurs as a result of strategic interaction among firms and other actors. Hence Hall and Soskice’s (2001) five coordination problems – vocational training, corporate governance, inter-firm relations, employee- management coordination and IR – have found different solutions in LMEs (e.g. Anglo-Saxon countries) to those of CMEs, as in the case of Germany (Grahl and Teague, 2004; Thelen, 2009a, 2009b).

Despite the popularity of Hall and Soskice’s Varieties of Capitalism (2001), with half a million Google hits (April 2011), there are serious shortcomings with this approach:

Contrasting ‘Good Capitalism’ with ‘Bad Capitalism’ increases the tendency to forget that these are mere variations on a theme called capitalism, and that this does not alter the pathologies of capitalism (Marx, 1890; Marcuse, 1966: 101; Burkett and Hart-Landsberg, 2003; Watson, 2003; Baumol et al., 2007; Moore, 2009; Bruff and Morton, 2010).

Hall and Soskice (2001) appear to be more interested in differentiating the ways in which competitive advantage can be achieved in LMEs and CMEs than in bringing to our attention the inherent contradictions inside each model, between both models, and in capitalism in general.

It presents each box as producing stability and is slightly determinist, instead of highlighting the dynamics of capitalism at a micro-, meso-, and marco- level (Deeg and Jackson, 2007; Crouch, 2007).

One cannot argue that capitalism is geographically fixed. While capitalism has only one true model – capitalism itself – it has never been determined by geography or nationality because its character transcends nations and geographical locations. Hall and Soskice (2001) tend to gloss over significant variations within their two ideal-types.

Social structures of accumulation such as those activated along the lines of class, race, and gender remain unexplored by Hall and Soskice (2001).

Their approach does not account for what became known as GVCs (global value chains) and GPN (global production networks), which cross over the boundaries drawn by Hall and Soskice (2001; Thompson and Vincent, 2010).

Hall and Soskice cannot be used to ‘Eclipse the Reasons’ (Horkheimer, 1947) for the enduring social, political, and economical suffering that capitalism causes.

Bearing these shortcomings in mind, their approach is not used to highlight, for example, Germany’s CME-like approach to IR as defined by a non-competitive regime of a duality of legal regulation and trade union structures that involve all three actors (state, trade unions/works councils, and employers/management) at the national (federal), industrial (metal), corporate (GMO), factory (Rüsselsheim, Eisenach, Bochum, Kaiserslautern), and workplace (e. g. final assembly, body shop, paint, etc.) levels (Kochan, Katz and McKersie, 1986; cf. Bernaciak, 2010c: 5). GM’s German operations are part of GM, which was founded in 1908 in Flint, Michigan. GM-USA bought GMO in March 1929, and hence the global financial crisis affected not only GM in the USA but also its subsidiary in Germany (GMO).

The global financial crisis (GFC) demanded GMO’s attention at the corporate rather the national, industrial and workplace levels. At the corporate level, the duality of Germany’s IR means, for example, that issues such as those predominantly belonging to collective bargaining are dealt with externally (Thelen and Wijnbergen, 2003; Haipeter and Lehndorff, 2005). Traditionally, these have been assigned to employers’ federations such as Gesamtmetall and trade unions such as the Industrial Trade Union, or the Metalworkers Union (IGM). GMO is part of the metal industry’s employer federation, and its workforce is part of the metalworkers’ union. Issues related to ‘workplace agreements’ (Betriebsvereinbarungen) such as work organisation, overtime arrangements, etc. are located at the corporate level (cf. Walton and McKersie, 1965; Walton, Cutcher-Gershenfeld and McKersie, 1994). Often, these rather less conflict-laden issues are negotiated directly between works councils and management (Kotthoff, 1982, 1998). These are negotiated short-term solutions that temporarily halt class conflicts between labour and management. These arrangements can underwrite management’s interest in industrial peace in return for what has been termed ‘co-management’ (Rehder, 2003, 2006; Streeck, 2005a, 2005b, 2007, 2008; cf. Offe and Wiesenthal, 1980; Ramsay, 1977; Hyman, 1974).

In contrast to that, conflicting or distributive issues such as mostly but not exclusively wages, annual leave, weekly, and daily working time, etc., are negotiations between employers’ federations and trade unions. This has not resulted in an easing up of German employers to reduce labour’s share of national income (cf. Brenner, 2006: 20 and 149). Over the last decades, German capitalism engineered a decline in real wages. Simultaneously, productivity had increased significantly, leading to a strongly improved position of German capitalism. This result is due to a rapid decline in unit-labour costs in Germany when compared to other European countries (Brenner, 2006: 112 and 173ff; Bernaciak, 2010c: 3). Germany’s high productivity with declining wage levels caused considerable frictions within the European Union. This duality externalises ‘class war’ to unions and employers, and internalises a managerial focus on productivity, products and engineering (Klikauer, 2003, 2005). It organises and coordinates Goodrich’s Frontier of Control (1922) between capital and labour.

At GMO’s corporate level, there are two forms of organisations that represent workers defining Goodrich’s frontier of control (1922; cf. Offe and Wiesenthal, 1980) between management and workers: a legally structured body (works councils, co-determination, and a supervisory council), and trade unions (industrial unions). In the case of car manufacturing, this is the 2.3m-member strong industrial trade union IG-Metall (IGM), representing approximately a third of all workers (cf. Clark, 2006). Trade union organisations are not legally protected, and thus rely on the power of trade union members. At GMO, union members elect shop stewards (Vertrauensleute or ‘people of trust’) who elect the so-called union Blockies – a governing team (Vertrauenskörperleitung), including a convener (Klikauer, 2004). Both structures have a history of stable, mutually beneficial but at times also contradictory relationships between GMO’s union body, representing a more radical political-economic view, and the works council, representing a more accommodative business-oriented view (Klikauer, 2002a, 2002b; cf. Anner et al., 2006; Behrens, 2009; Bernaciak, 2010c: 2, 22).

At the plant level, IGM’s union membership was at 75 per cent in blue-collar areas and 35 per cent in white-collar areas (Franz, 2008), with roughly 500 stewards and area representatives, or Blockies. During 2008 and 2009, the looming demise of GMO in the wake of the GFC demanded several large plant-wide meetings (Seib, 2009). GMO’s works council–steward structure created ‘new communicative structures’ (Klikauer, 2007 and 2008) between workplace unionism and works councils. This enabled GMO’s representative structure to ‘respond more quickly and comprehensively to external and internal challenges’ (Schaffner, 2009; cf. Behrens, 2009). Works councils are elected by all workers in companies without regard to their trade-union membership and political affiliation (cf. Frege, 2002; Addison, Schnabel and Wagner, 2004; Eurofound, 2009a). This established four levels of workers’ representation (see Table 1):

Table 1.

The four levels of representation at GOM’s works council

Levels	Description
1. Works council at Opel Rüsselsheim	Traditionally, trade unions (e.g. IGM) run candidates for seats on the works council. The number of seats on a works council is regulated by law and relates to the overall number of workers. Approximately 17,000 GMO employees elected 41 works council members for four years with the vast majority of seats (81%) going to IGM. In 2009, IGM had 38 works council members (www.igmetall-opel.de). ‘Two members came from an “employer oriented list” called AUB and we have one independent member who is close to us’ [IGM’s works council members] (Kohlbacher, 2009). IGM has been able to maintain its strong voice inside GMO’s works council despite a continuous workforce shift away from car manufacturing (blue collar) to engineering, management, research, and development (white collar). Hence IGM remains the dominant union without any sign of corrosion or erosion (Klikauer, 2002; Bernaciak, 2010a, b, c). In sum, GFC’s threat of plant closure paired with the stability of an overwhelming IGM majority at the works council enabled it to speak with one voice during GFC. The stability of this structure at GMO has, over time, resulted in no less than four levels at which workers are represented.
2. The company works council	The second level of representation has been the company works council or Gesamtbetriebsrat (GBR) of the Opel GmbH, which includes works council representatives based at plant locations such as Rüsselsheim, Bochum, Kaiserlautern, and Dudenhofen. In 2009, GBR’s fifteen members brought together works council members from all production sites throughout Germany. This guaranteed that works councils at all plants reached common agreement on various issues such as GFC, and coordinated their activities as a collective (KBR/GBR, 27 July 2009).
3. The Corporate Works Council	At the next level is the corporate works council or Konzernbetriebsrat (KBR) responsible for GM-Germany as a whole, including all legally separated business entities (Adam Opel GmbH, the Opel Eisenach GmbH, General Motors Europe GmbH, and the GMAC Bank). It had seven members in 2009, and covered GMO subsidiaries outside of car manufacturing. In the case of GM-Europe for example, GM’s Zurich office is a purely managerial office and its bank (GMAC) is a financial institution. Since the Konzernbetriebsrat includes non-manufacturing organisations, GMO works councils ranked the KBR below the GBR when it comes to importance (KBR/GBR, 27 July 2009).
4. The European Works Council	At the highest level is the European Works Council or EWC (Banyuls, Haipeter and Neumann, 2008). GMO’s EWC has a long tradition of coordinating IR activities with other subsidiaries owned by GM throughout Europe (Bernaciak, 2010a, b). In 2009, it comprised representatives from seventeen member states of the European Union with GM’s production and other facilities (cf. BR, 2009a). These included GMO, Vauxhall and Saab until its sale to the Swedish sports car maker Koenigsegg in June 2009. Overall, GM Europe’s EWC included representatives from Belgium, Denmark, Germany, Great Britain, Finland, France, Greece, Austria, Poland, Portugal, Sweden, Spain, and Hungary. The EWC has 30 members from a wide range of trade unions. The EWC allows GMO’s German works council to seek common agreements on issues such as GFC and to coordinate activities Europe wide (e.g. the European Action Day on 26 February 2009 – BR, 2009b; Bernaciak, 2010a, b, c). On the whole however, the core of these four levels has been generated at the first level, with levels two and three being strongly influenced by GMO’s works council. Only the highest level (EWC) represents more than an ‘add-on’ version of level 1 because the EWC brings in a truly new form of workers’ representation with participants from European countries and different trade union affiliations.

These four levels of works councils are linked to GMO’s co-determination arrangements, providing an additional structure underwriting a stable relationship between management and workers (Klikauer, 2002a and 2002b; Muller, 1997). The Co-Determination Act of 1976 stipulates a twenty-member strong supervisory board at GMO with ten ‘elected’ employee members and ten members who are non-democratically ‘appointed’ by management (Eurofound, 2009b). In 2009, employees were represented by two participants of IGM’s Frankfurt head office: one representative with no affiliation, the so-called ‘Sprecherausschüsse’ (Bundesrecht, 2009); and six works council members (Rüsselsheim: 2, Bochum: 2, Kaiserlautern: 1, and Eisenach: 1). These nine local members were supported by a speciality of GM’s German setup, because it includes Cal Rapson (vice president of the United Automobile Workers’ Union, USA).

In 2009, GMO’s CEO Carl-Peter Forester (Vorstandsvorsitzender and Aufsichtsratsvorsitzender 2004-2009; followed by Nick Reilly after 15 January 2010) held the legally assigned ‘deciding vote’ through a simple doubling of his vote in cases of serious disagreements and conflicts. While the votes of all other members of the board are counted as one, his vote counts as two. However, GMO’s supervisory board has not been marred by conflicts, and internal fights are rare. Hence the deciding voting power of the CEO is hardly ever used. Instead, agreements are sought and ‘often deals are made beforehand so that board decisions are reached unanimously’ (Herber, 2009). The relationship between GMO management and the works council operates similar to the relationship found at GMO’s supervisory board. Management is well aware that it works best with the works council under the maxim ‘with the works council everything works – without it, nothing works’. On the other hand, the works council also knows that its powers are limited, and it depends on GMO’s management to get things done. This was the stable and established relationship in which both GMO’s management and works council faced the global financial crisis. The following research question – what was the role of one works council in one motor-car company (GMO) in one country (Germany), and what was their response to a looming insolvency in the wake of the GFC? – examines this in greater detail. This question led to the following hypothesis: that the institutional and organisational framework provided by a coordinated market economy allowed GMO’s works councils to transcend its traditionally assigned role as a social and non-economic actor.

The global financial crisis and GM Germany

The global financial crisis (GFC) of 2008–2009 has been described by leading economists as being the most serious financial crisis since the Great Depression, with its global effects characterised by the failure of key businesses, declines in consumer wealth estimated in trillions of US dollars, substantial financial commitments incurred by governments, and a significant decline in economic activity (Davis, 2010). Both market-based (LME) and regulatory solutions (CME) have been implemented, and were under consideration throughout 2008 and 2009. The immediate trigger of the crisis was the bursting of the US housing bubble, which peaked in 2005–2006. High default rates on adjustable rate mortgages began to increase quickly thereafter. As housing prices declined, major global financial institutions that had borrowed and invested heavily in sub-prime loans reported significant losses. Falling prices also resulted in some homes’ becoming worth less than their mortgage loans, providing a financial incentive for foreclosure. The ongoing foreclosure epidemic began in late 2006 and continued during 2008 and 2009, draining wealth from consumers and eroding the financial strength of banking institutions. As the crisis expanded from the housing market to other parts of the economy, it eventually hit the car industry, including GM.

By August 2009, GM was still the world’s second-largest carmaker when ranked by global unit sales, leading global sales for 77 consecutive years (1931 to 2007), longer than any other manufacturer of cars and trucks. In 2009, GM employed 240,000 people in some 140 countries, including 25,000 in Germany (www.gm.com/europe). The GFC started to seriously impact on GMO on 14 November 2008, when GMO called on the German state to underwrite its credits after a massive decline in sales and profits. GMO needed €3.3bn. On 17 February 2009, GM-USA announced that it would retrench 47,000 workers, of which 26,000 were scheduled to occur in non-USA based locations. According to Liebe (2009), ‘the GFC only made GM’s long-term structural problems visible, which resulted from a policy of producing cars that became increasingly less wanted’. Hence, there has been an exceptionally steady trend downward, with General Motors’ operating margins declining significantly over decades (1960s: 8.7%; 1970s: 5.5%; 1980s: 3.0%; 1990s: 1.3%; 2000s: -0.5%). In other words, GM profit margins were in decline for years, and its cars increasingly outdated and outperformed by its competitors, largely from overseas (Japan, Korea, and Germany). The GFC enhanced this and brought GMO close to insolvency.

By early 2009, discussion on the future of GMO had started seeking to disconnect GM’s European operations from its US headquarters. On 30 March, US President Obama issued a 60-day ultimatum to GM to develop a concept for its future. One month later, Germany’s regional states backed GMO’s credits but rejected direct state involvement. The Austrian-Canadian car supplier Magna issued a ‘Future-Concept’ for the takeover of Opel-Europe. On 19 May, the German government secured €1.5bn of GMO’s credit that it had outstanding with commercial banks and financial institutions. Meanwhile, the insolvency of GM-USA included the takeover of GM by the US government. In the wake of that, General Motors (GM) was labelled ‘Government Motors’ (Washington Post, 26 May 2009), because the US government held the majority of GM, paying €36bn. On 27 May, GMO announced the legal separation of its European divisions from GM (BR, 2009c), affecting GMO (Rüsselsheim, 17,000 employees; Bochum, 6,000; Kaiserlautern 3,000; Eisenach 2,000). Other large production sites are in the UK, at Luton and Ellesmere Port (4,700), Saragossa in Spain (7,500), Poland (3,500) and Antwerp (Belgium), with 2,500 employees. In addition, there were various smaller production and sales locations such as the engine plant in Aspern, Austria, with 1,600 employees, and 850 employees in Hungary.

In 2009, GME employed 54,400 workers in Europe, selling roughly 2 million cars, mostly in Great Britain, Germany and Russia, with roughly 350,000 sales per year in each of the three counties (cf. Bernaciak, 2010c: 5). ‘All of this has been “governed” by GME consisting of roughly 150 managers located in Zurich (Switzerland). They only transmit the wishes of GM-Detroit controlling GM’s European subsidiaries’ (Herber, 2009). On 29 May, the Belgian investment firm RHJ entered the bidding for GME, while RHJ’s competitor Magna demanded €4.5bn from the German government to secure GMO’s future. On 30 May, German states and federal government together with GM’s works council, Magna, and the US ministry of finance agreed to rescue GMO from bankruptcy, securing its financial liquidity. On 15 July 2009, RHJ issued its takeover concept for GMO. By mid-2009, there were two takeover plans: Magna and RHJ.

Two core options for a continuation of Opel

The GFC and the near bankruptcy of GMO during spring 2009 would have resulted in a loss of roughly 25,000 jobs in Germany and an additional 250,000 in related industries, up to 50,000 throughout Europe and 400,000 in related industries (Koppelberg, 2009). Only the backing of GM by those German states in which GMO has production facilities (Hessen, Thüringen, Nordrhein-Westfahlen, and Rheinland Pfalz) enabled GMO to carry on production, saving thousands of jobs. This clearly indicated a willingness of the state to support capitalism (e.g. state-capitalist theory – see Jessop, 2003; Bremmer, 2009). In those state–company negotiations, the head of GMO’s works council and member of GMO’s supervisory board Klaus Franz took the helm (Metallzeitung, 2009; Bernaciak, 2010c: 8; see also <www.spiegel.de/thema/klaus_franz> and <www.igmetall-opel.de>). During spring 2009, Germany’s corporate media (Herman and Chomsky, 1988; Habermas, 1988), corporate industry, and politicians started to view the head of GMO’s works council as the leading figure in the fight to save GMO, a position traditionally occupied by top-level management and CEOs. They even described the works council’s role as that of ‘Savior of Opel’, which had been possible because neither GME in Zurich nor GMO’s top-level management had sought the initiative.

According to Herber (2009), ‘decades of administering the demands of Detroit had created a managerial cast incapable of acting on their own initiative’. MGO’s CEO stated, ‘using the metaphor of a football game, we are observers of the game played by the German government and GM-USA’ (Demand, 2009: 1). In other words, the passive position of GME’s management (GMO and GME) provided yet another example of managerial inefficiency, highlighting the deeper structural problems of GM-USA, GME and GMO. It left a managerial gap to be filled by GMO’s works council. In spring 2009, the intervention of its works council saved GMO from bankruptcy and provided a platform to negotiate GMO’s future. In these discussions, four options were discussed: 1) a Magna take-over; 2) an RHJ take-over; 3) insolvency; and 4) no sale (Skowronowski, 2009).

Option 1: Magna’s proposal

Option 1 has been labelled ‘Magna’. It provided for the sale of GMO to the car supplier Magna so that it would hold 55 per cent, GM would retain 35 per cent, and workers would own 10 per cent (BR, 3 July 2009). The idea was not to convert GM into another ‘Government Motors’, but to create Opel as a genuine European company. Magna’s Austrian-Canadian-Russian business proposal was backed by the Russian Sperbank. According to Sperbank boss German Gref, ‘Germany’s federal and regional states indicated their support of the proposal through the backing of €4.5bn’ (Gref, 2009). As a car supplier, Magna had an active interest in car production and was seeking to expand the current range of models. ‘The Magna option provides an acceptable plan for GMO’s future and its employees’ (Seib, 2009). According to Herber (2009), ‘Magna plans to invest in future production and new car models’. The Magna proposal been backed by the four German states with GM facilities and the federal government, with €4.5bn. But Magna planned to cut approximately 10,500 jobs throughout Europe. In Germany, 3,000 jobs would be lost, mostly at GMO-Bochum. Overall, however, all four German production facilities were seen to remain operative. Magna also planned to create €265 million in operative savings as part of a cost-cutting programme. On the other hand, GM’s Antwerp plant was scheduled to be closed, and possibly GM’s Luton facility as well. Among works council members, the Magna option was seen as an option that provided a clear industrial policy and a viable future for Opel in Europe. This is in sharp contrast to the second option of RHJ.

Option 2: RHJ’s proposal

GM-USA’s favoured option was a takeover through the Belgian investor, RHJ. RHJ is geared towards controlling ownership and extracting short-term profits while managing firms purely in financial terms. It has no record and no interest in car manufacturing. ‘RHJ International is a diversified holding company and focuses on creating long-term value for its shareholders by acquiring and operating businesses’ (www.rhji.com). Being predominantly an accountancy firm, RHJ’s lack of experience in car manufacturing has been manifested in its deficiencies in product development, model range, and the industrial policies needed to operate car manufacturing. According to Reitinger (2009), ‘the RHJ proposal offers no future for GMO. They just follow what GM has done in the past’. Instead of automotive experience, RHJ’s option claimed to rely less on state support. Instead of €4.5bn state credit, RHJ sought only €3bn, but ‘has demanded a cost-cutting programme totalling €850m plus €265-300m of annual savings’ (BR, 17 March 2009). RHJ also planned to cut approximately 10,000 jobs throughout Europe, 4,000 of which had been scheduled to occur in Germany. It also planned to cease production at GMO’s newest plant, Eisenach, for two years. Not surprisingly, all four premiers of states with GMO facilities rejected RHJ’s proposal, threatening to withdraw any state support if it was accepted.

Options 3 and 4: Two additional choices

One of the least likely options for GMO’s future had been the insolvency of GME followed by a takeover and eventual closure through the Italian car manufacturer FIAT (Bartsch et al., 2009: 70-72). FIAT saw itself as a last option for GME. Its proposal appeared to be geared towards extracting technology from GME and eliminating a business competitor. By the time of its proposal, FIAT’s own credit problems had reached €14.2bn. According to GMO’s works council head, Klaus Franz. ‘FIAT was hardly in a position for a successful business proposal for GMO’ (Tagesschau, 2009). FIAT also suffered from overcapacity, and additional volumes brought in through a takeover would only enhance FIAT’s dilemma unless it closed GMO altogether (BR, 2009e; EWC, 2009a). The remoteness of FIAT’s option concurs with other German car manufacturers, because none of them – Porsche, BMW, Volkswagen and Mercedes Benz – were willing to put forward a business proposal for a takeover. At another level, however, insolvency was also an option even without FIAT. For GMO’s works council, insolvency would have constituted the worst outcome, because insolvency meant that trust in the brand name Opel would have been lost, market share would decline, creditors would recall their funds, investors would dry up, and banks would decline any further funding. According to GMO’s works council member Liebe (2009), ‘no car manufacturer has ever come back from bankruptcy – it would be our end’.

Finally, there was also the option (5) of GM-USA not selling GMO at all. But funds for such a project were unlikely to materialise, given GM-USA’s financial problems. However, the sale of GMO would have created three problems for GM-USA: first, GMO’s works council believed that GM-USA needed the technical know-how of GMO’s engineering division (research and development) in the area of fuel efficiency and environmental standards; second, almost all the parts developed by GMO carry US patents, and to separate and reassign them to GMO appeared comparable to unscrambling an egg; and finally, market access of GMO-built cars to areas outside of Europe was a highly contentious issue between GM-Detroit and GMO. In 2009, options 3 and 5 (insolvency/FIAT, and not selling) appeared rather unlikely. Hence, GMO’s works council saw itself as facing two core options (1 and 2). It engaged itself in the fight to save GMO, secure its long-term future, and provide job security for its employees.

The role of General Motors’ German works council

GMO’s works council was pushed into a unique and unforeseen position by the GFC. By mid-2009, it had dealt with the fallout of GFC for roughly one year. The first crucial test for GMO’s works council came shortly before a long holiday weekend (30 May-1 June), when the GFC almost forced GMO into insolvency. According to GMO’s works council member Holzer (2009),

only a financial emergency package backed by state governments saved GMO from insolvency. We [the works council] had already arranged to meet on the Saturday [30 May] to discuss our next move if we had gone into receivership. Press releases and statements on the insolvency were already written and industrial actions were planned ahead. A call came shortly before midnight [Friday 29 May]. An agreement had been reached and GMO’s future was, at least temporarily, saved.

This initial deal that saved GMO during spring 2009 was not negotiated by GMO’s top-level management, but by the works council. GM’s top-level management saw itself very much in the role of ‘receiver of orders from Detroit’ (Herber, 2009). GMO’s top-level management remained inactive during the process.

The factual absence of GMO’s and GME’s top-level management had been linked to its traditional role as a recipient of GM-USA’s orders. GM’s German and European management saw themselves as ‘neutral players’, which both excluded them from the discussion on the future of GMO and opened a gap that was only to be filled by GMO’s works council. This reversed the traditional role assigned to works councils. Perhaps the most important responsibility of a works council is to maintain industrial peace – it is forbidden to engage in collective bargaining, strikes, and industrial action. In general, these are assigned to trade unions and employer federations. Most crucially, the Works Constitution Act that governs works councils also assigns different levels of engagement to works councils. These depend on issues at hand. This is shown in Figure 1.

Figure 1.

The power matrix of German works councils

Figure 1 shows the approximate distribution of power to works councils as assigned by law. Roughly, the powers of works councils decline from social issues to personnel issues (HRM) to business issues. In other words, works councils have the strongest powers (co-determination) over relatively minor issues (canteens, parking, sanitary facilities, etc.). They have somewhat weaker powers over HR issues (recruitment, promotions, overtime, etc.). In many of these cases, management needs to seek the consent and consult with works councils and/or have to inform them. Overall, however, works councils have the weakest powers over the most relevant decisions inside a company (Kotthoff, 1982). In regard to business decisions, GMO’s management is almost free to operate at will. It only has to inform the works councils. In the case of GFC and GMO, this basic structure had been significantly reversed.

The structural problems at GME, enhanced through GFC and the near total absence of GMO’s top-level management, had forced GMO’s works councils into a more active role transcending its assigned role. Although the law determines the responsibilities and rights of works councils, it does not prevent them from making suggestions on business affairs. It also does not prevent works councils from influencing business decisions if top-level management supports them. In the case of GFC, GMO’s works council secured a deal with German state governments to underwrite credits given by commercial banks to GMO, securing GMO’s existence and preventing insolvency during 2009 (EWC, 2009b). All GMO’s top-level management had to do was to sign up to a deal that secured its own survival, after it had consulted with GM-USA in Detroit. In other words, the experience of GMO’s works council during spring 2009 allowed it to engage at the business level with several IR actors such as state and federal governments, banks, financial providers, etc. In sum, GFC pushed GMO’s works council into an active role as co-manager.

When it came to a long-term business solution for GMO, the works council was able to engage itself even further in the process of finding a solution based on two core business models outlined above (cf. options 1 and 2). During summer 2009, it became increasingly clear to GMO’s works council that GMO’s top-level management would remain in its self-assigned ‘neutral position’ when it came to business options for GMO. Following its position of ‘neutrality’ and its strong dependency on GM-USA headquarters, which ‘was cultivated for decades’ (Liebe, 2009), GMO’s top-level management did not issue a preference for either option 1 (Magna) or option 2 (RHJ). In sharp contrast to GMO’s top-level management, GMO’s works council gave strong preference to option 1 – Magna – well aware that ‘concession bargaining’ had been operative at various levels at GMO since 2003 (Turner, 2009). GMO’s works councils knew that even the Magna option could not be realised without further concessions being made by workers.

In its plan to engage actively in GMO’s business future, the works council offered Magna €265m in cost savings, to be achieved through cuts in leave provisions, other allowances, and a non-payment of a 4.2 per cent wage increase (BR, 2009d). It offered this only to Magna, and only until the end of 2009. It did not offer the same to RHJ, because GMO’s works council viewed RHJ as ‘a placeholder for GM-USA with no real interest in car making, interested only in financial figures in complete disregard of workers. It seeks to destroy GMO by closing some facilities while selling what’s left back to GM-USA’ (Reitinger, 2009). According to works council member Klaus Franz (FR, 2009: 13) ‘a financial investor is no industrial investor. RHJ is a bad solution’.

To achieve its goal of option 1 (Magna), GMO’s works council had to engage IR actors at various levels. During 2009, GMO’s works council was able to utilise the stability of its IR that provided useful links to traditional IR actors. It also had to establish new links to new IR actors that previously had never been involved (cf. Heery and Frege, 2006). The works council’s new engagement in the business affairs of GMO demanded communication with a new set of actors (Klikauer, 2008, 2009). Both forms of communication – new and traditional actors – involved the following set of key IR actors:

Table 2.

A list of key IR actors

• Opel’s shop stewards and IGM’s plant-based representation

• IGM’s headquarters in Frankfurt and its regional office in Darmstadt

• State/Political actors at federal and state level

• The EU Commission

• General Motors Europe and General Motors USA

• NGOs, interest groups, churches, political parties, etc.

• GM’s top-management at Opel-Rüsselsheim

• GM’s board of directors (BR, 2009f)

• GM’s Gesamtbetriebsrat (representatives from production sites)

• Employees at Opel-Rüsselsheim through leaflets, standards works-meetings (20 March, 3 July, 18 September, and 4 December 2009), and additional meetings (cf. 3 June 2009) and information sessions

• Mass media (BR, 8 June 2009).

Through a skilful engagement with these actors, GMO’s works council was able to build a coalition in support of its preferred solution. This coalition included even members of GMO’s management, because not all managers followed its top-level management’s lead in being ‘neutral’. On the whole, however, the two core options outlined above can best be categorised as being manifestations of an approach that is reflective of a ‘coordinated market economy’ (CME) or a ‘liberal market economy’ (LME). Representatives of the CME approach favoured the Magna solution (option 1), while representatives of the LME approach favoured either option 2: RHJ, and partly even option 3: insolvency. As a result, two camps faced each other:

Table 3.

Two opposing camps: LME vs. CME

Camps	Description:
1. LME:	The LME camp consisted of Germany’s conservative minister for economy (AFP, 2009), the employer federation Gesamtmetall (cf. BDI, 2009), various corporate mass media, Germany’s Free Democratic Party (FDP), elements inside the EU-Commission (Balsen, 2009) and perhaps GM-US.
2. CME:	The CME camp consisted of GMO’s works council, the metalworkers’ union IGM, the German trade union peak body DGB, conservative state premiers of Hessen, Thüringen, and Nordrhein-Westfalen, and the labour premier of Rheinland-Pfalz. It also included Germany’s conservative federal chancellor, the foreign and labour ministers (both labour), and the German labour party.

Crucial to understanding the coalition-building process had been the awareness that traditional IR actors such as trade unions, employer federations and the state provided insufficient support for GMO’s works council. Hence, coalition-building inside the CME camp demanded a partial overcoming of the traditional ‘conservative-progressive’ models known in politics. For example, Germany’s conservative PM, Angela Merkel, supported the CME option (Magna) while her equally conservative minister for economics supported the LME option 3 (insolvency). In addition to Germany’s conservative PM, all conservative state premiers were in support of the CME solution. Critical to understanding the favouring of CME and strong state involvement by German conservatives has been the fact that continental European conservatives have traditionally favoured a strong state (CME) over free-market liberalism (LME). In contrast, their Anglo-Saxon counterparts have tended to favour free-market liberalism (LME) over a strong state (CME). Hence, European and German conservatives support state involvement in industry and a coordinated approach to IR. To achieve this, IR actors do not operate through market relations but coordinate their activities through negotiations and agreements. Coordinating measures to save GMO demanded the involvement of Germany’s states as underwriters of credits, political parties, the federal government, and the US government because it owned 65 per cent of GM-USA. The key labour actor in this was, without any doubt, GOM’s works council.

Conclusion

The case of GMO’s works council shows that a solution for the GFC-created crisis for GMO depended on a good working relationship between key labour actors. It reflected a ‘coordinated market economy’ (CME) approach relying on coordinated actions by states, traditional, and new IR actors. The temporary sidelining of conflicts between capital and labour (Offe and Wiesenthal, 1980) secured the survival of a for-profit company. Furthermore, the stability of Germany’s IR framework as operative at GMO provided a platform upon which various IR actors were able to coordinate their preference for the ‘best’ survival option as put forward by the CME-camp. On the other hand, coalition building was much less sought inside the much smaller ‘liberal market economy’ (LME) camp. This occurred because of a quasi-religious belief-system in an ideology of non-cooperative free market relations without human and state intervention. Hence, the LME-camp’s preferred options – RHJ or insolvency seen as a cleaning act of an unexplainable ‘invisible’ hand of the market – failed to receive support during 2009.

Secondly, the self-declared paralysing ‘neutrality’ of GMO’s top-level management created a weakness inside the LME camp that brought forward the emergence of the GMO’s works council as the strongest actor in the CME camp. Based on a long tradition of positive and stable engagement with various traditional IR actors, GMO’s works council was able to successfully expand its sphere of influence. It actively engaged new IR actors in the field of the state (e.g. finance departments), business (e.g. banks and financial institutions), and corporate mass media (e.g. conservative mass tabloids). This underpinned the works council’s ‘spring success’; it secured state backing for GMO’s creditors; and saved GMO from insolvency during early 2009. This demonstrated that GMO’s works council can carry substantial economic and business responsibilities when market mechanisms (e.g. GFC) and/or top-level management fail.

These responsibilities reached far beyond its legally assigned role as prescribed by law (Figure 1), assigning weak powers over business decisions while giving strong co-determination powers to more irrelevant issues. In other words, the protecting mechanisms created by the state for capital – weak powers for works councils on business issues – became a hindrance. In addition, and this is despite the employers federations’ much trumpeted over-regulative state in Germany (e.g. BDI, 2009: 28), the case study showed the existence of an asymmetrical power relation between labour and capital that strongly favoured capital. The GFC reversed this at GMO to some extent while highlighting managerial weaknesses when it came to business affairs. GMO’s managerial deficiencies implicitly allowed the works council to occupy a ‘co’-managing role. Before 2009, financial issues such as business credits and cash flows were deliberately excluded from the sphere of the works council.

However, the GFC and GMO’s managerial weaknesses had made them fields of engagement for the works councils. Hardcore business decisions such as corporate finance, insolvency, the sale of a company, business proposals, takeover plans and external relations to creditors were never part of a works council’s role. All of these were placed at arms-length away from works councils, as required by law. But managerial ineffectiveness almost forced GMO’s works council to transcend its role. The failure of GMO’s top-level management to take part in the discussion to save GM’s German subsidiary made this possible. It appears as if GMO’s works council has been more flexible when faced with a crisis that demanded the transcending of traditional boundaries, compared to GMO’s top-level management, which remained somewhat paralysed inside its role as ‘Detroit’s order-receivers’. This role had been cultivated by GM-USA for decades.

In conclusion, crucial to the success of GMO’s works council’s efforts was a common understanding that industrial and business policy cannot be left to an ‘invisible hand’ (LME), but is better placed in the coordinating hands of IR actors. By the time the research project had ended, no decision had been taken. In the meantime, however, developments had progressed and the proposed sale of GM’s German division was cancelled by GM-USA. This was done for three reasons: first, GMO’s works council believed that GM-USA was dependent on the technical know-how of its German engineering division, especially in the area of fuel efficiency and environmental standards; second, almost all the parts engineered by GM-Germany carry US patents, and to separate and re-assign them to Germany was seen as akin to ‘unscrambling an egg’; and finally, market access of German-built cars under the new ‘Opel’ label to areas outside of Europe was a highly contentious issue between GM-Detroit and GM-Germany. In sum and despite the cancelled sale of GMO, the example of IR in a coordinated market economy shows how key actors coordinated their activities to find a solution to a problem created by the global financial crisis.

Footnotes

Acknowledgements

The empirical basis of this article rests on primary research (semi-structured interviews with works council members, company internal documents, press releases, statements, written agreements, etc.) and secondary research (mass media, newspapers, trade union journals and business magazines). Research was conducted during July-August 2009 at GM’s Opel factory in Rüsselsheim. It was performed for the Australian Evatt Foundation (). The project did not receive any administrative, financial or editorial assistance from the University of Western Sydney. I would like to thank Paul Thompson and George Lafferty, the four anonymous referees and the editor. Inquiries may be directed to klikauer@exemail.com.au

Author biography

Thomas Klikauer is a senior lecturer at the University of Western Sydney, teaching human research management to postgraduate students. His research into management communication has resulted in two books (2007, 2008), and his work on management ethics has resulted in two further books (2010 and forthcoming, 2012). His current interest is in Hegelian philosophy and how it relates to the world of work.

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