Unintended Consequence of VW's Diesel Stumbles Could Be a Much Stronger Automaker

The disclosure of Volkswagen's  (VLKAY) criminal misstatement of diesel emissions to the U.S. Environmental Protection Agency 15 months ago is leading to a series of repercussions -- not all of them bad for the automaker.

Yes, VW has racked up $16 billion -- so far -- worth of damages, reimbursements and fines as a result of a scheme to mislead regulators by way of a computer program that manipulated emission test readings. The VW brand is tarnished, badly.

Several talented VW executives have been forced to retire or to seek employment elsewhere. Much of the capital that should be invested in new vehicles and technologies, notably a slew of electric, battery-powered models, is gone.

On the plus side, VW is preparing to undertake a broad restructuring, long overdue, that could transform it into a much stronger, more competitive, more profitable company. VW management met in Wolfsburg, Germany on Friday with union leaders for what were expected to be contentious debates over cost-cutting -- to generate needed capital for investment.

"Costs," the late Henry Ford II used to say, famously, "come walking into your office on two legs."

VW employs roughly 600,000 people, about half of them in Germany. The German automaker looks the way many of competitors like Ford (F) and General Motors   (GM) looked 30 years ago, with a high level of vertical integration. In other words, much of what could be subcontracted at lower cost to outside vendors is still done in-house.

An extreme example would be VW's cafeteria in Wolfsburg, where sausages -- wurste -- are served for lunch to union members by union members. The sausages are produced at slaughterhouses staffed by VW union members, processing hogs from farms staffed by VW union members.

Complicating the management negotiations is the 20% stake in VW owned by the German province of Lower Saxony. The province typically supports the union because union members also are voters.

The unions favor continuation of an oversized VW-employed workforce because that means a bigger, more powerful union. But German unions also understand and accept -- unlike some unions around the world -- that their future depends on VW being competitive in Europe and worldwide, which requires strong profits.

Unions have a bigger say in Germany than in the U.S. German public companies are ruled by a supervisory board -- analogous to a board of directors in the U.S. -- on which half the seats, by law, are occupied by union representatives.

VW supervisory board members representing the union are sure to insist that cost savings from the inevitable outsourcing of jobs must be redirected to investments that ultimately ensure strong profit and, therefore, employment. (Presumably, some of the investments will make their way to the U.S., where the automaker has underperformed for decades).

In that event, VW could soon rebound into a more formidable automaker than it was before its diesel emission stumbles.

Doron Levin is the host of "In the Driver Seat," broadcast on SiriusXM Insight 121, Saturday at noon, encore Sunday at 9 a.m.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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