Daimler cuts the working hours of tens of thousands of employees

To avoid dismissals, Daimler reduces the working hours of administrative staff by two hours a week without wage compensation. Premiums are canceled.

The automaker Daimler continues to save against the corona shock. Operational layoffs are off the table in Stuttgart, but in return the Mercedes manufacturer shortens the working hours of tens of thousands of employees and cuts the success bonus for 2020 for around 130,000 employees in Germany.

According to this, employees in administration and production-related areas should work two hours a week less from October – without wage compensation. This roughly corresponds to a 5.7 percent reduction in working hours. More than 70,000 employees are affected, as the local newspaper Handelsblatt learned from corporate circles. A Daimler spokesman did not want to comment on the number. One thing is certain: the regulation is limited to one year, so it should apply until October 2021.

In addition, Daimler no longer grants certain employment groups additional collective wages during this period. Eligible beneficiaries should instead receive eight days off. So far, shift workers with small children or relatives in need of care could choose between more money or more free time.

After the two suppliers Bosch and ZF, Daimler is the first German car manufacturer to significantly reduce the working hours of its employees as a result of the corona crisis. VW and BMW, on the other hand, have so far seen no need to use the instrument. That shows how big the need is in Stuttgart. Because Daimler reduced its employees’ working hours in the financial crisis in 2007 and 2008 by 8.75 percent.

Then as now, the group hopes to take control of its excessive costs without having to fire staff. “We would like to thank the workforce for their important temporary contribution in order to overcome this crisis together. In addition, it is important to continue tackling and solving the long-term structural issues together,” said Daimler HR Director Wilfried Porth. Works council chief Michael Brecht emphasized: “The agreed key points make a significant contribution to securing employment and stabilizing our financial position. Nobody should feel threatened in their existence”.

Sales have plummeted

The details of the implementation of the key points agreement are to be worked out in the coming weeks. The agreement in principle marks a further tightening of the savings course of Daimler boss Ola Källenius. The Swede plans to cut more than 20,000 of 300,000 jobs worldwide in a socially responsible manner by 2025. This should reduce personnel costs by around two billion euros a year.

Daimler passenger car sales in Europe, July 2018 to June 2020 – (data source: ACEA)

Daimler is struck. Sales of the Group’s cars and vans decreased by almost a quarter in the first half of the year. Sales of heavy trucks and buses even dropped by 38 percent. After six months, there is a loss of 1.7 billion euros on the books. Daimler expects a profit for the year as a whole, but the increase should be narrow. CFO Harald Wilhelm only expects a “low single-digit billion amount” as the operating result.

Challenging years ahead

Even after the horror year 2020, the situation in the auto industry remains critical. “We have challenging months and years ahead of us,” said Daimler CEO Källenius just last week. With instruments like reducing working hours, Daimler tries to bridge the current dip in sales until business picks up again.

For weeks, management and the works council had struggled to find the best way to deal with the pressures during the pandemic. The fight was about break rules, late shift allowances, vacation and Christmas bonuses or the outsourcing of hundreds of employees. Personnel manager Wilfried Porth no longer ruled out redundancies. A taboo breach for employee representatives.

They referred to an agreement from October 2017. At that time, Daimler had given most of the German employees a job guarantee until the end of 2029. However, Porth referred to a wind-and-weather clause in the so-called future security (ZuSI), according to which an adjustment of the agreement can be advised if the economic conditions “change significantly”. The result of these consultations is the now agreed reduction in working hours and the loss of the success bonus.

Tensions between the board and employee representatives

Both sides were keen to get a deal before the big plant holidays in August so as not to further stir up uncertainty among the workforce. However, the tensions between the executive board and employee representatives are far from over with the agreement. On Tuesday, for example, the works council at the main plant in Stuttgart-Untertürkheim asked for more clarity about the planned structural changes.

“The current uncertainty among the employees is the responsibility of the lack of communication,” the works councilors in Untertürkheim complain in a leaflet. And further: “We expect the plant management to make a clear statement about the future direction of the location and the associated future prospects for our workforce”.

In Untertürkheim, the challenges of the entire automotive industry are evident like under a magnifying glass. This is where the Daimler headquarters are located. From here, almost 6,000 employees control the umbrella company of the industrial colossus. In the surrounding six parts of the plant, almost 11,000 men and women also produce engines, gears and axles, including castings. However, jobs at the location are particularly threatened by the streamlining of administration and the ramp-up of electric mobility.

By reducing working hours, Daimler tries to prevent the worst and take as many employees as possible into the future. Several large suppliers are responding to the corona crisis with similar approaches. Just last week, for example, ZF Friedrichshafen decided to reduce the working hours of its German employees by up to 20 percent . In return, the third largest domestic automotive supplier will waive operational redundancies and plant closings by the end of 2022.

Bosch, the top supplier, also wants to mitigate the effects of the corona crisis by reducing working hours. From August to the end of August, 35,000 employees of the foundation group in the areas of development, research, sales and administration will work at least 8.57 percent less than before. This also reduces the salaries of those affected during this period.

Källenius focuses on the luxury segment

While Daimler, ZF and Bosch have already agreed with the works councils what measures they will take to react to the pandemic, Continental is still struggling to find a deal. Unlike its competitors, the Hanover-based supplier does not want to issue job security measures. The reason: Continental anticipates a long-lasting slump in the car market. “We will not reach the level of 2017 again until after 2025 at the earliest,” said CEO Elmar Degenhart recently. In such uncertain times, it is not possible to guarantee all jobs.

Auto expert Ferdinand Dudenhöffer is also skeptical whether the reduction in working hours will keep a large proportion of jobs in the auto industry in the medium term. “The model is practical for a transition period of a few years. However, it is important that the groups can then start producing again at the pre-crisis level, ”explains the head of the Center Automotive Research (CAR). On the other hand, if demand will remain lower in the medium to long term than before the pandemic, a reduction in personnel is “probably the more sensible way”, said Dudenhöffer.

The German auto industry is suffering particularly badly from the corona crisis. In the first half of the year, car sales in Germany slumped by more than a third to 1.2 million units. Exports and production volumes even fell by 40 percent. Even worse: the pandemic hits the industry in the middle of the greatest change in its history. In the electrical age, internal combustion engines are becoming obsolete. An important unique selling point, to which hundreds of thousands of employees depend, is gradually disappearing.

The overlap of structural change and pandemic is putting enormous pressure on corporations like Daimler. The result: After a decade of growth, the domestic auto industry is in shrinking mode. Daimler CEO Källenius wants to prevent his group from being marginalized by trimming the automaker for profit. Instead of competing with mass manufacturers for thin margins, he wants to focus Mercedes again on luxury cars.

Källenius consequently rebuilt the model range of the brand with the star with the aim of growing profitably in the future, especially with vehicles at the upper end of the segments. Källenius, on the other hand, rejects an expansion into lower passenger car segments, as was done by his predecessor Dieter Zetsche.

The Scandinavian sees that the number of people with an income of more than 250,000 euros per year is growing steadily – around the world. “The trend benefits us,” says Källenius. With sub-brands such as Maybach or AMG, the manager wants to try even harder to get rich customers enthusiastic about Mercedes. Ideally, the high profits that Daimler makes from the sale of classy sedans such as the S-Class will pull the entire group upwards.

Contact the author: lutherweaver@wheelsjoint.com

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