Cost-cutting plan agreed in return for limited job guarantee at Daimler

In late April 2009, the company works council and management of the German car manufacturer Daimler agreed on a cost-cutting package that will save the company €2 billion in labour costs. In return for a number of concessions concerning working time and pay, the company granted a limited job guarantee. The agreement follows a previous cost-cutting package concluded at the company in 2004.

On 27 April 2009, the company works council and the management of the German car manufacturer Daimler signed a works agreement which provides for a range of cost-cutting measures that are intended to save the company €2 billion in labour costs. In return, the company granted a limited job guarantee. In Germany, Daimler currently has some 161,000 employees working at 15 sites. The agreement followed the announcement by the company of losses amounting to €1.3 billion in the first quarter of 2009 due to a substantial decline in sales. It is a follow-up to a previous cost-cutting agreement concluded at the company in 2004 (DE0408102N).

Content of agreement

Reduction of working time and short-time work

As stipulated in the agreement, the working time of all employees at Daimler Germany will be cut by 8.75% without pay compensation.

Employees at the company who carry out short-time work will receive an additional payment on top of the statutory short-time allowance in order to minimise income losses. Whereas, according to previous provisions, up to 100% of the previous net income was guaranteed in some cases, the additional payment will now be cut with effect from 1 May 2009. Daimler employees in the federal state (Land) of Baden-Württemberg in southwestern Germany doing short-time work will then receive additional payments guaranteeing between 80.5% and 93.5% of the monthly net income depending on the individual extent of short-time work. This must be considered in the context of a new collective agreement on short-time work concluded between the German Metalworkers’ Union (Industriegewerkschaft Metall, IG Metall) and the Baden-Württemberg Employer Association for the Metal and Electrical Industry (Verband der Metall- und Elektroindustrie Baden-Württemberg, Südwestmetall) on 15 April 2009 (DE0905049I) which provides new reduced additional payments for employees carrying out short-time work.

For employees outside Baden-Württemberg, the additional payment will guarantee a net income of between 80.5% and 90%.

Pay

The general pay increase of 2.1% agreed in November 2008 (DE0812049I) and scheduled to take effect from 1 May 2009 will be postponed to 1 October 2009. Moreover, the one-off payment of €122 collectively agreed for September 2009 will be reduced.

The bonus payment for 2008 of €1,900, resulting from the Daimler profit-sharing scheme, due to be paid in April 2009 will also be postponed to May 2010.

All bonus payments based on individual monthly incomes will be cut according to the agreed 8.75% reduction in weekly working time.

Apprentices

In total, 80% of apprentices who started their training in 2006 and 2007 will receive a permanent employment contract from the company following their apprenticeship. The remaining 20% of apprentices will only be employed on a fixed-term contract for 12 months. All apprentices employed will have a part-time contract with a reduction of 20% of the standard weekly working time for a period of 12 months.

Limited job guarantee

The exclusion of forced redundancies until 31 December 2011, which was agreed under the previous agreement in 2004, remains in place but is only valid for those employed when the 2004 agreement was concluded. About 16,000 workers employed by Daimler after 2004, and up to now have not been covered by this job guarantee, are now protected from forced redundancies until June 2010. The recent works agreement, however, can be cancelled by the company with effect from 31 December 2009 if the company’s economic situation remains as bad as in April 2009 or deteriorates further. This means that forced redundancies are effectively excluded only until the end of this year.

Reactions to agreement

In a press release (in German), the Labour Director at Daimler, Wilfried Porth, stated that there had been no alternative to the agreement’s provisions and that given the economic situation there had also been no alternative to the cost-cutting package. In a further press statement (in German), the Chair of IG Metall in Baden-Württemberg, Jörg Hoffmann, considered the agreement an acceptable compromise. As painful as the pay cuts would be for workers, the agreed job security would be considered more important. According to a company newsletter (in German, 84Kb PDF), the agreement was met with criticism from a minority of works council members who pointed to the limits of this job guarantee.

Commentary

The cost-saving package agreed at DaimlerChrysler in 2004 was a signal for other car manufacturers to follow. With General Motors (GM) subsidiary Opel in serious financial trouble and all other German car manufacturers reporting economic problems, this latest agreement may not be the last of its kind. Whether it will effectively prevent job losses in the automotive sector in the long run is far from certain given the substantial overcapacities in the global car market.

Heiner Dribbusch, Institute of Economic and Social Research (WSI)

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