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COPYRIGHT 2005 Newsweek, Inc. All rights reserved. Any reuse, distribution or alteration without express written permission of Newsweek is prohibited. For permission: www.newsweek.com
Byline: Karen Lowry Miller
Volkswagen has always been an icon of German engineering, both mechanical and social. Hitler planted a factory in the German heartland to build a "people's car" in the 1930s. And it did, producing the Beetle, the microbus and a corporate standard for Germany's generous social market economy. After a 1970s law put labor leaders onto corporate boards, VW gave them greater power than the German norm. VW was later hailed for the first 28.8-hour week and other creative ways to save jobs. Its benevolence is so deeply etched in the public mind, says a former executive of a
rival carmaker, that "many Germans secretly wish the economy could still be run like Volkswagen."
That's wishful thinking, now that VW is floundering. A system that worked in the postwar economic miracle is not suited to the fierce competition of a global economy. Wages in the German auto industry are already the highest in the world. VW's are 20 percent above the average. German industry has been slow to offshore: at VW, even seat covers are stitched in Germany, and many components are still made in-house at union rates. Ferdinand Dudenhoffer, director of the Center for Automotive Research, says Volkswagen is operating at only 65 percent of capacity, and needs to reach 90 percent to be profitable. VW loses money on every car it ships to the United States, where it has gone from hot sales and hip image to badly tarnished in the space of a few short years. Sales in the year ended in August fell 19 percent...
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