Renaissance of the German Carmakers during the ... - UAM Iztapalapa

Renaissance of the German Carmakers during the 1990s: Successful Japanization or the Development of a Genuine Business Model? Ludger Pries

When after five years of research the final report of the International Motor Vehicle Program at the Massachusetts Institute of Technology was published in 1990, its evaluation of the European (especially German) ‘craftsmanship’oriented companies was pessimistic. Essentially, the report declared that the Japanese lean production system was the “new best way” for the international automobile industry, and that it “could be transplanted successfully to new environments” (Womack et al. 1991, p. 84). For the authors of this study, Western mass producers like General Motors, Renault, Volkswagen and Fiat were the “greatest obstacle in the path of a lean world,” as “many [had] proven remarkably incapable of reforming their ways in the 1980s” (ibid., p. 257). Benchmarking indicators like productivity or quality situated European carmakers in final place and the experts stated: “Europe, once the cradle of craft production in the motor industry, is now truly the home of classic mass production” (ibid., p. 86), which should be reoriented towards lean production like successful plants in North America and developing countries. One decade later, the German carmakers (for our purposes, this term refers only to Volkswagen, DaimlerChrysler and BMW) are seen as extremely successful players in the international automobile industry. BMW, the smallest of the three, doubled its car production and turnover during the 1990s. Despite the short (and failed) Rover adventure, the BMW consortium reported a cash flow of €2.4 billion in 2001. At the same time, Daimler Benz experienced a very successful decade, concentrating on the core competencies of car and truck production after spending the ‘lost 1980s’ following a diversification strategy aimed at transforming the company into a ‘techno-

Michael Faust, Ulrich Voskamp and Volker Wittke (eds.): European Industrial Restructuring in a Global Economy: Fragmentation and Relocation of Value Chains. SOFI Berichte. Göttingen, 2002.

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logy consortium’. Daimler-Benz was definitely the stronger partner in the merger with Chrysler. Volkswagen also enjoyed a period of growth and increased international competitiveness. Although it had been a highly internationalised company since the 1960s, during the 1990s, Volkswagen grew in Western Europe, Eastern Europe, Latin America and Asia. In 2001, Volkswagen’s cash and cash equivalence totalled about €4.3 billion, and the return on capital after tax rose from 5 % in 1997 to 9.4 % in 2001.1 Considered for a long time by managers (and scientists) to be a highly bureaucratic, state- and union-dominated company without attractive profits, Volkswagen defended itself against attempts by the European Union (EU) to abolish the unique Volkswagen Act that prohibited free share trafficking. Ferdinand Piëch modernised the consortium and was selected by Financial Times’ prestigeous Automotive World review as the winner of the Lifetime Achievement Award in 2001. At the end of the 1980s, Wolfsburg, the biggest automobile plant in the world, with about 60.000 workers and employees on one single campus, was often considered (even by the 1990 MIT report) to be a dinosaur of the automobile industry. In 2000, Volkswagen opened its so-called Autostadt (Auto City) at the edge of the Wolfsburg plant, featuring a museum, Adventure Park and marketing hall. Ironically, the Autostadt next to the “old-fashioned” monster plant in Wolfsburg almost attracted more attention than the World Exposition in Hannover which took place in the same year. Considered a mid-class car company, Volkswagen aimed at entering the premium car market by introducing the world’s first real one-litre car and the high-end Phaeton, which was designed to compete with Rolls Royce (and probably with the Volkswagen-owned Bentley). In sum, there was obviously something wrong with the assertion at the end of the 1980s that Japanese car companies were the superior ones (see also Freyssenet et al. 1998). Contrary to what many politicians and academics have claimed, we maintain that the German and French carmakers, not the Japanese, were the most dynamic, innovative and competitive during the 1990s. This chapter aims at explaining the renaissance of the three German carmakers within the context of the international automobile industry. The main argument is that this revival can only be understood by referring to

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See http://hv.volkswagen.com/docs/charts_engl_piech.pdf, 16. October 2002.

Renaisscance of the German Carmakers

some common elements of the business models in place at all three companies. These business models include four basic pillars, each of which answers a basic question at the core of the firms’ activities: (1) the corporate structure and profit strategies (“WHY are we producing and what are the objectives of and reasons behind the firms’ activities?”), (2) product structure and market strategies (“WHAT shall be produced and for whom?”), (3) the production system (“HOW shall we produce and with which technical means and organisational arrangements?”) and (4) the labour relations regime (“WHO shall produce, how can the commitment of people be guaranteed and how can conflicting interests be regulated?”). A business model could thus be understood as the specific configuration of structures and strategies in these four activity fields and transformation spaces. This configuration does not represent a deterministic and fixed system but a sort of loosely coupled ‘regime of affinity’. We hold that it is impossible to understand the dynamics of the German Big Three during the 1990s by just referring to one of the four pillars of the business model. It is the ‘accelerating spiral’ of basic shifts in all four activity fields that explains the renaissance of the German carmakers. The focus of the abovementioned MIT study (successful in terms of marketing but a failure in terms of scientific diagnostics and prognostics) and of a majority of management and scientific discourses has been on production systems. But this is only one part (here, pillar 3) of the story. Another debate has concentrated on the internationalisation profiles of the companies in the globalising world economy and the apparently devastating shareholder logic of an ‘unbounded turbo capitalism’. But this also refers only to one part (here, pillar 1) of the story. During the 1990s, little attention was drawn to the two remaining factors: pillar 2 (product structure and market strategies) and pillar 4 (labour relations). In the case of the latter, collective labour regulation was considered mainly as limitation to free management and individual action. In the following all four aspects are treated shortly and then a synthesis is proposed.

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1. The Risky and Successful Move to Globalise Corporate Strucutres and Profit Strategies One major aspect of the ‘accelerating spiral’ behind the German Big Three’s renaissance during the 1990s is the attempt to internationalise strategic production activities. Several scholars have argued that the globalisation discourse of the last ten to fifteen years has been dominated by discussions on the ideological or political aspects of discipline and control of labour, failing to focus on the internationalisation tendencies of recent decades (Hirst/Thompson 1996; Wortmann et al. 1998). As for the automobile industry, one could say that it has always been a highly internationalised industry: Ford opened a production plant in Manchester, England, in 1911 and in Cologne, Germany, in 1930; General Motors bought 80 % of the Opel shares in 1929; and Volkswagen began internationalisation of production in the 1950s in Brazil and Mexico. Thus the questionis: did the German Big Three globalise their activities during the 1990s to such an extent that their higher level of globalisation could explain (at least in part) the renaissance of the German carmakers? As has been demonstrated in other contexts (Pries 2002a and 2002b), a major shift has taken place in the logistics behind the international activities of BMW, Daimler-Benz, and even Volkswagen. For decades, BMW and Daimler-Benz were successful with a corporate structure and profit strategy aimed at building premium segment cars of high technical and quality standards in Germany, using the Made in Germany label as an additional marketing resource. Twenty years ago, it would never have been possible to sell a Mercedes car in Germany, which had not been produced in Germany itself (or at least in Austria). The same holds true for BMW cars, which were produced exclusively in one region in Germany (BMW means Bavarian Engine Factories) and sold mainly in Germany and Europe. Thus, BMW and Daimler-Benz were national producers and international distributors. This situation changed dramatically during the 1990s.2 BMW and Daimler-Benz made various and constant efforts to become international produ-

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“If the challenge facing automobile producers in the 1980s was how to change their industrial model, that of the 1990s will probably be how to reorganise themselves internationally” (Freyssenet/Lung 1996, p. 39).


cers, not just sales companies with globally-oriented business strategies. Table 1 shows all of BMW’s foreign production sites until the end of the 1990s (for similar information referring to Mercedes-Benz and Volkswagen, see Eckardt et al. 2000). It is striking that, until the 1990s, there were almost no production activities abroad: due to market access restrictions in South Africa (quite attractive market), BMW had opened an assembly facility for completely knocked down kits (CKD), which were produced in Germany. Plant activities in South Africa included a wide scope of models, which were assembled in small scales for the domestic market. Table 1:

BMW’s International Production Activities up to the End of the 1990s

Year

Country

Activity/facility

1972

South Africa/ Rosslyn

1982 1994 1995 1995 1995 1995 1995 1995

Austria/Steyr United Kingdom Indonesia Malaysia Philippines Vietnam Mexico/Toluca USA/Spartanburg

1996 1997 1998/9 1998

Thailand Egypt India Brazil/Sao Bernardo do Campo Brazil/Campo Largo

CKD-assembly, later assembly 3- and 5-class, 1996: ≈15 000 cars (3- and 5-class) and 2 400 Land Rover (Defender) R&D, engine production Take over of Rover CKD-assembly 3-, 5-, 7-class CKD-assembly 3-, 5-class CKD-assembly 3-, 5-class CKD-assembly 3-, 5-class CKD-assembly 3-class Production firstly 3-class, then exclusively Roadster Z3, CKD-assembly 3-, 5-, 7-class CKD-assembly Assembly Production initiation Rover-Defender, 150 Mio US $ Investmt., capacity 15 000/year Engine plant (with Chrysler), ≈500 Mio. US $ invest., capac. ≈400.000 engines (200.000 for Rover)/year, only export Engine plant (Rover)

1999

1999

United Kingdom/ Hams Hall

Source: Own elaboration based on Köhnen 1997, Automobil Produktion (several no.), Salerno et al. 1998 and company documents

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Since the 1990s, Mercedes-Benz and BMW have changed their corporate structure and profit strategies radically. The opening of new assembly and production plants in Asia and Latin America was not intended to reduce costs or evade high regulation levels in Germany (even if such arguments have been made). Both companies explicitly followed a strategy to become globally producing carmakers in an automobile world which was increasingly defined by internationalisation, mergers and acquisitions and by a restructuring of cooperation and competition at a global level. Additionally, and embedded in their new “globalisation attack” (Annual Report Daimler-Benz 1995), both companies no longer concentrated on producing older and (in Europe) out-dated models like they did before, but began overseas producton of premium, or even completely new car models. All this indicates a major shift in the companies’ overall strategies: both exclusive and (by international standards) small carmakers aimed at leaving their Made in Germany niches and at becoming global players in the automobile industry. Even if BMW’s acquisition of Rover in 1994 turned out to be a major failure that cost the company several billion Euros, and even if Daimler-Benz’ ‘merger’ with Chrysler was followed less by ‘synergy effects’ than by a severe structural crisis on Chrysler’s part, at the end of the past decade, both German companies were quite successful, compared to the majority of Japanese, US-American and other European companies. This success was because of and not in spite of the internationalisation strategies of the companies. From 1990 to 2000, BMW almost doubled its total car production (from 519.660 to 1.026.755 units) and raised the share of production abroad from roughly zero to about 15 %. In the same time period, car production in the Daimler-Benz consortium also rose some 100 % from 588.200 to 1.161.601 car units. Taking into account the 2.963.822 car units produced by Chrysler in 2000, the DaimlerChrysler consortium, with more than 4 million units, was responsible for 10 % of car production worldwide, whereas DaimlerBenz had about a 2 % share of 1990. In the same time period, BMW raised its share in worldwide production from roughly 2 % to about 3 %: definitely not the margin of a ‘global player.’ Therefore, BMW was very successful and dynamic during the 1990s, but the future of its corporate structure and profit strategies is still open and will probably lead to further mergers or joint ventures with other companies.

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Although Volkswagen has been considered an internationalised carmaker since the 1960s, the strategic role of international production changed dramatically during the 1990s. The Volkswagen consortium significantly expanded its production facilities in Eastern Europe (Czech Republic, Slovakia, Poland and Hungary), Latin America (Brazil and Argentina) and China. From an already very high share of foreign production (41 % in 1990), the new production activities outside Germany led to a 65 % overall participation rate of foreign plants in Volkswagen car production, which is one of the highest rates of internationalised production in the world! With a production total of 3.058.000 units, Volkswagen represented 9 % of total car production worldwide in 1990: with 5.156.000 units produced in 2000, its share rose to 13 % of world output. As with the share of foreign production, there was also a qualitative shift in the share of foreign sales, employment and turnover (Pries 2002b). Similar to BMW’s and Mercedes-Benz’ corporate strategies during the 1990s, which focused on producing new and up-to-date car models in the foreign plants, Volkswagen shifted from a centre-periphery-strategy to a transnational strategy. Until the 1980s, it, more or less, produced technologically out dated car models in the non-European plants. For example, only the second Golf-generation was being produced in Latin America, when the fourth generation was being assembled in Germany. During the past decade, all major foreign plants from Asia and Eastern Europe to Latin America caught up and are now producing, more or less, the same car models as the German and Western European plants. Moreover, BMW’s Z-3-model, Mercedes-Benz’ M-class and Volkswagen’s New Beetle have, from the start, been produced exclusively in overseas plants.3 So the production of these new car models was not initiated in the ‘mother country’ or at headquarters but in an American plant (Tuscaloosa, USA, in the case of Mercedes-Benz, Spartanburg, USA, in the case of BMW and Puebla, Mexico in the case of Volkswagen). Spartanburg and Tuscaloosa were even all-new green field plants. No other international carmakers had initiated production of a completely new car in a new plant in an unfamiliar country with a completely new production system (Eckardt et al. 1999; Pries 1999). Why did the

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In the case of Mercedes-Benz, there was some M-class production in Austria during the 1990s - but after all new production began in Tuscaloosa, USA!

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German Big Three choose this risky and adventurous form of aggressive internationalisation? Probably because BMW and Mercedes-Benz were aware that something qualitatively new had to happen in order to cope with the challenges of global competition. Put another way, MIT’s characterisation of European carmakers as being condemned to classic mass production and incapable of reforms could be considered a ‘self destroying prophecy’. Producing new models with new production systems or even opening all new overseas plants could be considered a kind of ‘liberation strike’ to overcome a disadvantageous situation. The move to internationalise overseas production facilities focused on active participation in the redistribution of international market shares and on conquering new markets and market niches: when M-class production began in Tuscaloosa, USA (before the DaimlerChrysler merger), sales of Mercedes-Benz models produced in Europe increased by about 60 % in the USA, as Mercedes-Benz was suddenly considered an almost American company. In short, the globalisation of corporate structures and profit strategies, concentration on the core business of car production and abandonment of the diversification strategy allowed the German Big Three to enter new market regions and new market niches, introduce new types and models of cars into their overall product structures and experiment with new production systems in new or ‘refurbished’ plants. In spite of this increase in globalisation, all three companies maintained some basic elements of their corporate structures. Even if there was a certain acceptance of the shareholder value approach, there was no general ‘regime change’ or structural friction, as some scholars have claimed (Schumann 1997a und 1997b). The argument here is that, as they were ‘going global’ in the 1990s, the German Big Three were so successful because (not despite the fact that) their general corporate structure was maintained. BMW, Daimler-Benz and Volkswagen made great efforts to be profitable for their shareholders, but neither short-term profit maximisation nor risk capital became the focus of any of the three companies. BMW was, and still is, strongly influenced by the Quandt Family, its most important single shareholder. The Quandt Family situates the company’s corporate structure and profit strategies in a specific trajectory and corporate culture. DaimlerChrysler still has its headquarters in Stuttgart, Germany (instead of in Auburn Hills, USA), not in spite of but because of the influence of labour in the corporate structure. Volkswagen remains a

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consortium that is strongly rooted in Germany, and which is controlled by shareholders as well as by strong groups of stakeholders. Although the federal government began to sell its 4.8 million shares (only to private buyers and in small packages) in 1988, the state of Lower Saxony kept its shares, which amount to about one-fifth of the corporate capital. The 1990 ‘Volkswagen Act,’ which prohibits concentration of shares in the hands of private institutional shareholders, remains in force despite rising criticism and strong pressure from the EU. This contributes to a specific embeddedness of the Volkswagen consortium in national and regional networks of interest and power groups. Volkswagen’s corporate structure has traditionally been (and remained during the 1990s) dominated by conflictive cooperation and interest mediation between capital, labour and the state (Wellhöner 1996). Volkswagen's trajectory during the past decade reveals the weighting of this corporate structure for its internationalisation profile. In April 1992, Ferdinand Piëch was named the new CEO, effective January 1993. Piëch was behind a relatively successful reorganisation of the Audi brand, focusing on product innovation and process optimisation. This was an important aspect for the president of the IG Metall union, Franz Steinkühler, and the president of the Works Council, Klaus Volkert, both powerful members of Volkswagen’s supervisory board. The workers and employees, along with their representatives, were mainly interested in building a company that would be competitive in the long term and that relied on a typically German approach to product design, technology and quality. They therefore supported Piëch over rival candidate Daniel Goeudever, a Ford marketing expert. With Piëch as the strong new chairman, brought to power by the triadic support of capital, labour and the state, the Volkswagen consortium entered a period of profound modernisation in all dimensions of its business model during the 1990s, while maintaining its characteristic corporate structure, defined by conflictive cooperation and interest mediation. According to the 1990 MIT study, there was no future for a company like Volkswagen; but one decade later, in 2001, Piëch was recognized for his “then-radical policies of platform sharing and brand management [which] helped make Volkswagen one of the biggest players in the global automobile business” (Automotive World Awards 2001). From an international perspective, this is probably one of the most interesting aspects of the Volkswagen case. In a decade marked by increasingly stiff international competition and a neo-liberal

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emphasis on 'shareholder value,’ Volkswagen not only survived, but was also quite successful thanks to a substantially different corporate structure. The answer to the question “WHY are we producing and what are the objectives of and reasons behind the firms’ activities?” was obviously not simply ‘in order to make more profits,’ rather ‘in order to produce excellent cars, make profits and secure employment for highly qualified and motivated workers’. This answer indicates the crucial role of the products themselves in the overall business models of all three companies.

2. The ‘Product Attack’: Towards Full Sortiment Premium Segments At the level of the product structure and market strategies, all three companies successfully initiated so-called ‘fireworks of new products’. This was due to the fact that competitiveness in the international auto industry was no longer defined only in terms of price and quality; the image and emotion behind customer-oriented products, as well as the product structure and corresponding marketing strategies focusing on the time-to-market aspect of production became crucial dimensions of competition as well. As outlined by Clark and Fujimoto (1992, p. 67), product concepts now gained an important dimension: in the automobile industry, „the focus changed from competition in the fields of fuel consumption and metrical dimensions towards competition between product concepts. As in the case of costs, production quality and basic functions, low consumption turned a precondition for participating in the game, and competition now concentrated on the product as such.” When BMW bought the British Rover company in 1994, it was not mainly because of the technical knowledge or in order to open important new market niches. It was mainly in order to widen the consortium’s range of car products ‘downwards’. Until that time, BMW had three basic and wellestablished product lines: the 3-, 5- and 7-series. However, the company lacked small cars in the premium segment. It was therefore interested in Rover’s Mini Cooper, precisely the car segment BMW maintained after reselling Rover in 2000. The company also began research and development on its own small car below the 3-series. At Mercedes-Benz and Volkswagen, the

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shift in product structures was even more accentuated: the former aiming ‘downwards’ to smaller cars, the latter ‘upwards’ to greater luxury cars. Mercedes-Benz has traditionally been characterised by a product structure and image of high quality and prestigious cars in its three product lines: the smaller and economic C-class, the mid-ranged E-class and the luxury S-class. The model policy and design as well as the three types of car classes were somewhat standardised, boring and tedious in the eyes of broader groups of potential customers. Therefore, in the first half of the 1990s, the company announced a ‘product attack’. The completely newly-designed A-class targeted young families and women as new customers. In a joint venture with the Swiss clock producing company Swatch, a completely new car concept, the Smart Car, was developed as a city car mainly for singles, young people and as shopping car. In the same line of product innovation, the aforementioned M-class was developed explicitly as a new model for the growing Sport Utility Vehicle (SUV) niche segment in the US-car market. At the same time, Mercedes-Benz began developing the Maybach model as a high-end car to compete mainly with Rolls Royce and Bentley. The shifts in product structure and market strategies were summarized in the Mercedes-Benz Annual Report from 1996: “Since 1993, Mercedes-Benz has turned (...) from a premium car specialist into an exclusive seller of high-value vehicles in several market segments”. In the Volkswagen consortium, the product range has traditionally been wider and included the Spanish SEAT company, the Volkswagen brand and Audi. But even at Volkswagen, the 1990s were characterised by basic shifts in the product structure and market strategy. Firstly, the brand profiles were sharpened in terms of a clearer ‘division of labour’ between Volkswagen (rational and reliable products of lasting value, affordable for middle class people), Audi (technologically pioneering and more expensive products), SEAT (sporty cars with more aggressive design for younger customers) and Skoda (Volkswagen technology and quality at an affordable price). At the same time, Volkswagen, which had traditionally produced middle-of-themarket cars, made efforts to expand its product range and to change its market strategy in two directions: ‘downwards’ and ‘upwards’. At the end of the 1990s, the Volkswagen group offered an outstanding variety of products: from the small 3-litre Lupo car (and the 1-litre car in 2002) to the newly designed high-end Bentley luxury car with an optional 12-cylinder engine.

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Finally, the German Big Three enacted new product strategies oriented towards niche segments like sporty cars, SUVs, so called “retro” cars or new hybrid car types. Sporty cars like the new CLK- and SLK-models (MercedesBenz), the Z-3-models (BMW) or the Audi TT-models (Volkswagen) are examples of this product strategy, as are the new SUVs developed by Mercedes-Benz (M-class), BMW (X-5) or Volkswagen (Colorado). The New Beetle is a good example of Volkswagen’s pioneering role in developing a new product and market strategy: the so-called retro design cars. Volkswagen’s New Beetle was launched in 1998 and could be considered a symbol of change in many respects. First, its design is a reminiscent of the legendary old Beetle, one of the world’s most successful cars. The New Beetle has Kept the curved contours of the old Beetle, but is a high technology car based on the A4-platform (the same used in the Golf-series); it was launched not as a utility vehicle, but as a fun car. So the product itself and the corresponding market strategy reflect the shift in emphasis: from appealing to the needs of customers, to appealing to their sense of fun and nostalgia. The New Beetle also reflects the abovementioned move to further globalise the traditionally highly internationalised Volkswagen consortium. The new car model was launched and produced, not in the core plant in Wolfsburg, Germany, but in the peripheral plant in Puebla, Mexico. For the first time in the history of the Volkswagen group, production of a completely new car intended for sale on the world market began outside Europe. Finally, that the New Beetle was based on a platform common to several other models reveals the new production strategies adopted by the Volkswagen group (see the section on production systems below). To summarise, the success story of the German Big Three during the 1990s could not be explained without referring to the fundamental shifts in the companies’ product structures and market strategies. In a relatively short period of time and starting from a position of low competitiveness and performance at the beginning of the 1990s (after the short extraordinary peak of internal demand due to German unification up to 1992), all three companies not only caught up in the international concert of carmakers, but took up a leading role in technological aspects (safety measures like ABS and ESP, 4wheel drive for high speed cars, gasoline engines, power transmission etc.), design aspects and also in terms of the ‘economy of speed’ (time-to-market periods for new product development).

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How was this possible? We hold that mainly the companies’ traditionally high engineering capacity and technological knowledge made this fast move possible. It was not just a superficial, fashion-driven adaptation that was dictated by marketing and finance specialists, but the leadership of engineers and technicians and of long-term employed workers and employees which allowed for the fast transformation. When, during the 1990s, finance and controlling managers took over in many other international car companies, the so-called car guys maintained leadership of the German Big Three and were able to motivate highly qualified staffs in order to negotiate the ‘winds of change’. In the case of Daimler-Benz, Jürgen Schrempp became CEO of the consortium in 1995. Besides emphasising shareholder value, he initiated a reorientation of the core competencies of car and truck production, in contrast to his predecessor Edzard Reuter’s differentiation approach of building a ‘technology group.’ (Töpfer 1998; Köhler 1999). Until then, engineers like Helmut Werner had traditionally played a crucial role in defining the product structure and market strategies in the overall business model. In the case of BMW, technology and engineering had prevailed during the company’s entire history. Bernd Pischetsrieder became CEO in 1993 and implemented the Rover deal, as well as the construction of the Spartanburg plant and the Technology Centre in Munich. The central role of Ferdinand Piëch at Volkswagen has already been mentioned, as has the recognition of his work in the international automobile industry. He probably best represents the type of leader that is part of the secret of the renaissance of the German Big Three. Grandson of the famous engineer Ferdinand Porsche, the entire Piëch family has played a central role in the history of car development and production. Even if the orientation towards shareholder value became much more important during the 1990s, the top management of the German carmakers remained dominated by engineers, not by financial or controlling managers. Making profits has always been a very strong driving force in the German car industry, but it was not the only one. A fascination with technological optimisation and ground-breaking new solutions should not be underestimated as a central motivation of leading actor groups and as an important ingredient in the overall business model. Clark and Fujimoto (1992) and Brown and Eisenhardt (1995) have analysed the product development

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processes in the international car industry and the significance of new organizational strategies like project management; in this context, they underlined the crucial role of what they called heavyweight project managers as leaders with material, not just formal, authority and the capacity to motivate and mobilize project members. The car guys who defined the destiny of the German Big Three during the 1990s could be considered the heavyweight managers leading the resurgence of the German automobile industry in the past decade. During this time, by comparison, a type of financial and controlling management dominated the US automobile industry, whereas in Japan the Keiretsu-loyalty was a dominant factor for executive management selection. It seems that, at the beginning of the 21st century, the crucial role of the car guys was newly recognized, for instance in the USA. When Robert A. Lutz took charge as chairman of GM North America (replacing the sales and marketing expert Ronald L. Zarrella), Business Week headlined: “The Car Guys Take Charge at General Motors”.4 As for the conflicts at Ford between different management groups and the lack of good car guys, senior analyst Jerry Flint wrote in Forbes Magazine: “When things are tough, the accountants and the phonies go to the back of the room and let the car guys save the company. That's when you get daring designs and engineering. Car companies rebound on such vehicles, but then, of course, the accountants march back to protect the money and reject daring designs and advanced engineering.”5 We definitely could not explain the renaissance of the German carmakers during the 1990s without referring to the prominent role of the ‘product attack’ and the general shifts in market strategies, which were backed by a long and lasting tradition of research and development, engineering, and car guys. This leads directly to another important aspect, the production system.

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See http://www.businessweek.com/magazine/content/01_48/b3759064.htm, 15 October 2002. See http://www.forbes.com/2002/01/07/0107flint.html, 15 October 2002.


3. Japanisation of the Production System? The production system6 is crucial for explaining success and failure in the international automobile industry. The main focus of the MIT study (Womack et al. 1991) was on the production systems of single plants that John Womack and his colleagues had compared in 15 countries and 90 factories. We hold that such an approach is too limited for explaining the situation at the end of the 1980s and the dynamics of the 1990s: we have to take into account all (four) basic aspects of the business model as a whole. Nevertheless, the production system aspects are very important. What happened with the production systems of the German Big Three during the 1990s? Did they import the Japanese or Toyota production system? Did they simply export their German production system to their new foreign plants in Brazil, Mexico or the USA? Or should the success of BMW, Mercedes-Benz and Volkswagen be attributed to a ‘hybridisation’ of their production systems? International comparative literature has identified different national production models (see e.g. Abo 1998). Based on this notion, the ‘adaptationapplication-hybridisation’ discourse was prominent in automobile research during the 1980s and 1990s. Some authors pointed to the socio-cultural embeddedness of the Japanese production system, which would restrain its transferability (Dore 1973 and 1992; Clark 1979), while, on the other extreme, some researchers insisted on its almost full applicability under every condition. In this line, the MIT study of the international automobile industry stated: „the new best way - lean production - could be transplanted successfully to new environments" (Womack et al., 1991: 84). Between these two extremes there is a broad range of empirical studies on the degree of application (complete transfer of the production system from Japan to other countries and environments) and adaptation (flexible conversion and reworking of

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In general, a production system could be defined as the specific configuration of technologies, organization and work in a given factory. It could be understood as the combination of hardware, software and people that guarantees the outcome of a business unit. A production system also reflects the answer to the question ‘make or buy’ and includes the logistic embeddedness of a productive unit with its suppliers. The latter aspect, even if important for the context, can not be treated here: see Eckardt et al. 2000.

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the Japanese production system according to the specific regional and national conditions; see Abo 1994). Besides theoretical and methodological criticism of the one-best-way thesis of general transferability (Williams et al. 1992), empirical studies reveal a complex mixture of application of ‘Japanese’ production principles and adaptation to the specific circumstances of automobile firms all over the world. Richard Florida and others have analysed Japanese transplants in different sectors of the U.S. industry and found that „Japanese automotive transplants effectively transferred core elements of Japanese production organization, human resources systems, and supplier linkages to the USA“ (Florida et al. 1998, p. 189; see also Florida and Kenney 1991 and Kenney and Florida 1993). Another study also included US-owned component suppliers of the automobile industry and found that „there is very little difference in adoption of innovative production work systems between Japanese affiliated and US-owned suppliers of components to the transplant automobile assemblers“ (Florida et al. 1998, p. 204). Based on exhaustive studies of Japanese transplants, Tetsuo Abo and his colleagues found that “Japanese transplant factories are characterized by a barely equal mix of Japanese and local elements, and we have called this mixture ‘hybrid factories’“ (Abo 1998, p. 220). These findings suggest that there was probably neither a simple export of the German production system, nor a simple import of the Japanese or Toyota production system that could explain the renaissance of the German Big Three. In empirical research done on the traditional, redlesigned and allnew plants belonging to BMW, Mercedes-Benz and Volkswagen in Mexico, Brazil and the USA (about 150 expert interviews), we found that the success of these German production plants was not due to an application of a onebest-way Japanese lean production model. Rather, the plants managed a successful process of complex organizational learning from different international production experiences and in concrete local and corporate settings. The comparison of the different plant profiles of the BMW plant in Spartanburg and the Mercedes-Benz plant in Tuscaloosa, two important German all new green field plants in the USA, could provide an example. A complex mix of different and, to a certain extent, contradictory strategy elements, not Japanese lean production as a fixed recipe or best practice model, was the guideline for plant and production design. Both plants analysed were

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seen as laboratories and experimental fields for new technical, organizational and social elements of the production system. There was a certain global convergence of general production principles (like flat hierarchies, intensive human resource management, in-line-quality-check, continuous improvement, low stocks, just-in-time and close supplier relations etc.), but not of concrete production systems. Each plant adapts these general production principles according to local conditions and strategies. Even within one company and plant, the managers interviewed sometimes put forward completely different interpretations of terms like lean production, Japanese production model etc. In general, the production systems analysed were complex outcomes of (1) German product and technological principles with (2) Japanese lean production rules and (3) pragmatic local US-American influences. They reflect the learning strategies of each company in the context of its specific internationalisation trajectory (see Pries 2002c). The effect of new production systems and production principles at the BMW plant in Spartanburg and the Mercedes-Benz plant in Tuscaloosa on the overall corporate production principles is more complicated than the metaphors of exportation or re-importation could represent. Learning processes from the centre to the periphery were just as important as learning processes from the periphery to the centre. Our Volkswagen case studies show that, during the 1990s, production systems became more similar consortiumwide, as far as benchmark- oriented control system and their production technologies were concerned, though they remained quite different with respect to their work relation regimes (Eckardt et al. 2000). Some scholars have declared a ‘come back of Taylorism’ or the emergence of Neo-Taylorism in the German automobile industry, as indicated by more restricted group work, a more standardized work flow, shorter work cycles etc. (Springer 1999; Schumann 1998). It is very difficult to verify such a general thesis, which basically refers to some experiences with group work at Mercedes-Benz plants. It remains an open question, which part of this diagnosis (1) reflects a shift in the appraisal and observers’ framework and perhaps momentarily exaggerated hopes of ‘new production concepts’, (2) is due to real re-definitions of production systems according to the politics of (certain fractions) of management and/or labour in the Mercedes-Benz group and (3) really could be attributed to a generalized shift in production system strategies of the German carmakers. Our own empirical findings

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suggest the co-existence of a variety of different successful production systems, even within the German Big Three, and the crucial role of organizational learning. These learning processes refer directly to the ultimate dimension of the business model, the labour relations regime.

4. Labour Relations: Increase in Workers’ Participation Production systems are not simply imported, exported or applied: they develop and undergo innovation in a complex learning and negotiation process. Our general thesis is that the German labour relations and regulation regime did not slow down this learning process, but stimulated this important part of the carmakers’ renaissance in the 1990s. Workers’ participation and the power of unions and Works Councils are issues central to labour relations in Germany. Was the renaissance of the German Big Three possible due to or despite these characteristics? First of all, there seems to be a certain belief among scholars that, during the 1990s, there was no real friction in the overall labour regulation regime in Germany (Pries 2001). Even if globalisation was, and still is, a strong challenge for the labour regulation system (Roth 1998), this did not destroy or fundamentally alter the basic columns of the dual regime of ‘conflict partnership’ (Martens and Peter 1989; MüllerJentsch 1993). These two pillars are (1) strong independent unions and employer associations in a system of collective bargaining (which covers about three quarters of all workers’ and employees’ work contracts; see Kohl 2002) at the industry and regional level and (2) Works Councils at the factory level, which have a strong legal and legitimate scope of action (Pries et al. 2002). In contrast, monistic systems of industrial relations, like in the USA (where unions are the only collective actors on the labour side), seem to have been more affected by the globalisation process during the 1990s (Cook and Katz 1994; Köhnen 2000). The German system of co-participation is stable and recognized in economy and society (Bertelsmann Stiftung/HansBöckler-Stiftung 1998): it was even widened by a legal reform act in 2002 and radiates in the European Works Councils at the EU level (Lecher et al. 1998; Platzer/Rüb 1999).

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The renaissance of the German carmakers in the international automobile landscape obviously cannot be explained by a generalized context of a neoliberal labour politics of ‘unions beating and workers bashing:’ such an environment simply did not exist. Concerning the automobile industry in general, only a minority of ‚going global’ activities carried out by assemblers and suppliers manifested in a shifting or moving of plants (due to higher overall costs in Germany): the majority of internationalisation took the form of expansion and extension (Kilper and Pries 1999). Especially in the case of the German Big Three, a certain increase in the power and influence of workers and their corporate organizations could be observed. For instance, the influence of unions and Works Councils in the appointment of car guy CEOs like Pischetsrieder, Schrempp or Piëch and in important advances in internationalisation (the Rover deal, DaimlerChrysler merger, Volkswagen’s Skoda acquisition etc.) was decisive. Some scholars maintain that a certain transnationalisation of the labour regulation regime occurred (Kädtler and Sperling 2001; Zagelmeyer 1999). The strengthening of workers’ participation during the 1990s is most obvious in the case of the Volkswagen consortium. Internationalisation of value chains and production networks went hand in hand with the stronger influence of the Works Councils at the company, group, European and world level. They participate, for instance, in the annual planning rounds, in which five-year plans of production, investment and employment are negotiated and settled between representatives of all plants and the central board (Mertens 1994; Haipeter 2000; Pries 2002b). Trailblazing labour regulation arrangements, like the reduction of the weekly work time to 28,8 hours (in order to save 30.000 jobs), or the 5000x5000 collective bargaining agreement (in order to create 5.000 new jobs for unemployed workers in a completely new production system), demonstrate the strong impact of the Works Council in developing innovative labour regulation arrangements (Pries 2002d). In general, there is neither a fixed ‘negative binding’ nor a determined ‘positive binding’ between workers’ strength in the labour regulation regime on the one hand and economic performance and competitiveness on the other. Some employer-oriented scholars try to demonstrate the former; some union-oriented scholars try to prove the latter. We hold that the success of the German automobile industry during the 1990s is related to positive feedback arising from strong and cooperative participation on the part of the workers’

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and the capacity for innovation demonstrated by the industry. Participation of labour in the definition of corporate structure, profit strategies, product structures, and market strategies and in the development of adequate production systems challenged management not to follow each fashion and to strengthen the basic reasoning behind the strategies and structures. For instance, the inter-plant competition for production shares, models and investment is not only organized at the level of management, but also intersects with the interests of labour. When, in the case of the Volkswagen group, a new model like the New Beetle or the Colorado SUV is developed, at least two or three plants all over the world compete for the order. Each plant and actor group looks for arguments of efficiency, adequate use of existing resources, adequate recognition of know-how and local interests as well as fairness with respect to former decisions. In this complex discourse of standpoints and viewpoints, workers’ participation is a very important ‘ferment’ and ‘accelerator’ of what could be called reflexive company modernization (Pries 1998). This leads directly to the question of the interplay between the different elements of the business model.

5. Conclusion This chapter aimed at analysing the factors behind the obvious but unexpected renaissance of the German carmakers in the international automobile industry during the 1990s. The success of the German Big Three is obviously due to a certain kind of ‘accelerating spiral’ or mutually strengthening shifts in the fields of corporate structure and profit strategies, product structure/market strategies, production systems and labour regulation regimes. A specific and ‘lucky’ combination of these changes to the business model led to a win-win situation for capital and labour during the past decade. At the same time, and aside from these modifications, the following basic and deeply institutionalised features of what could be characterized as a German automobile business model were maintained during the 1990s: -

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a mixed system of corporate structure and profit strategies, whereby shareholder value and stakeholder value interests are balanced through a system of executive boards and supervisory boards and of ‘conflictive


-

-

-

-

-

cooperation’ between management and labour; it includes the tangible influence of family networks, important banks and/or the state in the corporate governance of companies as well as public and collective interests of labour, represented through a mix of party and union representatives in the different committees; hand in hand with this shareholder-stakeholder-configuration, there is a tradition of taking the long-term perspective and building identities as car companies that are genuinely dedicated to advancing engineering, as is reflected in the ongoing dominance of car guys as executive leaders; without the former aspect, it would not have been possible to initiate a ‘product attack’ based on an historically-proven, strong orientation towards research and development, engineering and knowledge development, in general; the aforementioned ‘product attack’ was not only technology-based but also oriented towards innovative, emotionally appealing, high-quality, sustainable products; these shifts in the product structure and market strategies reflect the recursive integration of social and political sensibility into the products, which was made possible in part by workers’ participation; this workers’ participation was not simply a short-term management strategy designed to exploit knowledge: it was part of a decades-long labour and personnel policy of promoting stable, long-term employment, low external and high internal labour flexibility, and workers’ qualification as an important investment; finally, this was combined with a general corporate culture of social commitment, emphasising participation and responsibility on the part of labour, as is reflected in the ‘conflictive cooperation’ aspect of the labour regulation regime and the public relations strategies of the companies.

All of these aspects remained more or less stable during the 1990s – notwithstanding pressures of global competition and neo-liberal discourses all over the world. We hold that these basics of the German automobile business model should be considered not primarily as archaic residuals of old-fashioned corporatism, but as key elements for understanding the resurgence of BMW, Mercedes-Benz and Volkswagen during the 1990s. Compared to Japanese and US-companies, the German Big Three (Volkswagen, DaimlerBenz and BMW) started in a fragile and disadvantageous situation. This was 21

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marked not only by serious productivity problems (as stated in the MITstudy and elsewhere; see Womack et al. 1990), but also by international benchmarking realised by the firms themselves (Springer 1999). They improved productivity and economic performance in a considerable way and, at the same time, they demonstrated the decisive role of non-economic factors for being successful. The success of the German Big Three during the 1990s will not necessarily continue during the first decade of the current century, and corresponding prognostics for the future will also depend on the diagnostics of what happened during the 1990s. The renaissance of the German and other European carmakers was predicted neither by scholars nor by practitioners, neither by radicals nor by conservatives. Explaining this success story in the context of the common features of an automobile business model outlined here leads to the conclusion that the ‘varieties of capitalism’ (Hall and Soskice 2001) allow for a wider range of paths of sustainable development for the future than many of us have thought in the past.

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