VW, union pay deal sets ground for others

FRANKFURT: Auto giant Volkswagen has agreed a 3.2 percent wage hike with Germany's top trade union IG Metall, setting a benchmark for Europe's biggest economy as it pursues a solid rebound.

VW, Europe's biggest carmaker, and IG Metall also agreed on a one-off bonus equal to one percent of a worker's annual pay, with a minimum payment of 500 euros ($680), a statement said Tuesday.

Knock-on effects of the deal, which an analyst termed "quite moderate," will be tracked by the European Central Bank (ECB), which stressed last week that it was on high alert to signs of growing inflation pressures.

The VW pay increase is to take effect May 1, effectively bringing it forward by eight months, the automaker said.

"The company and IG Metall have found a fair solution that offers a very decent rise in pay while preserving competitiveness," VW personnel director Horst Neumann was quoted as saying.

IG Metall official Hartmut Meine said: "The conclusion of this agreement takes into consideration the solid economic situation of major European car makers and compensates personnel for their performance."

The agreement is valid for 16 months and comes after VW agreed there would be no job cuts before the end of 2014.

Meanwhile, IG Metall will pursue negotiations in other German sectors and has called for a five-percent increase for workers in the textile and clothing industry.

Commerzbank analyst Eckart Tuchtfeld called the deal with VW a "relatively modest increase" and said: "Other German wage agreements will have a '3' ahead of the decimal point in 2011, too, as the economy is humming along and unemployment is declining."

Auto analyst Frank Schwope at NordLB bank said the agreement came at the right time for VW, which can profit from a global revival in auto sales without fear of labour unrest throwing a wrench into the works.

Like its German rivals, VW had thousands of its employees work shorter hours during the global economic slowdown while unions kept pay demands to a minimum to preserve jobs.

With auto production on the rise again, companies like VW and parts group Bosch have sought ways to repay staff while remaining competitive on global markets.

"The agreement between VW and IG Metall should serve as a symbol for the entire auto sector and similar deals with car and parts makers would not be surprising, in particular owing to stronger inflation in recent months," Schwope said.

Last week, the national statistics office said German salaries rose by an average of 1.4 percent last year, although workers in the key manufacturing sector benefitted from an average increase of 4.4 percent.

Falling unemployment and higher wages are expected to spur consumption in Germany and help redress trade imbalances with eurozone partners.

While the ECB would certainly appreciate such support for the 17-nation bloc, it warned last week that after inflation hit 2.4 percent in January, the bank would watch closely for "second-round effects," such as widespread demands for higher wages.

"We regard it as decisive, absolutely essential that there are no second-round effects," ECB president Jean-Claude Trichet said, suggesting that they might lead the bank to raise its benchmark interest rate in response.