New site pact signed for west German Opel plants

In January 1998, the company works council and the management of Opel AG in Germany signed a new works agreement. The so-called "site pact" contains management promises on new investments and job security and the works council's agreement to further social concessions to reduce labour costs.

On 20 January 1998, the company works council (Gesamtbetriebsrat) and the executive board of Adam Opel AG- the German subsidiary company of the General Motors Corporation (GM) - signed a new works agreement on future investments, safeguarding employment and reduction of labour costs. After more than 10 months of negotiations, this so-called "site pact" (Standortvertrag) was concluded for the more than 44,000 employees at the three west German Opel production sites at Rüsselsheim, Kaiserslautern and Bochum. In the pact, Opel management commits itself to making new investments to secure the existing German production sites until the end of 2001 and promises, furthermore, that no redundancies on economic grounds (betriebsbedingte Kündigungen) will be made until the end of 2002. In exchange, the company works council agreed to further cuts in the company's "payments above contract wages" (übertarifliche Leistungen).

The case history of the site pact

The new Opel "site pact" will become the successor of an earlier site pact which was agreed in November 1993. The core of the first site pact was a provision which linked collectively agreed wage increases with cuts in company "payments above contract wages". Most of Germany's larger corporations - in particular in the automobile and chemical industries - traditionally provide several additional company payments which create significant wage drift between collectively agreed wages at branch level and actual wages at company level. According to the Opel chair, David Herman, the company still has average wage drift of about 20%. Therefore, the first Opel site pact determined that whenever a collectively agreed wage increase was more than 2%, the employees would receive only two-thirds of the additional wage increase while one-third would be compensated with a cut to other company payments. In exchange, the management promised that there would be no relocation of jobs from Germany to other European GM plants.

Since the first site pact was terminated at the end of 1997, negotiations for a new pact started in March of that year. During the negotiations, Opel management announced that further job guarantees could be given only in exchange for more substantial cuts in labour costs and a further reduction of the current wage drift. In autumn 1997, the negotiations became deadlocked because management set up an international working group to compare the labour costs of the German Opel plants with other GM plants in Europe, without involving the company works council. Furthermore, on 7 January 1998, the chair of GM Europe, Louis R Hughes, announced that the current 86,000-strong workforce in GM's European subsidiaries would be reduced by 20%-30% within the next five years. This would mean a loss of 17,000 -26,000 jobs all over Europe and a possible loss of 9,000-14,000 jobs in Germany alone. Mr Hughes' announcement made clear that the negotiations on the new site pact were under strong pressure to avoid massive redundancies. Finally, only one and a half week's later, German Opel management and the company works council were ready to sign a second site pact, which contains management promises on new investments and job security on the one hand and employee "social concessions" to cut labour costs on the other hand.

Management promises

The newly agreed site pact contains several promises of new investments which are supposed to secure the current production locations at least until the end of 2001 (for details see the table below). Among other points, management agreed on new investments of about DEM 750 million for the Rüsselsheim plant to build a new paint-shop and to modernise the whole factory. Another DEM 450 million is intended to be invested at the Kaiserslautern plant for the building of a new engine plant.

The new investments are intended to secure the management promise that there will be no redundancies for economic reasons until the end of 2002. In addition, management guarantees the subsequent recruitment of all vocational trainees. However, management has also announced that the total Opel workforce will be reduced by 3,000-4,000 employees by the year 2001. The reduction should mainly be organised through early and partial retirement measures. Therefore the "site pact" includes new company retirement schemes which guarantee the retired employees 80% of their former net income in the case of early retirement (Vorruhestand) and 85% in the case of partial retirement (Altersteilzeit).

Source: Own composition based on an Opel press release dated 20 January 1998.

Company works council's concessions

In exchange for job guarantees, the company works council made concessions which mainly contain a further reduction of company payments above contract wages. Until the end of 2002, wage increases collectively agreed at branch level will be reduced by 1.25 percentage points for Opel workers, through a cut in additional company payments. For example, although the 1998 metalworking collective agreement foresees a wage increase of 2.5%, the Opel employees will indeed receive only a 1.25% wage increase. Furthermore the additional Christmas bonus, which has traditionally been paid by the company will be linked to the rate of absence from work. If the average yearly rate of absence due to sickness is below 6%, the company will pay 100% of an average month's income as a Christmas bonus, in comparison with the 55% which has been agreed in the metalworking sectoral collective agreement.

According to management, the conclusion of the site pact will allow the company to save about DEM 50 million per year. The Opel chair, David Herman, expressed his satisfaction with the agreement and pointed out that the site pact will "will help to safeguard a long-term future for the company and its production sites and underlines that Opel employees could continue with greater job security". The president of the Opel company works council, Rudolf Müller, declared that against the background of the uncertainties of the future developments in the international automobile industry, the agreement is a good compromise.

Commentary

The conclusion of the Opel site pact is not an isolated case. On the contrary, in recent years Germany has seen an increasing number of company pacts which all follow more or less the same pattern. The trade-off they make is job security in exchange for social concessions and "wage renunciation" (Lohnverzicht). In 1997, for example, similar pacts were agreed at the automobile companies Ford and Mercedes Benz (DE9704209N), and the chemicals company Bayer (DE9706220N).

All large German companies still provide a certain amount of payments above contract wages. These payments increased during the 1950s and 1960s in a period of full employment when they were an instrument to solve problems of recruitment. Under the current conditions of mass unemployment, however, there is less need for larger companies to make such additional payments and many of them have already started to reduce wage drift. Indeed, the company pacts reflect a shift in power relations between management and works council. Under the threat of redundancies, the works council is becoming increasingly willing to accept all kinds of social concessions.

From a trade union point of view this form of "concession bargaining" is quite problematic for at least two reasons. The first is that company pacts could in the long run threaten the German system of branch-level collective agreements (DE9802248F). In particular, smaller and medium-sized firms which do not have significant wage drift often conclude company pacts which offend against valid collective agreements.

The second problematic issue is the "nationalistic bias" of the company pacts. Taking the example of Opel, the German works council was able to secure German jobs while at the same time the company is threatening jobs at other European subsidiaries - for example, at the Opel plant in Antwerp, Belgium (BE9710222N). Next time it might be the other way round. Indeed, national company pacts seem not to be very helpful in developing international trade union solidarity. Therefore, in future such company pacts must have at least a European dimension, perhaps being negotiated by European Works Councils. Thorsten Schulten, Institute for Economics and Social Science (WSI))