Schroeder ally Hartz to leaveVW following bribery scandal

13 July 2005

WOLFSBURG – German car giant Volkswagen AG’s supervisory board agreed Wednesday to accept the resignation of the company’s high-profile personnel director Peter Hartz who offered to stand down last week in the wake of a bribery and sex scandal that has rocked the group.

Hartz’s departure from Europe’s biggest carmaker could mark the end of an era in German labour relations and coincided with the group’s new star manager, Wolfgang Bernhard, outlining plans for another round of rigorous savings to meet the group’s 2008 target of cutting costs by EUR 7 billion.

The new savings programme, which is to be rolled out from 2006 through to 2010, is aimed at arresting a slide in group earnings and comes on top of another restructuring plan announced in November.

Despite an 8.4 per cent rebound in sales in Europe in June, VW has been struggling to head off a sales slump in both China and the United States.

But while Bernhard, who was joined by another executive, Dieter Poetsch, in setting out the plans during an analysts’ conference call, ruled out closing any factories at present, he said that all options were under consideration.

Hartz has been VW personal director since 1993 and many industry analysts see his departure as helping to pave the way for further restructuring of the company, which slumped into the red last year and reported an operating loss of EUR 53 million in the first quarter of 2005.

“The resignation increases the chances of changes,” said Albrecht Denninhoff, analyst with HVB AG, Germany’s second biggest bank.

The 63-year-old Hartz is a member of Chancellor Gerhard Schroeder’s ruling Social Democrats (SPD) and was the architect of the government’s tough and controversial welfare and labour market 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 unemployment.

Hartz, who has strongly denied any involvement in the scandal, said he wanted to stand aside to head off further damage to the company.

A successor has not been named with VW chief Bernd Pischetsrieder taking over the post until a replacement has been found.

The scandal originally centred on allegations about the payment of bribes from potential suppliers and the creation of camouflage companies which were used to secure lucrative VW contracts abroad.

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

Helmuth Schuster, the personal chief of VW’s Skoda operations in the Czech Republic left the company in June as allegations about kickbacks from suppliers began to emerge.

In an interview with the German magazine, Bunte, Schuster’s wife, Ilona Reutter, claimed that VW gave its senior executives the male impotence drug Viagra when they were travelling on company business.

Reutter, who said her husband was in hiding, said the idea was to help pep up the managers.

More recently, 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 included allegations about flying around high-class prostitutes.

As a result of the scandal, it is understood that VW plans for building new factories in India and Angola have been put on ice.

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.

This allows for executives to consult with union representatives on key decisions.

In a sense VW embodies the German consensual approach to labour relations with the state of Lower Saxony also having an 18 per cent stake in the carmaker and its premier sitting on the board.

But the election two years ago of a Christian Democrat-led (CDU) government in Lower Saxony ended the SPD’s long rule of the state.

Moreover, the CDU seized on the VW scandal as indicating the need for a dramatic overhaul of the nation’s labour relations and to end the sometimes cozy ties between management and union bosses.

Lower Saxony’s CDU Premier, Christian Wulff, was one of the first to call on the VW board to accept the Hartz resignation.

But work council chairman Bernd Osterloh hit back at the media coverage of the scandal Wednesday, saying: “Sex and crime might be of interest to the media, but we have other problems.”

Earlier this month, the company, was rocked again when the previous head of VW powerful works’ council, Klaus Volkert announced that he was also stepping down.

Hartz was also 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. 

DPA

Subject: German news