Why VW is raising wages for German workers amid emissions scandal

Under a deal reached on Friday with Germany's largest union, 120,000 workers at six plants will receive a 4.8 percent raise in two increments.

Volkswagen and Germany's industrial union reached a deal Friday to raise workers' pay, with labor leaders arguing employees shouldn't be penalized as the carmaker works to resolve its massive diesel emissions scandal.

Wages for about 120,000 workers at six VW factories in Western Germany will initially rise 2.8 percent in September and another 2 percent in August 2017 under a new collective bargaining agreement with the IG Metall union. The company will also make a 200 euro ($225) contribution to each employee's pension.

The effort comes as VW reported a $4.6 billion operating loss for 2015 due to the costs of resolving the emissions test-rigging scandal, a toll that IG Metall argued shouldn't fall on workers.

"The agreement reached takes into consideration the interest of employees in shaping their working life in a flexible way at the same time as increasing our flexibility," Karlheinz Blessing, VW's head of personnel, said in a statement Friday (translation via Bloomberg). "This is an essential prerequisite for improving our competitiveness."

Last year, the company deducted 16.2 billion euros ($18.1 billion) from its earnings to cover recalls and costs for 11 million cars that were sold with software that allowed them to cheat on emissions tests.

VW also granted German workers 3,950 euros in profit sharing despite the losses it suffered. How this agreement will work will be calculated on a two-year basis under the new agreement, which lasts until January 2018.

The agreement also includes an extended part-time working scheme. Under this scheme, if a downturn occurs, VW could cut the number of shifts worked by employees in certain age groups until 2022, Reuters reports.

IG Metall, Germany's largest union, originally demanded a 5 percent raise when talks began. The union, which includes workers at all of Germany's major carmakers in addition to steel and manufacturing workers, often sets trends for national wage negotiations.

While IG Metall holds a powerful position over German companies, attempts to unionize VW workers in the US have been more contentious.

In December, a small group of skilled trade workers voted to create a collective bargaining unit overseen by the United Auto Workers at VW's plan in Chattanooga, Tenn. 

For the UAW, the vote could represent a larger opening to organize workers at a foreign-owned plant in the South, a goal that has consistently eluded the union over several decades, The Wall Street Journal reports.

The effort, which would allow the workers to negotiate for wages, benefits and other working conditions, came on a 108-44 vote. VW immediately appealed the effort to the National Labor Relations Board, which upheld the workers' vote last month.

The VW plant has about 1,500 hourly workers, Reuters reports.

The company then upped the ante, saying it would appeal to a federal appeals court, a suggestion the UAW dismissed as a "stall tactic that won't work," noting that a federal appeals court in Tennessee had previously sided against the company in a similar case.

This effort was the second time the UAW had attempted to organize workers at the plant. In February 2014, a larger effort failed on a vote of 712 to 626, the Chattanooga Times Free Press reports.

Last month, the company also reached a deal with US regulators, including the Environmental Protection Agency, that includes buying back as many as 500,000 cars that came with the emissions-cheating software.