VW executive offers to resign in bribes scandal

8th July 2005, Comments 0 comments

8 July 2005, WOLFSBURG, GERMANY - Volkswagen AG's high profile personnel chief Peter Hartz, has offered to resign, the German carmaker said Friday, as the group struggles to contain a burgeoning sex and bribery scandal.

8 July 2005

WOLFSBURG, GERMANY - Volkswagen AG's high profile personnel chief Peter Hartz, has offered to resign, the German carmaker said Friday, as the group struggles to contain a burgeoning sex and bribery scandal.

A close friend of Chancellor Gerhard Schroeder, Hartz was the architect of the government's key tough round of labour market and welfare reforms.

He has also given his name to many of the reforms, including what is now known as Hartz IV, which involves controversial steps to cut benefits for the long-term unemployed.

Hartz, who has strongly denied any involvement in the scandal, was taking "the political responsibility for the irregularities", said one VW employee. According to Hartz, he wanted to head off further damage to the company.

The scandal, which centres on VW's Czech-based Skoda operations, has badly shaken the company and has already triggered two major resignations from the group.

"The speculation and accusations have reached a stage which is intolerable for the image of our company, our products and employees," said VW chief Bernd Pischetsrieder Friday.

No announcement has been made on when the supervisory board will consider the Hartz resignation offer.

Coming as Germany gears up for an early election, the scandal has also raised questions about the nation's labour relations system and the often close ties between union representatives and management based around the nation's somewhat unique company works' council.

"The resignation offer increases the chances of changes," said Albrecht Denninhoff, analyst with HVB AG, Germany's second biggest bank.

Skoda's personal chief, Helmuth Schuster, left the company in June amid allegations that he took bribes from potential suppliers and that camouflage companies were used to secure lucrative VW contracts abroad, notably in India and Angola.

The network of camouflage companies was reported to have stretched from India, Angola, the Czech Republic, Luxemburg and Switzerland.

VW plans for building new factories in India and Angola have been put on ice, it has been reported.

Last week, the company, which is also Europe's biggest carmaker, was rocked again when the head of VW powerful works' council, Klaus Volkert announced that he was also stepping down.

"In the past weeks, the company has been thrust into the headlines in an intolerable way because of the failure of individual employees," said Pischetsrieder, who plans to make a comprehensive statement on the scandal.

Germany's Christian Democrat-led (CDU) conservative opposition has seized on the VW scandal as indicating the need for a dramatic overhaul of the nation's labour relations and to end the sometimes cosy ties between management and union bosses.

"I am for the acceptance of the offer to resign with immediate effect," declared Christian Wulf, the CDU premier of the state of Lower Saxony where VW is based. Lower Saxony has an 18 per cent stake in the carmaker.

"The interest of the company and above all the security of the jobs must come before all other considerations," said Wulf who represents Lower Saxony on the VW board.

The scandal, which has prompted both a state prosecutor office's investigation and an internal VW probe, has broadened to include claims that the company paid for so-called pleasure trips for work council members so as to keep them on side. This includes flying around high-class prostitutes.

At the same time, the state prosecutor office said it was considering extending its investigation to take in other countries.

Hartz is a close confident of both Volkert and Schuster, who worked as a senior executive in VW's human resources department for a decade until 2001 before he moved to Skoda. Hartz has been the group's personal director since 1993.

According to Germany's weekly magazine, Focus, Schuster helped Hartz to draft up the proposed welfare and labour reforms.

The almost daily stream of allegations about kickbacks and union favours at the carmaker comes as the group struggles to implement a rigorous cost-cutting plan and to head off a sales slump in both China and the United States.

Underscoring the battle ahead for the group, Wolfgang Bernhard, the new head of the VW brand, said in a letter to employees released Monday that the company stood at the crossroads in its push towards restructuring and improving the quality of its product.

In November, Volkswagen and unions hammered out a pay deal guaranteeing 103,000 jobs in Germany in exchange for a wage freeze and cost cuts totalling EUR 2 billion a year by 2011.

VW slumped into the red last year and reported an operating loss of EUR 53 million in the first quarter of 2005.


Subject: German news

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