German carmakers struggle to survive

THE German motor industry - driving force of the post-war economic miracle years - is in a crisis from which it may never fully recover.

General Motors' decision to slash 10,000 jobs in the country as part of a Europe-wide bid to staunch losses totalling £1.5bn in the past five years is only part of the story.

Carmakers believe labour has been too expensive for too long, leaving management with a choice of tackling Germany's powerful union lobby or moving manufacturing abroad.

Volkswagen, in its own life-or-death struggle with the unions as it seeks a pay freeze for two years, produces more cars in China than in Europe. Its plants there and in eastern Europe, together with those of parts suppliers, are the way of the future, say analysts.

VW's management has told its 130,000 workforce it could remain intact only if it agreed to a two-year pay freeze. The unions are calling for 4% but management is remaining firm after it had to slash profit forecasts by €500m(£347m) in July due to poor sales.

Porsche, the sports carmaker whose profits have soared thanks to flourishing sales of its new Cayenne 4x4, also said this week that it is seeking job and cost cuts.

Its chairman singled out the 'pee breaks' - five minutes every hour a worker takes off to go to the toilet - as an indulgence on the shopfloor that can no longer be tolerated.

Analysts say the unions, which yesterday called off a strike at Opel plants in protest at GM's job cut plans, believe organised labour is facing stark choices, and is more willing to compromise than to face the alternative of a jobs drift overseas.

'I do think we're seeing a development in collective wage deals towards making it easier to set separate agreements on conditions for individual companies,' said Stefan Schneider, a Deutsche Bank economist.

DaimlerChrysler is among companies threatening to relocate. It has warned it could move production of the new version of the Mercedes C-class model from Sindelfingen, near the group's Stuttgart headquarters, to plants at Bremen in northern Germany and to East London in South Africa, threatening 6,000 jobs.

'Can't cut the deal you want? Then cut out of the country - that is the pattern that will emerge in the coming years,' said Axel Buttgen, a car-industry analyst in Frankfurt.

'The transportation and infrastructure costs are already in place, cheaper and with a pool of willing labour.

'I think that German workers are buying time but that the clock is ticking. A great behemoth industry like car-building must evolve in cheaper climes than Germany,'