Daniela Cavallo, the trade union power behind the Volkswagen throne

Applauding as the bell rang for Porsche’s listing in Frankfurt last month were rows of executives from the sports-car brand’s owner, Volkswagen.

Yet the two key figures in every major decision at the world’s second-largest carmaker in recent years were nowhere to be seen: Herbert Diess, former VW boss and architect of the group’s multibillion-euro push into electric vehicles, and the person partly responsible for his abrupt departure, Daniela Cavallo.

The 47-year-old head of VW’s powerful works council remained at her desk at the group’s Wolfsburg headquarters, where approximately 60,000 employees face an uncertain future, as the auto industry undergoes a rapid and unprecedented technological transformation.

“The claim coming from Diess’s corner, that there are 30,000 excess jobs at Volkswagen in Germany or even in Wolfsburg alone, was completely out of touch with reality,” Cavallo told the Financial Times in a rare interview, recalling skirmishes in the lead-up to Diess’s exit this summer.

“It really defied description,” she added. “We expect [the transition] to be handled responsibly, not by creating unrest in the workforce.”

The removal of Diess in July by Volkswagen’s supervisory board — which thanks to Germany’s unique co-determination system is dominated by works council representatives and their informal allies from the state of Lower Saxony — was a stark reminder that the country’s core industrial group is governed in a manner unlike any of its foreign rivals.

In the words of one former senior VW employee, the episode proved “who really runs that company, and it is not the board of management”. 

Instead, the maxim goes, Volkswagen is actually run by its 660,000 employees, or more accurately by its almost 300,000 heavily unionised staff in Germany.

Diess, who took over in 2018 when VW was still reeling from the emissions cheating scandal, repeatedly stressed that the carmaker would have to cut costs — and its workforce — to compete with the likes of Tesla.

He made a point of highlighting that collective bargaining governed everything from the price of coffee to the rules for the use of bicycles at its Wolfsburg operation and allowed unionised landscape gardeners to be replaced with robot lawnmowers.

But Cavallo — the first woman to hold one of the most powerful offices in European industry — was surprisingly full of praise for her former nemesis’s early recognition that electric vehicles were the way forward.

“We had many conflicts [with management] over the last few years even though we were not that far apart in our objectives,” she said, adding that it was Diess’s communication style that upset employees. With Oliver Blume, the Porsche boss who took over as head of VW in September, “we now have a different management style at the top,” Cavallo said, predicting that the company’s electric offensive could even pick up pace.

“Even if some believe that we at the works council have a tendency to step on the brakes, that’s not the case, because we see what’s necessary. If we don’t succeed in this transformation now, we will also jeopardise our jobs”.

For now, Volkswagen has managed to avoid the swingeing cuts that auto suppliers such as Continental have implemented. Although some roles have been abolished at VW’s Audi and MAN subsidiaries, virtually no jobs have been lost in Wolfsburg, which is where the Golf and Tiguan brands are made.

But Cavallo and the works council know the huge plant is under more pressure than it has been for decades.

The site is set up to produce close to 1mn vehicles a year, but no more than 400,000 rolled off its four assembly lines last year thanks to a global shortage of semiconductors in particular. This year, only 300,000 vehicles were produced in the first nine months, even as supply chain bottlenecks eased.

Then there is the challenge of incorporating the production of electric cars, which are currently less profitable than combustion engine models.

“At some point, we will reach a point where we can’t always go further or higher,” Cavallo said of staff levels at Wolfsburg. “But at least when there are staff reductions in some areas, we can do so in a socially responsible way — just as we have done it in previous years,” she added, referring to early retirement packages and other voluntary redundancy measures.

Works council officials point to arrangements at Volkswagen, such as a multimillion-euro project that allows hundreds of employees who cannot work a normal shift pattern for health reasons to put together car instrument panels on height-adjustable workstations, with on-site physiotherapy.

The council also prides itself on the breadth of on-site services at Wolfsburg. “VW produces more curry sausages per year than cars,” a recent press release boasted, adding that “the agreement between the works council and management on staff catering in the company restaurants is 97 pages long”.

Some say that these facilities are possible only because they are subsidised by the company’s more profitable divisions.

“China is what pays for jobs in Wolfsburg,” said Arndt Ellinghorst, a former auto analyst who covered Volkswagen for several years, adding that business in China, VWs largest and most-lucrative market, was slowing at an alarming rate because of domestic competition.

Cavallo acknowledged that China was “an important pillar of [VW’s] business” but called for the group to hedge its bets by expanding in Europe and the US.

She also defended VW’s controversial decision to maintain a plant in Xinjiang, where China has been accused of committing genocide against the Uyghur Muslim minority.

Volkswagen has always insisted that it has been presented with no evidence of problems at its factory, which is run with a local joint venture partner, SAIC. While Cavallo said VW should do all it can to ensure its employment standards were adhered to at the plant, she agreed with management that pulling out of the region would be a mistake.

“We were also in South Africa for many years, during apartheid, and the people who worked there also had some prospects thanks to our jobs,” she said. “If we now say that we are withdrawing, then the people from our plant there will lose their job prospects. I don’t know whether that is better.”

In the coming weeks, attention will turn to VW’s German workers, as unions enter the final stages of a closely watched pay bargaining round.

“At the end of the day we’ll have to see what we can achieve,” Cavallo said of union IG Metall’s demand for an 8 per cent salary increase. Annual inflation is currently running at more that 10 per cent.

She dismissed suggestions that large pay rises would push inflation even higher. “We have to make sure that employees’ purchasing power remains strong, because otherwise we run even more into the danger of a recession, because everybody is afraid to spend money,” she said.

Cavallo’s bigger fear is that Germany, which is in the midst of a serious energy crisis, could become a less attractive place to do business overall.

“There always is a real danger, with this fierce competition, that jobs could come under pressure and might be lost here,” she said. “Volkswagen is no exception and never has been.” 

Yet she is adamant that worker pay is not the problem.

“Even in the past, our labour costs were higher than in other countries,” she said. “And yet we were successful. It’s not like these are mutually exclusive.”