Enterprise and State in The West German Wirtschaftswunder - Volkswagen and The Automobile Industry, 1939-1962

The President and Fellows of Harvard College
Enterprise and State in the West German Wirtschaftswunder: Volkswagen and the
Automobile Industry, 1939-1962
Author(s): Steven Tolliday
Source: The Business History Review, Vol. 69, No. 3 (Autumn, 1995), pp. 273-350
Published by: The President and Fellows of Harvard College
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Steven
Tolliday
Enterprise
and State in the West German
Wirtschaftswunder:
Volkswagen
and the
Automobile
Industry,
1939-1962
Analysts
of the
post-war
German "economic miracle"
(Wirtschaftswunder)
have
diverged sharply
over its
origins
and
dynamic.
The well-known Olson thesis stresses the
importance
of a radical break in institutions and
interests,
while other historians have
recently posited
the
centrality
of
continuities from the fascist era to the Bonn
republic.
This
article examines the
history
of
Volkswagen,
the
largest
firm
in the crucial automobile
industry,
to understand the balance
between
continuity
and
change
and
systemic
and
conjunc-
tural factors in the
impressive
success of this firm.
Tolliday
rejects
the Olsonian notion of institutional
"cleansing"
and
argues
that the
legacies
of both fascism and the British
Occupation
were vital but that
during
the 1950s
overlapping
institutional
structures,
argumentative
interest
groups
and
rival
political
coalitions at VW could well have choked off
growth
in the absence of
quite
favorable circumstances.
T he core of
Germany's post-war
economic success has been its
remarkable
performance
as an
exporter
of manufactured
goods,
with
machinery,
chemicals and automobiles
playing
a dominant role.
STEVEN TOLLIDAY is Professor of Economic and Social
History
and Director of
the Centre for Business
History
at the
University
of
Leeds,
UK.
Research for this article was financed
by
a
grant
from the Division of Research of the
Graduate School of Business Administration,
Harvard
University.
Additional
funding
for
translation assistance was
provided by
the Research Initiative Fund of the School of Busi-
ness and Economic
Studies,
University
of Leeds. In
Germany
I am
grateful
to the archi-
vists of the Federal Archives
(Bundesarchiv)
Koblenz and to Maria Kisse-Dencke of
Volkswagen
for use of materials at
Wolfsburg.
Darleen
Flaherty
of the Industrial Archives
of the Ford Motor Co. in
Dearborn,
Michigan gave unstinting
assistance,
and the Wid-
ener
Library
at Harvard
helped
with material on the United States
Strategic Bombing
Surveys.
In
England
I am
grateful
to the Public Records Office and to the archivists of
the
Imperial
War Museum. Above all I am
grateful
for the invaluable translation assistance
provided by
David DeRamus and Ulricka Bolckart.
Business History Review 69
(Autumn 1995):
273-350. ? 1995
by
The President and
Fellows of Harvard
College.
Steven
Tolliday
/ 274
Yet there are
very
few studies of the nature and roots of this manu-
facturing
success. In
contrast,
the
Japanese manufacturing
sector has
been
put
under the
microscope by
Cusumano, Friedman,
Anchor-
doguy
and
others,'
and the
strengths
and weaknesses of U.S. manu-
facturing
have been
widely
debated.2
Discussion of
Germany's
successful recent economic
perfor-
mance has tended to focus on its liberal economic
policies
or its dis-
tinctive
corporatist
institutions,3
but
very
little has been written on
the technical and
strategic
roots of German
corporate
success or on
the evolution of
postwar
institutional
relationships
of
industry
and
government.4
This has not
prevented
certain
boldly stylized
views
from
dominating popular
and academic
perceptions
of the roots of
recovery
and
rapid growth.
The boldest and best-known view was set out
by
Mancur Olson
in The Rise and Decline
of
Nations
(1982).
Olson
argued
that,
in sta-
ble advanced
economies,
the
power
of
special
interest
groups
or
"distributional coalitions" accumulates over
time,
resulting
in a
pat-
tern of institutional sclerosis in which these
groups increasingly
impede
economic
efficiency, dynamism
and
growth. Accordingly,
the
abolition or emasculation of these
coalitions,
notably through
the
upheavals
of war and
occupation,
can create the conditions for
rapid
growth.
This was what occurred in West
Germany
and
Japan
after
the Second World War where "institutional life would start almost
anew." A sort of tabula rasa enabled
entrepreneurial capitalism
to
'
Michael
Cusumano,
The
Japanese
Automobile
Industry (Cambridge,
Mass., 1985);
Michael
Cusumano, Japan's
Software
Factories: A
Challenge
to U.S.
Management
(Oxford,
1991);
David
Friedman,
The Misunderstood Miracle: Industrial
Development
and Political
Change
in
Japan
(Ithaca, N.Y., 1988);
Marie
Anchordoguy, Comtputers
Inc.:
Japan's
Chal-
lenge
to IBM
(Cambridge,
Mass., 1989).
2
For a
variety
of
approaches focusing
on the automobile
industry
see for
example
William
Abernathy,
The
Productivity
Dilenmma: Roadblock to Innovation in the Automo-
bile
Industry (Baltimore, 1974);
James
P.
Womack,
Daniel T.
Jones
and Daniel
Roos,
The
Machine that
Changed
the World
(New York, 1990);
Maryann
Keller,
Rude
Awakening:
The
Rise,
Fall and
Struggle
for
Recovery of
General Motors
(New York, 1989).
3
For a
good guide
to this literature see Peter
J.
Katzenstein, ed.,
Industry
and Poli-
tics in West
Germany:
Toward the Third
Republic
(Ithaca, N.Y., 1989).
4
Some recent
exceptions
are
Raymond
G.
Stokes,
Divide and
Prosper:
The Heirs
of
I.
G. Farben under Allied
Authority,
1945-_51
(Berkeley,
Calif., 1988);
Opting for
Oil: The
Political
Economy
of Technological Change
in the West German Chemical
Industry,
1945-1961
(Cambridge,
1994);
John Gillingham,
Coal,
Steel and the Rebirth
of Europe,
1945-1955: The Germans and French
from
Ruhr
Conflict
to Economic
Community
(Cam-
bridge,
1991).
For a broader discussion of the
gaps
in the literature see
Raymond
G.
Stokes,
"Technology
and the West German
Wirtschaftswunder,"
Technology
and Culture
32
(January
1991)
and Richard
J. Overy,
"State and
Industry
in
Germany
in the Twenti-
eth
Century"
German History 12
(1994).
Volkswagen
and the Automobile
Industry
/ 275
generate high growth.
New
special
interest
groups
were slow to
develop
and when
they
did
emerge
tended to be less
particularistic
and more
"encompassing"
than before.
Conversely,
Olson noted:
"The
logic
of the
argument implies
that countries that have had
democratic freedom of
organization
without
upheaval
or invasion the
longest," notably
Britain and the United States, "will suffer the most
from
growth-repressing organizations
and combinations."5
The broad lines of Olson's thesis have been
widely accepted by
many
historians and economists. In recent
work,
his characterization
of the contrasts between
Germany
and Britain has been endorsed
by
leading
British economic historians such as Charles
Feinstein,
Stephen Broadberry, Barry Supple
and Nicholas Crafts.6 And the
most authoritative recent account of macroeconomic
policy
and
per-
formance in
postwar Germany (by
Giersch,
Paque
and
Schmieding),
explicitly
takes the Olsonian
position
that West
Germany's
postwar
economic miracle has "faded" as distributional coalitions and institu-
tional sclerosis have
slowly re-emerged, particularly
since the 1960s.
"Miracles
emerge,"
these authors
conclude,
"when
spontaneity pre-
vails over
regulation,
and
they
fade when
corporatist rigidities impair
the
flexibility
for smooth
adjustment."7
In
sharp
contrast to this
picture
of
discontinuity,
destruction and
a new start free from old coalitions and institutional
constraints,
other writers have
emphasized continuity,
indeed a
powerful legacy
of institutions and
practices running
from the Nazi era to the Bonn
Republic.
In an
important study,
Simon Reich
argues
that the fascist
regime
in
Germany
marked a "critical divide" in the evolution of the
German
economy.
The Third Reich broke
away
from economic lib-
5
Mancur
Olson,
The Rise and Decline
of
Nations: Economic
Growth,
Staglation
and
Social
Rigidities
(New Haven, Conn., 1982),
esp.
76,
77.
6
Charles H.
Feinstein,
"Benefits of Backwardness and Costs of
Continuity"
in Andrew
Graham and
Anthony
Seldon, eds., Government and Economies in the Postwar World:
Economic Policies and
Comparative Performance,
1945-1985
(London, 1990),
esp.
289;
and "Economic Growth Since 1870: Britain's Performance in
Perspective," Oxford
Review
of
Economic
Policy
4
(1988);
Stephen Broadberry,
"The
Impact
of the World Wars on the
Long
Run Performance of the British
Economy,"
Oxford
Review
of
Economic
Policy
4
(1988);
Barry Supple,
"British Economic Decline Since 1945" in Roderick Floud and
Donald
McCloskey,
eds., The Economic
History
of
Britain since 1700
(Cambridge,
1994),
339;
N. F. R.
Crafts,
"The Assessment: British Economic Growth Over the
Long
Run,"
Oxford
Review
of
Economic
Policy
4
(1988):
i-xviii.
'Herbert
Giersch,
Karl-Heinz
Paque
and
Holger Schmieding,
The
Fading
Miracle:
Four Decades
of
Market
Economy
in
Germany (Cambridge,
1992),
xi and
passim.
For
older versions of a similar
position,
see
Egon
Sohmen,
"Competition
and Growth: The
Lessons of West
Germany,"
American Economic Review
44, (1959): 986-1003;
and F.
Janossy,
The End
of
the Economic Miracle
(New York, 1971).
Steven
Tolliday
/ 276
eralism and established a network of exclusive and bilateral links
between the state and elite firms in a
preferred
"core" of the econ-
omy.
These
corporatist
links survived both war and
occupation,
and
the roots of
postwar prosperity
in the automobile and other indus-
tries can "be traced to
changes
in state
ideology
and
policy
innova-
tion in the Third Reich." Far from the Bonn
Republic representing
a new economic
liberalism,
the Social Market
Economy
was
deeply
corporatist
and "retained elements of fascist state
policy."8
In a
related
vein,
Werner Abelshauser has
argued
that the more liberal
aspects
of Bonn's economic
policies
were shortlived and lasted at
most for a few
years
from the 1948
currency
reform to the Korean
War crisis three
years
later. Thereafter
Germany
reverted to a cor-
poratist
form of economic
organization
characterized
by
collusion
between
government
and business
groups
and
by thinly
masked diri-
gisme.9
In the
parallel
case of
Japan,
so
important
in Olson's
thesis,
Chalmers
Johnson
and others have
compellingly
documented the
pervasive significance
of continuities in
ideology,
institutions and
even
personnel
from the authoritarian state of the 1930s to the
hugely
successful economic
apparatus
of the
postwar
miracle.10
These
positions
form the ends of a
spectrum
and
many impor-
tant works come
between,
or cut
across,
these
positions.
The inten-
tion of this
essay
is to cast
light
on the debate
through
a
study
of the
leading
firm in
arguably
the most
important
German
industry
of the
postwar recovery.
What were the roots of
Volkswagen's post-war
recovery
and success? How much did this owe to continuities from
the
pre-war
era,
how much to a break with the
past?
To what extent
did this "core"
company enjoy
a
privileged
relation with
govern-
ment? Were distributional coalitions dissolved and a new freedom
for
entrepreneurial strategy
unleashed? More
generally,
to what
extent can German success be
regarded
as
"systemic," (flowing
from
a
particular
distinctive set of
institutions,
policies
and
strategies)
or
to what extent should it be
regarded
as
conjunctural,
the result of
H Simon
Reich,
The Fruits
of
Fascism: Postwar
Prosperity
in Historical
Perspective
(Ithaca, N.Y., 1990).
Quotations
are from 54, 61.
9
Abelshauser's views are most
fully
set out in Werner Abelshauser,
Die
Wirtschaftge-
schichte der
Bundesrepublik
Deutschland
(Frankfurt, 1983);
but see also Werner
Abelshauser, "Ansatze
korporativer
Marktwirtschaft in der Koreakrise der friihen
fiinfziger
Jahre," Vierteljahrshefteffir Zeitgeschichte
30 (1982): 310-314.
1'
Chalmers
Johnson,
MITI and the
Japanese
Miracle
(Stanford, 1982).
Aspects
of
Johnson's interpretation
have been
effectively
criticized
by, among
others, Friedman,
Misunderstood
Miracle,
but his
analysis
of economic
policymaking
in the 1950s and
early
1960s remains
compelling.
Volkswagen
and the Automobile
Industry
/ 277
favorable external circumstances and
opportunities:
or,
more
prop-
erly,
what was the balance between these two
types
of factors?
1.
Volkswagen
under the Nazi State and the War
Economy:
(i) The
Origins
of
Volkswagen
The
starting point
must be the
highly
unusual
origins
of the com-
pany. Volkswagen
(VW)
did not evolve
organically
out of
preceding
developments
in the German automobile
industry.
Instead it was
abruptly
created
by
the
authority
and
power
of Hitler's National
Socialist
state,
largely
in
opposition
to the wishes of the German car
makers. Until the
early
1930s,
the German car
industry
showed no
indication of
any willingness
or
capacity
to undertake the sort of rad-
ical
project
to
produce
a low-cost car in
high
volumes that VW was
to
represent.
Germany
had
played
a
pioneering
role in the
development
of
automotive
technology
and the internal combustion
engine
before
the First World War. But
by
the
early
1930s the
pioneer
had fallen
behind. Adverse conditions of demand and infrastructure meant that
motorization levels were low. In
1929,
Germany
had
only
one car
per
237 inhabitants
compared
to one
per
45 in Britain and one
per
44 in France."1
Germany
had
sparse
and
poor
roads but a dense and
efficient state-owned
railway
network,
and the state
kept
rail fares
low and
vehicle,
oil and
gasoline
taxes
high,
thus
inhibiting
car sales.
Purchasing power,
too, was
low,
though
the
high
demand for motor-
cycles
indicated an
underlying
demand for basic
personal transpor-
tation.'2 In the
early
1930s
Germany
had more
motorcycles per
capita
than
any
other
country
and
Germany
was the
largest
motor-
cycle
market in the world. This fact made Alfred P.
Sloan,
Jr.
and
General Motors
(GM)
identify Germany
as a tremendous
potential
car market but the German
producers
were unable to devise a low-
cost car to
tap
into this demand.'3
With the
partial exception
of the
largest
firm,
Opel,
most of the
1
Jaroslav
Purs,
"The Internal Combustion
Engine
and the Revolution in
Transport:
The Case of Czechoslovakia with some
European Comparisons"
in Theo
Barker, ed., The
Economic and Social
Effects
of
the
Spread of
Motor Vehicles
(London, 1987),
204-5.
12
Fritz
Blaich,
"Why
did the Pioneer Fall Behind? Motorisation in
Germany
Between
the
Wars,"
in
Barker, ed., Economic and Social
Effects
of
the
Spread of
Motor
Vehicles,
148-51;
S. M.
Bowden,
"Demand and
Supply
Constraints in the Inter-War UK Car
Industry:
Did the Manufacturers Get it
Right?"
Business
History
33
(April
1991):
241-67.
13
Alfred
Sloan,
My
Years With General Motors
(London, 1986),
349.
Steven
Tolliday
/ 278
German
producers
concentrated on
luxury
vehicles,
using
traditional
methods and
relatively cheap
skilled labor to
pursue
individual
styl-
ing
and
high quality.'4
BMW's
predecessor produced
some small
Austins under
license,
and
Opel
for a time
attempted
to offer unli-
censed
copies
of a small
Citroen,
ending up
in a
lengthy
court case.15
But these efforts were halfhearted and neither
Ford,
which
opened
a
factory
at
Cologne
in the
1920s,
nor
GM,
which assumed control
over
Opel
in
1929,
took the
development
of a small car
seriously.
In
1933
Germany produced only
84,000
motor cars
compared
with
159,000
in France and
220,000
in the UK.
Impeded by poor
infra-
structure,
economic crises and conservative
management,
the Ger-
man auto
industry lagged
far behind the British in
scale,
quality
of
products,
and
vigour
until the
government-stimulated
boom of the
late 1930s. All in
all,
it was a
sharp
contrast to the
picture
of Ger-
man
dynamism
in other industries of the second industrial revolution
described
by
Alfred D.
Chandler,
Jr.16
Against
this
background,
the
"people's
car" was the
product
of a
liaison between a
visionary designer,
Ferdinand
Porsche,
and the
ambitious
plans
for national
prestige, growth
and
military prepared-
ness of Adolf Hitler. Hitler's
personal
initiative was a central factor.
Within a few months of the seizure of
power
Hitler met with Por-
sche in Berlin and told him to
design
"a small 4-seater car.... a sort
of
low-priced family
car in which one could
go
for weekend
trips....
a car for the
people".
It was to be a
low-priced mass-produced
car
which he referred to as the
Kraft
durch Freude
(KdF)
or
"Strength
Through Joy"
car.17 Thereafter Hitler continued to take a direct
per-
sonal interest in the
design process,
even
offering body-design
amendments in his own
hand.'8
At
first,
the
government
laid down
14
F.
Blaich,
"Die
'Fehlrationalisierung'
in der deutschen Automobilindustrie 1924 bis
1929,"
Tradition 18
(1973): 27;
Anita
Kugler,
"Von der Werkstatt zum FlieBband:
Etap-
pen
der friihen
Automobilproduktion
in
Deutschland,"
Geschichte und
Geselschaft
13
(1987);
Bernard P.
Bellon,
Mercedes in Peace and War: German Automobile
Workers,
1903-1945
(New York, 1990).
15
H.
Schrader,
BMW Automobile: Voin ersten Dixi bis zum Modell von
Morgen
(Ger-
lingen,
1978),
35.
1f
Chandler notes the
contrast,
though
he also
gives
a rather more favorable
picture
of
the German auto
industry
in the 1930s. Alfred
Chandler,
Scale and
Scope:
The
Dynamics
of
Industrial
Capitalisnm (Cambridge,
Mass., 1990),
527-531.
17
Richard
J. Overy, "Transportation
and Rearmament in the Third
Reich,"
Historical
Journal
16
(1973):
401.
18
"Report
of
Interrogation
of Mr. Karlos"
(Volkswagen Design Engineer
and
personal
assistant to Dr.
Porsche), Report of
German
Reparations
Assessment Teams
(RAT)
151
(10
February
to 3
April
1946),
Imperial
War Museum
(IWM), London;
Jonathan
Wood
repro-
Volkswagen
and the Automobile
Industry
/ 279
the framework and the
operating principles
and then turned the
project
over to be run
by
the RDA
(Reichsverband
der Deutschen
Automobilindustrie,
the
industry
trade
asociation)
which would
co-ordinate the
design
and
production
and
provide
finance. Simulta-
neously,
the
government
transformed the German road
system
through
its
Motoriesierung program.
As Richard
Overy
has
shown,
this
program
and the VW
project
were
essentially
driven
by
national,
symbolic
and economic motiva-
tions rather than
by
rearmament and war
preparedness.19
The
post-
war United States
Strategic Bombing Surveys
themselves
accepted
quite explicitly
that motorization had little to do with rearmament.20
The VW
plant
itself was
not,
as has often been
alleged,
built
specif-
ically
for war work. In
fact,
it was
completely unprepared
for war in
1939,
mainly lay
idle in
1939-0,
and thereafter
produced only
64,000
jeep-type
vehicles and a
variety
of
job-shop
war work.
According
to Walter Nelson it became "an oriental bazaar of war
materiel
manufacture,
and the
plant
which had been conceived of
and built as one enormous unit had been broken
up
into a host of
small
factories,
lodged
under one
roof."'2
The VW
project
often
conflicted with rearmament
projects
rather than
complementing
them. The
Wehrmacht,
for
example,
wanted a
very
different basic
vehicle for the German auto
industry,
with a
heavy
chassis for all-
terrain
use,
not a small
family
car with
costly lightweight parts
(including
hard-to-obtain
aluminum).22
The main motivation of the
program
was to stimulate
employment
and economic
recovery
and to
lay
the basis for a mass market for automobiles.
The car that Porsche
developed
for this
purpose
broke
radically
with all the
predominant design configurations
of
existing
German
cars. His
design
was rooted in
popular
social-mechanical
conceptions
of the
1920s,
with certain
family
resemblances to the Citroen
duces a
suggested design change alleged
to be in the
Fihrer's
own hand. See
Jonathan
Wood,
The
Volkswagen
Beetle,
including
Karmann Chia
(London, 1983),
17.
9
There is a sizeable literature on Hitler's industrial
policies.
See
particularly
Richard
J. Overy,
"Cars,
Roads and Economic
Recovery
in
Germany,
1932-8,"
Economic
History
Review
28, (1975);
Richard
J. Overy,
The Nazi Economic
Recovery,
1932-9
(London,
1982),
and
Reich,
Fruits
of
Fascislm.
20
According
to the United States
Strategic Bombing Survey,
Report
77:
4-5,
"No evi-
dence was discovered of a
systematic plan
for
converting
the
industry
to war
production."
21
Walter
Henry
Nelson, Snlall
Wonder: The
Amazing Story of
the VW
(Boston, Mass.,
1970),
93.
22
P.
Kirchberg, "Typisierung
in der deutschen
Kraftfahrzeugindustrie
und der
Generalbevolllnachtigte,"
Jahrbuch fir
Wirtschaftgeschichte
8
(1969):
120-4.
Steven
Tolliday
/ 280
Traction-Avant or the Central
European
Tatra. Rather than the Pan-
hard water-cooled
front-engined
conventional
layout
his
concept
was
based on a backbone
chassis,
swing
axles,
independent suspension
and air cooled
rear-engine,
all of which made
possible major
innova-
tions in
aerodynamic design
and
weight
reduction.23 The
concept
was
pathbreaking
and
radical,
but to turn the
grand
idea into an
effective vehicle which could be
economically produced
involved
enormous
development problems
and costs. Porsche received
design
resources and financial
support
from the
government
that would
have been
unimaginable
for rival
producers.
Doleschal has estimated
that the total
development
costs of the VW
by
1939 amounted to
some RM 30m or
approximately
$12m [1RM
= c.40
cents].24
Even
so,
the technical and
developmental problems
remained
dauntingly complex
and time
consuming. Despite
the
priority
and
resources accorded to it the final
design
was not stabilized until 1937
(after
four
years
of intensive
research,
development
and
testing).
The
development
of a suitable
lightweight engine
and new
designs
and construction for
suspension,
cranks and
gears
were
particular
stumbling
blocks.25 In
addition,
other
problems
stemmed from the
required
low
price.
Hitler's
politically
motivated demand that the car
should cost no more than RM
1,000 ($400)
was at first viewed
by
Porsche as idiotic and
threatening
to the whole
project,
especially
because of the
relatively higher
costs of the
lightweight
materials he
wanted to
use,
and
problems
in
matching
the desired
specifications
with the
target price
resulted in still further
delays.26
The
response
of the other auto
producers
was foot
dragging
and
the most reluctant
cooperation. They
feared that the Hitler/Porsche
car would undercut their
sales,
and
they constantly
stressed the dif-
ficulties of
producing
such a car at the
target price. They
also saw it
as a further encroachment of state
enterprise
into
private industry,
especially
in
light
of the
project
to create the
Hermann-Goring
steel-
works in 1937.27 While the
design
and
development
difficulties
remained at center
stage,
their resistance was not too
palpable,
but
23
Michael
Sedgwick,
Cars
of
the Thirties
(London, 1970); Wood,
The VW Beetle.
24
Reinhard
Doleschal,
"Zur
geschichtlichen Entwicklung
des
Volkswagenkonzerns,"
in Reinhard Doleschal and Rainer
Dombois, eds.,
Wohin
lauft
VW?
Automobilproduktion
in der
Wirtschaftkrise
(Reinbek, 1982),
30.
25The
complex design history
is well chronicled and illustrated in
Wood, Beetle,
20-28.
26
Nelson,
Simall
Wonder,
48.
27
P.
Kluke,
"Hitler und das
Volkswagenwerkprojekt," Vierteljahrshefte
fuir
Zeitge-
schichte 8
(1960): 376-9;
Richard
J. Overy, "Heavy Industry
in the Third Reich: The
Reichswerke
Crisis,"
European History Quarterly
15
(1985).
Volkswagen
and the Automobile
Industry
/ 281
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G
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f <.Lu - /4
5D w 4 /fSot. . /_
.%
I
a / /5 .
}y-
J/y
gh g r-- s
^-
/;^ tv ,-X,
,z,
-/
c -y s e
^
<
^
^
f^y
?
^r^^i^ip^\
Development of
the Beetle. Hitler took a close
personal
interest in the
design
and
development
of the
Volkswagen.
This
drawing
is a
sketch,
believed to be in Hitler's own
hand,
suggesting
that Ferdinand Porsche
modify
the front-end of an
early
version. Fur-
ther evidence of his close involvement can be seen in the handwritten note
by
Hitler in
1935
asking
a series of
questions
about the
development
of the model. The
questions
read:
1. I am not allowed to
speak.
(Hitler
had lost his voice at the
time.)
2. How
many
horse-
power
has the
engine?
3. How
many cylinders?
4. Air-cooled. 5.
Weight
of car. 6.
Speed.
7. Fuel
consumption.
8. Cost? 9. Is the test model
ready?
10.
Anything
else? For details
on the circumstances
surrounding
these documents see
Wood,
VW
Beetle,
15-18.
(Photo-
graphs reproduced courtesy
of the VW
Archives.)
Steven
Tolliday
/ 282
26
May
1938
.
Adolf Hitler
performs
a ceremonial
laying
of a foundation stone for the
KdF-Wagen factory.
On the left is a closed
body prototype
and on the
right
a cabriolet
version.
(Photograph reproduced courtesy
of the VW
Archives.)
once the focus
began
to shift towards
production
it
quickly
became
apparent
that
they
would
impede
the
progress
of the
project
if
they
could. The enormous costs of
design
and
plant
construction and the
risks of losses in an uncertain market made the
project
unattractive
to the
private
sector.
Accordingly,
in 1937 the Nazis shifted
respon-
sibility
from the RDA to the Deutsche
Arbeitsfront
(DAF),
the state-
controlled union
organization
which had
developed
into a
huge
financial
empire
based on confiscated trade union funds and a com-
pulsory monthly levy
on all German workers. DAF owned its own
building
societies,
companies
and a
major
bank and
was, therefore,
uniquely placed
to finance and
implement
the VW
project.28
DAF's role was to build the
plant
and
get
the VW into mass
production.
From the start the new car was
designed
to be mass
produced
on Fordist lines in an
integrated factory
at
Wolfsburg
that
would in its "third
stage"
be
capable
of
building
1.5 million cars
per
year.
Even the first of the three
stages
constituted not
only
the
larg-
est
plant
in the world but had 50% more floor
space
than Ford's
giant
wartime
plant
at Willow Run.29 The
huge plant
and the
import
of numerous
expensive single-purpose
machine-tools from the U.S.
(using
much scarce
foreign exchange)
resulted in massive
start-up
costs which were
heavily
subsidized
by
DAF at a time when the
28
Reich,
Fruits
of
Fascism, 155-7.
29
The Willow Run
plant
was built 1940-2 and at the time of its
opening
(for
the man-
ufacture of B-24
bombers)
was
regarded
as the
largest single
industrial structure in the
world. Robert
Lacey,
Ford,
the Men and the Machine
(Boston, Mass., 1986),
390.
Volkswagen
and the Automobile
Industry
/ 283
plant
had
very
uncertain
prospects
of return.
By
late 1939 80% of
the first
stage
was
completed
at a cost of investment in
plant,
machinery
and
equipment
of RM 215m.
Though largely completed
and
equipped,
the
plant
had not
produced any significant
number of
cars before the war
began.
This enormous
special purpose factory
would have been
simply
a
fantasy
for
any
other
European
manufac-
turer at the time.30
The size of funds
required
for this construction was such that
even DAF had to turn to new
ways
to raise finance. DAF enrolled a
quarter
of a million Germans in a
quasi-compulsory
car
purchase
scheme,
paying
in installments in advance while the car was still on
the
drawing
board-the infamous
"Volkswagen
savers' fund." Savers
contributed RM 25
per
month toward the
purchase
of a
Volkswagen
and would receive their car once
they
had contributed RM 1200.
By
1939
253,000
Volkswagens
had been
pre-ordered (equivalent
to the
total
output
of the entire German auto
industry
in 1938 and three
times the total
output
of
1935)
and RM 110m subscribed.
By
the
end of the
war, 336,000
people
had subscribed RM 267m without
receiving
a
single
car.31
Motoriesierung
and the VW
project
transformed the status and
prospects
of the German auto
industry.
The
huge government
stim-
ulus to demand also
provided
a
platform
for resurrection and take-
off at
Opel
and Ford. Ford in the
early
1930s had been a small and
erratic
operation, heavily dependent
on rather
inadequate
outside
suppliers
and inhibited from
investing by
the
inadequacies
of local
management
and the
company's chequered relationship
with the
Nazi
regime.
However,
in the late
1930s,
as Wilkins and Hill
note,
the
company
"swallowed
any qualms they may
have had" and turned
to
"teaming up
with the National Socialists to achieve success."32 In
particular they
and
Opel
benefitted from
Goring's preference
to base
his armed forces on Ford and GM trucks rather than the"wretched"
locally produced
ones.
Opel
was also the chief immediate
beneficiary
of Hitler's
Motorisierung program
as the
government
built roads and
stoked
up
demand in
anticipation
of the arrival of the
"people's
car."
With a
good range
of American
designed
cars and
well-equipped
factories,
Opel
was able to ride the tide of
expansion
in the four
3
Doleschal,
"Zur
geschichtlichen Entwicklung,"
25-32; Reich,
Fruits
of
Fascism,
156-8.
31
Reich,
Fruits
of
Fascism,
158.
32
Mira Wilkins and Frank E.
Hill,
American Business Abroad: Ford on Six Continents
(Detroit, 1964), 284,
273-82.
Steven
Tolliday
/ 284
Postage Stamp,
1939 . The
Volkswagen
Savers' scheme was
intensively promoted by
the
Nazi state. This
postage stamp
shows a KdF car
speeding along
an
Autobahn,
even
though
the cars were not
yet
available to the
public. (Photograph reproduced courtesy
of the VW
Archives.)
years
before the war to take 40% of the German market and become
the
largest
auto
producer
in
Europe.33
The
impact
on the domestic
producers
was less
clearly
favorable.
Indeed,
Simon Reich has
argued
that the defensive
mentality
and
cliques engendered by
the
VW
project
turned them
inward-looking
and inert in the mid-
1930s.34
But
perhaps
as
important
as the
aggregate
demand stimulus was
the fact that there is no evidence that the German auto
industry
could have
developed
a
cheap
small car without Hitler. Until the
1930s,
insofar as
they pursued cheap
cars
they
looked towards
"hybridized"
American
cars,
cheap low-powered
cut-down versions
33 Karl
Ludvigsen, Opel:
Wheels to the World
(Princeton,
NJ,
1975);
Dietmar Due and
Hentrich
Jorg,
Krise der Automobilindustrie: Das
Beispiel
des Multis General
Motors/Opel
AG
(Frankfurt, 1981).
34
Reich,
Fruits
of
Fascism,
154.
Volkswagen
and the Automobile
Industry
/ 285
of
larger
cars.35 This was
compounded by
an elitist social outlook:
when confronted with Hitler's demands for a
"people's
car" the
response
of the technical director of the RDA was to
propose
a
3-wheeler because the Association did not believe that "the common
man should be
driving
a car.... we were
thinking
more of a sort of
covered-up motorcycle."36 Opel,
however,
with its
product develop-
ment
largely
in the hands of GM's Detroit
product-study group,
was
able to
adapt
and introduce
many
important
American
design
fea-
tures into
European
cars
(syncromesh, independent
front
suspen-
sion,
all-steel bodies and
integral
steel frame and
body).
In the
P-4,
launched in
1935,
Opel
introduced a
cheap
basic car and in 1937
reduced its
price
to a
strikingly
low RM 1450.37 But the P-4
(later
the basis of the
Kadett)
was a
wholly
conventional cut-down version
of
Opel's larger
cars. It could not have
fundamentally changed
the
face of motorisation in the
way
the Beetle did.
The Nazi
Motorisierung
transformed the
industry
from a back-
water and made it into
Germany's largest industry by
sales on the
eve of the Second World War.
Unprecedented
state
support
stimu-
lated demand and laid down an infrastructure which facilitated the
revival of the American-owned
companies
and created the basis of a
mass market. At the same time massive
support
for
product
devel-
opment
and
capital
investment meant
that,
on the eve of the
war,
a
pioneering
car
design
had been created
ready
for mass
production
in
what Simon Reich has
aptly
described as "the most
expensive,
eco-
nomically
irrational
plant
in
history."38
(ii) Survival,
1944-6
All of this would have meant little if the new investments had
been
destroyed during
the war or broken
up
afterwards,
and accord-
ing
to the most
widely-read
accounts the VW
plant
was
utterly
shat-
tered
by
bomb
damage. Jerry Sloninger reports
that the
plant
was
"two-thirds
destroyed"
and Nelson
accepts
the claim of Heinrich
Nordhoff,
VW's
Managing
Director from 1948 to
1967,
that the
35 The nearest
approximations
were
Zschopauer's
DKW Reichsklasse and the
Opel
P-4. See H. C. Graf von
Seherr-Thoss,
Die deutsche Automobilindustrie: Eine Dokumen-
tation von 1886 bis
1979,
2nd ed.
(Stuttgart,
1979),
290-304 for details on German small
cars in the 1930s.
36
Quoted
in
Nelson,
Small
Wonder,
47.
3'
Sloan,
My
Years with General
Motors, 256;
Ludvigsen, Opel,
50-1.
38
Reich,
Fruits
of
Fascism,
158.
Steven
Tolliday
/ 286
"destruction was in
effect,
total."39
Yet,
despite
the recurrent
image
of VW
rising
like "a
phoenix
from the ashes" from wartime destruc-
tion,
the
reality
was rather different. The
Volkswagenwerk
survived
the war
remarkably
intact. Its survival was then
guaranteed
and its
revival made a
priority by
the British
Occupation.
And the inertia
and confusion of its
competitors, particularly
the American-owned
firms,
allowed it to
gain
considerable
advantages
as the first mover
in the
post-war
German auto market.
The
impact
of allied
bombing
has
generally
been
exaggerated
in
accounts of VW's
post-war history.
In
fact,
until late in the war the
Volkswagenwerk
was
practically undamaged by
Allied air raids. The
heaviest
bombing
came in three
major
raids in
July
and
August
1944,
and
photographs
of the works after this
damage give
an
impression
of devastation.
However,
as Simon Reich has
shown,
detailed
analy-
ses made
by
the United States
Strategic Bombing Survey
at the end
of the war make
necessary
a
significant
revision of this
picture.40
In
the course of these raids a total of
2,182
bombs were
dropped
on the
plant.
However,
only
263
actually
fell on the
buildings,
and
poor
co-ordination and
badly-set timing
fuses limited the
damage.
Most of
the bombs
exploded high up
in the
roofing
and failed to clear a
path
into the lower structures for the incendiaries to wreak their maxi-
mum
damage.41
As a result of these raids 20% of the floor area of the
plant
was
rendered
totally
unusable with
major
structural
damage
while a fur-
ther 14% suffered
partial
structural
damage.
More
significant
than
damage
to the
buildings
was the fate of the machine-tools. At the
beginning
of these raids the
plant
contained
2,776 machine-tools,
including virtually
all of the
highly
modem tools installed before the
war. The
June
raid resulted in destruction of 225
(8.1%)
of these
tools,
"heavy damage"
(defined
as
"damage
that
required repairs
or
spare parts
from the
original
manufacturers")
to 139
(5.0%),
and
"light damage"
(defined
as
"damage
that could be
repaired
within
the
plant
in less than a
month")
to a further 160
(5.8%).
In
addition,
39
Jerry Sloninger,
The
Volkswagen
Story
(Cambridge,
1980), 48; Nelson,
Small Won-
der,
92.
40
See
Reich,
Fruits
of
Fascism,
167-9. Further details here are
mainly
drawn from
United States
Strategic Bombing Survey
(USSBS),
Report
No. 88:
Volkswagenwerk,
Fall-
ersleben,
Germany
(Munitions Division, USSBS,
17
September
1945); USSBS,
Plant
Report
No. 10:
Volkswagenwerk,
Fallersleben,
Gernany
(Munitions Division,
Motor and
Tank
Branch,
August,
1945);
and
USSBS,
Report
No. 77: German Motor Vehicles Indus-
try,
Munitions
Division,
3 November 1945
(Washington,
D.C.,
National Archives and
Records
Service,
General Services Administration
(NA), 1975),
M1013.
41
USSBS,
Report
No.
88,
13-19 and Bomb
Plotting Diagrams,
Annex 8.
Volkswagen
and the Automobile
Industry
/ 287
Wolfsburg Factory
*
Despite heavy bombing during
the
War,
the
Wolfsburg plant
escaped
with
relatively
limited
damage.
This
photograph
was taken
during
an evacuation
of the
factory during
an Allied air attack.
of the VW
Archives.)
the
press shop
with its mammoth
presses, proved "practically
invul-
nerable to air attack" because of its
powerful
construction.
Perhaps
more
fortuitously,
the works' crucial
giant power-station
also
emerged
unscathed. This "low machine loss" of
only
8% was
largely
attributed to effective
protection
from reinforced external walls and
a reinforced concrete semi-basement that had been
part
of the
orig-
inal construction. The
subsequent
raids did
very
little further dam-
age
to the
tooling
because
by August
1944 most
important
tools had
been relocated in the semi-basements while 827
key
tools were
moved to
dispersal
factories,
mostly
in the
vicinity, though
some
were taken as far
away
as the Czech mountains.42
Following
this
damage
the raids ceased and there was no further
harm to the
plant
from
enemy
action. The
production
levels of the
months before the raid were
again
reached
by
December 1944. The
final
stoppage
of the
plant
in
February
1945 was not the result of
subsequent
war
damage
but of
paralysis resulting
from the
general
chaos of
supplies
due to the destruction and
collapse
of the national
transport system.43
In the final
days
of the
War,
the
factory
was
pro-
tected from
destruction,
according
to Hitler's scorched-earth com-
mands,
by
the
mayor
and the local
militia,
partly
because the
power
42
USSBS,
Report
No.
88, 13, 19-20,
and Exhibit M
"Dispersal Program."
43
USSBS,
Report
No.88,
2.
Steven
Tolliday
/ 288
plant
also heated the town.
Despite
some
looting only
a little further
damage
was done to the
plant.44
The survival of so much crucial
plant
and facilities at VW was
perhaps
somewhat
exceptional.
Other auto factories
belonging
to
Daimler-Benz and Auto Union were
effectively destroyed
and GM's
Russelsheim
plant
was much more
seriously damaged.
But it also fits
in with the
aggregate picture developed
by
Werner Abelshauser and
other revisionist historians in recent
years,
who have
argued
that
damage
to German industrial
capital
stock
during
the war was more
limited than has often been claimed and that industrial
capital may
have been
qualitatively
and
quantitatively
better in 1945 than in
1939. Even in the critical
ball-bearing industry,
for
example, only
16% of
capital
stock was
destroyed
and some USSBS estimates cal-
culated that as little as 6.5% of all industrial
capital
stock was
destroyed.45
2.
Occupation
and
Reconstruction,
1945-1948:
(i)
Wartime Plans for
Volkswagen
It was also
highly
fortuitous that the VW
plant
at the end of the War
fell into the area of British
trusteeship
since the British were much
less committed to
reparations
and denazification than the Americans
or French.46 Even
during
the
war,
the British had never
fully
embraced the
"Carthaginian"
hawkishness of the
Morgenthau plan,
even
though
it remained the official rationale of Allied
Occupation
policy
until 1946.47 Both Turner and Kramer have
emphasized
that
the British administration on the
ground
never
seriously
aimed at the
44
On the
history
of
Wolfsburg
under the
occupation
see Ian
Turner,
"British
Occupa-
tion
Policy
and Its Effects on the Town of
Wolfsburg
and the
Volkswagenwerk,
1945-49"
(Ph.D. diss.,
University
of Manchester Institute of Science and
Technology,
1984).
Tum-
er's massive thesis is a mine of information on all
aspects
of the
history
of
Volkswagen
and
Wolfsburg
and remains an essential work.
45Werner
Abelshauser,
Wirtschaft
in Westdeutschland, 1945-8
(Stuttgart,
1975);
Wendy
Carlin,
"Economic Reconstruction in Western
Germany,
1945-55: The
Displace-
ment of
Vegetative Control',"
in Ian
Turner, ed.,
Reconstruction in Postwar
Germany:
British
Occupation Poticy
in the Western
Zones,
1945-55
(New York, 1989); Stokes,
Divide and
Prosper
also shows that
damage
was
comparatively light during
the War in
much of the German chemical
industry.
46
Turner,
"British
Occupation Policy,"
69-71;
Alan Kramer, "British
Dismantling
Pol-
itics,
1945-9: A
Reassessment," in
Turner, ed, Reconstruction in Post-War
Germany.
47
Bruce
Kuklick, American
Policy
and the Division
of Gernany:
The Clash with Rus-
sia Over
Reparations (Ithaca, N.Y., 1972);
J.
Backer,
Priming
the German
Economy:
American
Occupation Policies, 1945-1948
(Durham, N.C., 1971), 134-5,
158.
Volkswagen
and the Automobile
Industry
/ 289
elimination of German
competition
or the
"exploitation"
of the Ger-
man
economy,
and that the British
quickly
turned towards
pragmatic
reconstruction.48
They
are
certainly
correct that the British reconstructionists
finally prevailed.
But more hawkish currents were
strong
and serious
in
1944-6,
and VW hovered on the
edge
of dismantlement for some
time.
Among
the
leading proponents
of such a
policy
were the Brit-
ish car
manufacturers,
together
with
important
elements in the
Board of Trade and
Ministry
of
Supply.
Under their
influence,
in the
final
year
of the
war,
the curtailment of the German motor
industry
or even its wholesale
suppression
were seen as attractive
options by
the inter-ministerial
working party
and
industry representatives.
At
the
very
least,
the
working party hoped
that
by eliminating
German
car
exports they
could
provide
British manufacturers with a
unique
opportunity
to
reshape European
markets. In
September
1944,
the
combined ministries recommended that after armistice "the German
motor
industry
should be
immediately suppressed
for the time
being, except
for the
temporary
manufacture of
spare parts." They
were adamant that
strong
action would have to be taken
quickly
after
the armistice if effective
suppression
were to be achieved. It would
be
extremely
difficult to
destroy
the
industry
if it were
permitted
to
continue in
production
even on a
temporary
basis.49
This
aggressive position
could not be sustained for
long. By
December
1944,
the
Working Party
had
already
reconsidered its
position
on
"suppression". Firstly,
war
planners
had
begun
to look at
the likelihood of a
continuing long
war with
Japan
even after
victory
in
Europe,
and to see the
potential
usefulness of German vehicle
capacity
in
meeting
those needs.
Secondly, they began
to stress the
overall
shortages
of
transportation equipment throughout Europe
and
Germany
when
peace
arrived. In the
light
of
this,
"suppression"
was removed as a
goal.
Instead a controlled and nlmited
output
was
to be
allowed,
strictly
confined to the needs of the
Occupation
and
the German home market.50 This remained the official
position
in
the first
year
of
Occupation.
The framework laid down
by JCS
1067
in
May
1945
(a
document still
strongly
influenced
by
the Mor-
48
Alan
Kramer,
The West German
Econmny,
1945-55
(NY,
Berg,
1991), 46-7; Turner,
"British
Occupation Policy," passim.
49
Minutes of the
Working Party
on the German Motor Vehicle
Industry,
31
May
1944
and 16
September
1944,
and attached
notes,
FO
942/197,
Public Records Office
(PRO),
London.
50
Report by Working Party
on the German Motor
Vekhie Industry,
December 1944,
FO
942/197, PRO,
London.
Steven
Tolliday
/ 290
genthau
doctrine)
envisioned
dismantling every factory
the
product
of which was not
necessary
to
guarantee
a minimum standard of liv-
ing.5'
As
applied
to the automobile
industry
in the
early plans,
and
as confirmed in the Level of
Industry
Plan of March
1946,
total
pro-
duction was therefore to be restricted to a
quota
of
only
20,000
cars
and
21,000
trucks for the British
zone,
all of which would be
pro-
duced at Ford's
Cologne plant.
The VW
plant
was listed as
"surplus
to
requirements"
and was therefore scheduled for
dismantling
or
reparations.52
(ii)
British Manufacturers and the Future of
Volkswagen
Why
was the
plant
not,
in
fact,
dismantled? A number of
accounts
suggest
that British manufacturers missed a
golden oppor-
tunity
at this
point.
It is
alleged
that
they seriously
underestimated
the future value of the VW
plant
and the Beetle
car,
and
spumed
options
to
acquire
either or both.
According
to
Sloninger,
the Soci-
ety
of Motor Manufacturers and Traders
(SMMT)
Commission that
investigated
VW at the end of the War concluded that the Volkswa-
gen
car "would never be
competition
for British cars" and Martin
Adeney reports
that British manufacturers were offered the VW
plant
but "turned it down with
contempt."53
These versions
seriously
misrepresent
the situation. From the summer of 1945 until
Septem-
ber 1946
(when
VW was
indefinitely
reserved from future
repara-
tions or
dismantlement),
the future of the
plant
and the car were
hotly
contested issues.
Contrary
to the
myths,
British industrialists
quite quickly
assessed the
potential
threats
posed by
VW's car and
plant
and
sought
to neutralize them. But
despite early encourage-
ment from certain
government quarters,
these
hopes
were soon
dashed.
It is true that
during
hostilities,
and for some months
thereafter,
while British manufacturers had little decent information about the
plant
or
vehicle,
dismissive views were
expressed.
Wartime evalua-
51
Beate Ruhm von
Oppen,
ed.,
Documents on
Germany
under
Occupation,
1945-
1954
(Oxford, 1955),
13-27.
52
"Report
to Sub-Committee on
Machinery
and
Optics
on Planned Production for the
German Motor
Industry,
1949,"
Appendix
A,
27 November 1946. Sir
Percy
Mills
(Control
Commission for
Germany
British
Element) to Mark Turner
(Control Office)
22
May
1946,
BT 211/92, PRO.
53
Sloninger, Volkswagen Story,
57; Martin
Adeney,
The Motor Makers: The Turbulent
History
of
Britain's Car
Industry
(London, 1989),
209. For similar views see also Nelson,
Small
Wonder, 101-2;
James
Laux,
The
European
Automobile
Industry
(New York, 1992),
170.
Volkswagen
and the Automobile
Industry
/ 291
tions of VW were
inadequate. Only
92 VW saloons had been manu-
factured before the war and most evaluations were made on the
basis of battered
botched-up military
versions of the vehicle
(the
so-called
kubelwagen) captured during
the war.54 Under
occupation,
the
factory simply
continued to
produce
civilian versions of the mil-
itary
model on an ad hoc basis for several
months,
since the
tooling
and
designs
to
produce
the
genuine prewar passenger
car could not
be
put
into
operation
until December 1945.
Accordingly,
the
early
reputation
of the VW car was
very poor.
In
1945,
Sir William
Rootes,
commenting
on one of the wartime
versions,
stated that "The vehi-
cle does not meet the fundamental technical
requirements
of a
motor car. As
regards performance
and
design
it is
quite
unattractive
to the
average
motor-car
buyer.
It is too
ugly
and too
noisy.....
a
type
of car like this will remain
popular
for two or three
years,
if that.
To build the car
commercially
would be a
completely
uneconomic
enterprise".
If the Germans
produced
the
Volkswagen,
"it would
mean no undue economic
competition
on the world market
against
British
products."55
Even
during
1945, however,
further
investigations by
the SMMT
under the
auspices
of the
Ministry
of
Supply
were
yielding very
dif-
ferent conclusions. An SMMT
survey
concluded that the VW
plant
was the most modem installation in the world: "Both the car and the
factory
in which it is
produced
are wonderful achievements in their
respective spheres....
[The
Volkswagen]
would
appear
to
offer,
with
perhaps
a few
modifications,
a
possible
solution of the
cheap utility
vehicle which would be
acceptable
to this
country
and its overseas
markets."56
Follow-up investigations
of the VW car
by
British man-
ufacturers
yielded
mixed results. Ford was
impressed by
the funda-
mentals of the
car,57
Humber and
Singer
less so.5 But their studies
5
The
military Kiibelwagen
had an
entirely
different
body
and extensive modifications
to
wheels,
gears,
axles and chassis clearance.
"Report
on examination of a German
Light
Aid Detachment Vehicle
Type
82
Volkswagen by
the Rootes
Group Engineering Dept.,
Humber
Ltd,
September
1943,"
reprinted
in BIOS Final
Report
No.
998,
Imperial
War
Museum
(IWM),
London.
55 Nelson,
Small
Wonder,
101-2.
"Investigation
of
Developments
in the German Automobile
Industry during
the War
period." Report
of
Society
of Motor Manufacturers and Traders Commission
(SMMT)
to
Germany
led
by
Dr. H. E. Merritt
(Senior
Technical Executive of the Nuffield
Organisa-
tion),
24
July
to 1 October
1945,
BIOS Final
Report
No.
300,
IWM.
57
RAT
151, (10
February
to 3
April
1946),
BIOS Final
Report
No.
768,
IWM.
58"Report
by
Humber Ltd. on the
Comparative
Road Performance Test of the Volk-
swagen
Saloon
Type
11"
(February
1946);
"Report by Singer
Motors on Road Perfor-
mance Test of the
Volkswagen Military
Vehicle
Type
21"
(February
1946),
in BIOS Final
Report
No.
998,
IWM.
Steven
Tolliday
/ 292
were
seriously handicapped by
the
poor
construction and bad condi-
tion of the vehicles
they
evaluated. As the Chief Research
Engineer
of Vauxhall Motors
put
it in his review of these
evaluations,
it was
doubtful whether these technical
reports "conveyed
a true idea of
the
possibilities
of the car."59
Members of the British
Occupation
involved in
running
the
plant
itself, however,
saw an enormous
potential
for the car and its
plant.
Colonel
Guy
Boas of the Control Commission's Mechanical
Engineering
Branch,
which was
responsible
for the
day-to-day oper-
ation of the
plant
at the
time,
proposed
to the
government
and the
SMMT the wholesale
acquisition
of the
plant
and the car.
According
to
Boas,
"I consider that the
acquisition
of the
complete plant
for
this
country
would not
only satisfy
a low
price
demand of the domes-
tic motor
user,
but be an
extremely
attractive
proposition
for the
overseas market.
Lastly,
it would form the nucleus of a national or
semi-national motor
industry
in
England."60
Boas's
proposal
was taken
seriously
at the
highest
ministerial
levels,
and it
provoked
a
sharp
clash with the SMMT.61 The SMMT
was not attracted
by
the car itself.
Though mechanically interesting
it was not as
sophisticated
as the best British
designs,
and it was far
below
typical
British standards of
comfort,
performance
and
quality,
even without the odium
attaching
to its
reputation
as "Hitler's car."
But the
plant
was a different matter. The manufacturers
recognized
from the start the commercial threat that it
posed.
It was
recognized
as a
plant "designed
for the mass
production
of a
cheap
car which it
is
possible
to manufacture with a smaller
expenditure
of manhours
and at a smaller cost than
any
small car can at
present
be
produced
in this
country."62 Accordingly, they
set their
sights
on either obtain-
ing
the
plant
or
breaking
it
up.
The SMMT believed that
obtaining
and
absorbing
the entire
VW
plant
and
transferring
it to Britain
through reparations
"will be
likely
to
prove
too
big
a mouthful for our
industry." Wolfsburg
cov-
ered three and a half million
square
feet,
compared
with
Long-
bridge,
the
largest
British
plant,
at 1 million
square
feet.63 Instead
39
Maurice
Olley.
"The Motor Car
Industry
in
Germany during
the
period
1939-
1945,"
in BIOS Overall
Report
21 (1949): 20, IWM.
i' C. P. Boas to A. M.
Skeffington
(Control Office),
22
August
1946, BT 211/92, PRO.
6' See BT
211/92;
AVIA
49/65, PRO.
62
C. A. L.
Dunphie, "Volkswagen
GmbH, 5th
September
1946." AVIA 49/116, PRO.
reporting
the results of an SMMT
study
in the sunmmer of 1946.
C
G. S.
Knight
to General Staff
(Civil Affairs), 24
April
1946, MIN. SUPP. 14/397,
PRO; on the serious
problems experienced
by
the Russians in
removing
whole
plants
and
Volkswagen
and the Automobile
Industry
/ 293
they preferred
to look for "how best to render its
competition
from
abroad
relatively
innocuous." Their
preferred policy
was
"plum-
picking," taking
the most useful machine tools rather than the whole
plant, ideally
in
conjunction
with the destruction of the
jigs
and tools
for the VW model.4 NACMI discussed whether to make a
repara-
tion bid for the
plant
as a
whole,
though only
"with the idea of dis-
persing
the machines
through
British
industry
as a
pre-emptive
measure
against foreign competition."65
Miles Thomas of the Nuff-
ield
Organisation,
which was
especially
active in the SMMT cam-
paign
to break
up
VW,
proposed
to use VW machine tools as the
basis for the
development
of a British
Jeep
at a new
factory
at
Eaglescliffe
in Durham.66 Fears that the French
might acquire
the
whole
plant67
further stimulated the
Ministry
of
Supply
to
push
for-
ward
plans
to break
up
the
plant
and divide the
machinery
between
France and Britain in the
spring
and summer of 1946.68
Nevertheless,
internal differences and divisions within and
across British
government departments seriously complicated
the
manufacturers'
position. During
the first
year
of the
Occupation
the
Board of Trade and
Ministry
of
Supply broadly supported
the motor
manufacturers and their
emphasis
on the dismantlement of VW as
part
of a
reparations programme. They
shared the manufacturers'
fears of the revival of a direct
competitor,
or the
prospect
that for-
eign competitors, notably
the
French,
might get
hold of the
strategic
plant
if Britain did not act. More
broadly, they
worried that an active
VW
plant
would divert steel
supplies
from the British motor indus-
try,
or German industries of more direct
importance
to British
domestic
reconstruction,
such as the
heavy
electrical
plant
indus-
operating
them in a different industrial
context,
see Alec
Cairncross,
The Price
of
War:
British
Policy
on Genian
Reparations,
1941-1949
(Oxford, 1986),
200-7.
4
G. S.
Knight
to Mr. Metz
(Ministry
of
Supply),
24
April
1946,
reporting
discussions
with
SMMT;
W.
Beard,
"Motor Vehicle Plant from
Germany,"
21
June
1946, AVIA
49/116, PRO;
R. H.
Bright (Ministry
of
Supply)
to Derek Wood
(Board
of
Trade),
3
Sep-
tember
1946,
BT
211/92,
PRO.
65 D. Wood to
J.
N. V. Duncan
(Control
Office for
Germany
and
Austria),
10th
Sep-
tember
1946,
BT 211/92, PRO.
66
G. W.
Turner, "Minute," 12
July
1946, AVIA 49/116, PRO.
6" Marcel
Paul,
the Communist minister of
industry,
wanted to move the whole
plant
to France as the
possible
basis for a new French
"people's
car" and
Peugeot already
had
links to
Volkswagen through
its wartime
subcontracting
role.
Sloninger, Volkswagen
Story,
57;
Jean-Louis
Loubet,
Autonobiles
Peugeot:
Une RNussite Industrielle,
1945-74
(Paris,
1990),
21.
8
Knights
to General Staff, 24
April
1946;
H. E. Merritt,
"Report
to the
Ministry
of
Supply
on the
inspection
of machine tools in the German automobile factories,
16th
August
1946." Both in SUPP
14/397,
PRO.
Steven
Tolliday
/ 294
try.69 They actively
considered
proposals
for dismantlement at VW
and
elsewhere,70 and,
more
generally,
for
directly channeling
Ger-
man industrial
production
as a "sub-contractor" to meet the needs of
the UK
economy.71
The Control
Commission,
the
Foreign
Office and the
Treasury,
however,
criticized these ideas.
They
saw no
prospect
of the Allies
tolerating
such a stance. The Control Commission was
quickly
con-
vinced that the restrictive Level of
Industry
Plan was unrealistic in
the face of German
deprivation.
The
Military
Government's "first
responsibility",
it
argued,
"is to
Germany
and
they
[the
Control
Commission]
have no
particular
interest in
furthering
the aims of
British manufacturers."
Accordingly, they sought
to
keep
the Board
of Trade as far as
possible
out of
any
role in the
implementation
of
the Level of
Industry
Plan.72 Meanwhile the
Treasury
was
primarily
anxious to reduce the costs of the
occupation
to the British exche-
quer.
In relation to
VW,
the
Treasury
wanted to maximize the
gen-
eration of
earnings
and
foreign currency,
if
necessary by
the
production
and
export
of cars.73
These tensions came to a head over the
question
of VW's
export
potential
in the summer of 1946. The Control
Commission,
the For-
eign
Office and
Treasury
all
supported
a
plan
to start
exporting
VWs
to Switzerland and Sweden with the Control Commission
arguing
that "we should
neglect
no
opportunity
to
export
from
Germany."74
But the Board of Trade and the
Ministry
of
Supply stubbornly
fought
off these
proposals. They
feared that
any expansion
of VW
output
for
exports
would be the "thin end of the
wedge"
for an
69
John
Schuy
to G. M.
Jennings (Treasury),
17 Oct.
1946,
BT
211/92, PRO;
John
Sel-
wyn
(Board
of
Trade)
to Colonel
Rowell,
17 Nov.
1946;
"Notes on an Informal
Meeting
Held 11 Oct. 1946 on the
Subject
of Production and Possible
Export
of the
Volkswagen
car,"
BT
211/92, PRO;
R. H.
Bright (Ministry
of
Supply)
to Derek Wood
(BT),
3
Sept.
1946,
BT 211/92, PRO;
Letters in MIN/SUPP 14/397, PRO.
7?
An
important
related
industry
dismantlement and transfer of
plant
and
product
did
take
place.
BSA obtained the Bantam motor
cycle designs
and
tooling
from DKW and the
Bantam went on to become the
best-selling motorcycle
in Briain in the 1950s and 1960s
(perhaps
the nearest
equivalent
to the Beetle in
motorcycles). Barry Ryerson,
The Giants
of
Small Heath: The
History
of
BSA
(Haynes,
Yeovil, 1980),
93-4.
71
Turner,
"British
Occupation Policy,"
170ff.
72
"Discussions with
Industry
on the
Implementation
of the Level of
Industry
Plan,"
7
Aug.
1946, AVIA 49/65, PRO;
cf also BT
211/73,
PRO.
'3
"Notes on Informal
Meeting,"
11 Oct.
1946,
AVIA 49/65, PRO; Kramer, "Disman-
tling
Politics."
'4 A. Kinnear
(Control Office) to G. M.
Jennings,
4 Oct.
1946, "Some notes on the
manufacturing
facilities of
Volkswagenwerk,"
BT 211/92, PRO;
R.
J.
P. Hewison
(Chan-
cellor of
Exchequer's
Office) to Mr.
Johnston
(Economics
Department Foreign
Office),
16
July
1946, FO
943/859,
PRO.
Volkswagen
and the Automobile
Industry
/ 295
increased level of
output
when the Level of
Industry
Plan was
revised.
Accordingly,
the Board of Trade's attitude was "a firm NO.
We are
going
to have a
tough
time
arguing
on
[i.e.,
against]
the mer-
its of
permitting
more German
capacity
to be retained in the
long-
run,
but we must
protect
our own manufacturers[,] and
cars,
surely,
are one
[industry]
where the value to us of the world
export
market
is most
important."75
The
support
of the Board of Trade and the
Ministry
of
Supply
for the British manufacturers was never
unconditional,
however.
They
saw their intervention as a short-term one and were anxious to
distance themselves from
proposals
to
impose long-term
restrictions
on German commerce to assist British
competitors.
In common with
the
Treasury they
believed that this would
damage any prospects
of
a workable German
economy
and
possibly provoke desperation
moves like
dumping.76 They
were critical of those within their own
ranks and in other ministries who
encouraged
British industries to
think that with
Germany's
downfall
they
would
simply
be allowed to
take the
place
of former German
exporting
industries.77 The Board
of Trade
finally prevailed
in the inter-ministerial showdown in Sum-
mer 1946 and
effectively
closed the
question
of VW
exports
for the
time
being.
But
though
the Board of Trade won a
battle,
they
were
losing
the war. The
negotiations
for the formation of the British-American
Bizone from the summer of 1946 involved a substantial loss of Brit-
ish
authority
and a
recognition
of the dominant role of the Ameri-
cans,
who were now focused on the need for
rapid
reconstruction.78
Partly
as a result of
this,
in
September
1946,
despite
the
lobbying
of
the manufacturers and the
Ministry
of
Supply
for the
dismantling
of
VW,
the
Military
Government decided to
put
the VW
plant
on
reserve from
reparations
for a further four
years.
In
October,
the
Level of
Industry
Plan,
the
key reparations
document,
was sus-
pended.
In the
spring
and summer of 1947
upward
revisions of this
plan
for the Bizone
permitted
the restoration of German industrial
output generally
to the levels of 1936. The
permitted
level of car
75
J. Selwyn
to H. A. R.
Binney,
12
Sept.
1946,
BT
211/92,
PRO.
76
"Repercussions
of the German Level of
Industry
Plan on Allied
Economies,"
7
June
1946,
BT
211/1,
PRO.
77
"Minute" 22 Nov.
1946,
BT
211/5,
PRO. For a
very
similar
relationship
between the
Board of Trade and the chemical
industry
see
Stokes,
Divide and
Prosper,
78-80.
7
Alan S.
Milward,
The Reconstruction
of
Western
Europe,
1945-52
(London, 1984),
363;
Daniel
Yergin,
Shattered Peace: The
Origins of
the Cold War
(New York, 1990),
225-32.
Steven
Tolliday
/ 296
output
was raised at a stroke from
40,000
to
160,000,
thus
virtually
exempting
the German car
industry
from
dismantling.79
The
export question
was not
immediately reopened
because VW
remained restricted
by shortages
and
emergency
conditions. But
by
the summer of 1947 it was clear that VW was
sitting
on a tremen-
dous
capacity
for
expansion
and the
question
returned to the table.
The Control
Commission,
strongly supported by
the
Industry
Divi-
sion and the
factory management, began
to
argue strongly
for VW
exports.8 Despite
continued Board of Trade
objections, they
were
able to
appoint
distributors in several
European
countries and com-
mence
exports
at the end of 1947.81 In 1948 23% of VW
output
was
exported.
Between 1948 and 1950 the attitude of both
Occupation
and
British
government departments
toward VW became
increasingly
benign,
and the more restrictionist or nationalist views were
margin-
alized. Ian Turner has
argued
that DM overvaluation and
govern-
mental
rigidities
in
export procedures following
the
currency
reform
of 1948
seriously penalized
VW.82 In
fact, however,
loopholes
in the
rules
permitted
VW to continue to
ship
a massive
backlog
of
export
orders at
profitable pre-reform exchange
rates until
early
1950,
and
VW
largely escaped
the effects of the "dollar clause." The
regulation
hurt Ford much more since it had no
export
orders booked at the
old
rate,
and at the new rates all its
export
orders sold at a loss.83
Although
local Ford
managers
were
ready
to do this in order to
obtain market
share,
Ford International
rejected
this as
"contrary
to
principle"
and insisted that Ford
Germany
would have to cease
exports
until the rules
changed.84
In the meantime VW's
exports
helped
to reduce its costs as
capacity
utilization rose.
By
October
'9
"Plan for Motor Vehicle Production in the Combined Area,"
Paper
from the Indus-
try
Division CCG for
meeting
of the
Bipartite
Economic
Panel,
15-18 March
1947, PRO,
FO 943/171 BIECO/P
(47) 72;
Backer,
Priming,
80-2.
'8
L. E. D. Barber
(DAF Section,
Property
Control Branch) to Chief, Financial Divi-
sion,
"Subject:
The
Volkswagenwerk Complex
in Control under Law 52,"
June
1947, PRO,
BT
211/92;
Col. C. R.
Radclyffe (Volkswagen
Controller, Mechanical
Engineering
Indus-
try
Branch)
to Lord Brabazon of
Tara, 15
July
1947, SUPP 14/397, PRO.
81
E. Harle, Director of Mechanical
Engineering
Branch to Chief of
Industry
Division,
15
May
1947,
BT
211/92, PRO;
"Report
to Board of Control on
Investigations
in
Belgium
and Holland to
Appoint Volkswagen
Concessionaires," Oct.
1947, FO
1046/93,
PRO.
82
Turner,
"British
Occupation Policy,"
603-608.
3
E.
Vitger
to N. A.
Bogdan,
14
July
1949;
Ford Motor
Co.,
"A
program
for a new
passenger
car to be
produced
at Ford Werke
Cologne,"
24 Feb. 1950, box 30, AR 65-71,
Ford Motor Co. Archives
(FMC), Dearborn,
Mich.
84 G. Howard to E.
Vitger
21,
July
1949;
E.
Vitger
to N. A.
Bogdan,
14
July
1949, box
30,
AR
65-71, FMC.
Volkswagen
and the Automobile
Industry
/ 297
January
1949 * The arrival in New York of the first Beetle to be
officially exported
to
America.
of the VW
Archives.)
1950,
VW was able to cut both its domestic and
export prices
even
at the new
exchange
rate.
Exports
rose from
7,000
in 1949 to
30,000
in 1950.
In
parallel,
the Federation of British Industries and the British
auto
industry lobby grew
anxious about German
export competition
and the SMMT
complained
about unfair
practices.85
Board of Trade
support
for British
producers,
however,
was
waning.
Internal Board
of Trade
opinion
was still that in cars and several other
key
indus-
tries, "German
exporters
can never be
expected
to
compete seriously
with the UK."86 In December
1948,
Harold Wilson at the Board of
Trade insisted that the
Occupation
was not in
Germany
to serve sec-
tional
producer
interests and criticized British car and chemical
exporters
for their defeatism.87
(iii)
Occupation
Administration and the
"Re-founding"
of VW
At
plant
level,
the
Military
Government made a decisive contri-
bution to the revival of VW. While the
politicians
and ministerial
officials debated
reparations
and broader
policies,
the authorities on
the
spot pragmatically
restarted
operations.
The Control Commis-
85 R.
Gresham-Cooke,
Director of
SMMT,
Letter to The
Times,
10
Jan.
1949.
86
P. Robertson to E.
Bevin,
"German
Competition
in
Export
Markets,"
8 March
1949,
BT
11/4204, PRO;
Hamilton-Russell and A.
Nove,
"Notes
by
BT on the
Scope
and Effec-
tiveness of German
Competition," April
1950,
BT
11/4009,
PRO.
87
"German
Export Competition,"
Dec., 1948,
BT
11/4024,
PRO.
Steven
Tolliday
/ 298
sion restarted the
plant
to meet its own needs. In
August
1945 it sent
in a small
group
of REME
engineers
under a
39-year-old Major,
Ivan
Hirst,
as Senior Resident Officer and
representative
of the
Industry
Division of the
Property
Control Branch of the Control
Commission. Hirst and his team
initially repaired jeeps
and then
assembled
kubelwagens
from
parts
from wartime
stock,
while British
military engineers
retrieved
machinery
from
dispersal
sites and
repaired parts
of the
plant.88
The Allied
Military
Government almost
immediately placed
a contract for
20,000
VWs for
Occupation
use
and instructed the
plant
to raise its
output
as
quickly
as
possible.89
The
Occupation
had a
desperate
need for
rugged
2 seater
transport,
but a British
"Jeep"
could not be
produced
before
1947,
while the
2-seater Austins that had been used were
prone
to breakdown and
Austin
preferred
to make other more
profitable
vehicles. The use of
VWs was therefore seen as
essential,
even
though
the
Ministry
of
Supply
believed that it was "a bad advertisement from the
point
of
view of British
industry."90
Because of its relations with the
Military
Government,
VW was
able to
quickly
secure the state
railways
and the
post
office as its
customers. The Control Commission also took direct action to set
up
a distribution network for official auto users in the British
zone,
which
quickly
became the basis of a network for civilian distribution
in the whole of the Western zone. In 1945-8
production depended
crucially
on raw material
allocations,
and as an
enterprise
controlled
by
the
military
VW achieved an unusual status. VW
production
for
the Allied forces was
designated mandatory
and it received
priority
in the allocation of scarce materials.91 Even
so,
production
was inter-
mittently disrupted by
steel
shortages,
and bottlenecks also occurred
because of
shortages
of
tires,
brakelinings, light
bulbs,
and even
grease. Many
of VW's
customary supplier relationships
were dis-
rupted by
the division of
Germany
into zones: most of the old head-
light producers,
for
instance,
had been located in the Soviet zone.92
88
See
esp. "Subject:
The VW
Complex
in Control under Law
52,"
June
1947,
Prop-
erty
Control Branch,
Finance Division, FO 371/65114, PRO,
and SUPP
14/397, PRO,
passim;
Robert
Wyse,
"The Great
Berryman
Story" Safer Motoring,
1965.
89
Turner,
"British
Occupation Policy,"
175-81.
0
"Memorandum from
Ministry
of
Supply
to War
Office,"
23 March
1946,
AVIA
49/116, PRO.
91
By January
1949 there were 31
large
dealers and 103 individual dealers. Ian Turner,
"Das
Volkswagenwerk-Ein
Deutsches Unternehmen unter Britisch Kontrolle,"
in
Joseph
Foschepoth
and Rolf
Steininger,
eds., Die Britische Deutschland-und
Besatzungpolitik,
1945-9 (Paderbor, 1985), 295-6; Turner, "British
Occupation Policy,"
175-81.
92
Minutes of the Board of Control, 1948,
FO 1046/194, PRO.
Volkswagen
and the Automobile
Industry
/ 299
Major
Ivan Hirst. Shown here
(far left)
greeting government
officials in the winter of
1945-6,
at the
plant
which he ran under the British
Occupation.
Moreover,
until the
currency
reform,
suppliers
were often reluctant
to deliver materials and
quasi-barter
relations
prevailed.
VW had an
advantage
in these conditions since finished cars were
highly
valued
products
which could be traded
(albeit
quasi-illegally)
with
suppliers.
In
July
1947 one VW car
could,
for
example,
be
exchanged
for 100
to 150 tons of cement or
200,000
bricks! VW also had its own
power
plant,
which cushioned it from some of the
electricity shortages
experienced by
other industries.93
Management
and control at works level at first remained in the
hands of the
occupation
authorities. The
factory
and the
city
were
chaotic and lawless when the Allies
arrived,
and as former Nazi
Party
property
the works were seen as "fair
game
for all kinds of theft and
damage."94
As former slave workers were
repatriated, refugees
from
the East and released
prisoners
of war and ex-soldiers flowed in.
Wolfsburg
became a sort of
giant
transit
camp.95
In the
factory,
absenteeism ran at 25% a
day
as workers found it more
advantageous
to cultivate food on allotments or
scavenge
in the
countryside
than
earn worthless cash
wages
in a
factory.
The
factory,
with its associ-
ated farms and
forests,
was "a veritable Eldorado in a
Germany
93
Turner,
"Volkswagenwerk,"
287-8.
94
Minutes of the Board of
Control,
6 Dec.
1946,
FO
1039/797,
PRO.
95
Turner,
"British
Occupation Policy,"
205.
Steven
Tolliday
/ 300
starved of food and consumer's
goods,"
and it
inevitably
became a
hub of
black-marketeering.96
The
military
authorities used strict bureaucratic controls and the
allocation of all materials to
prevent
this. But
they
also
sought
to
devolve control of the
plant
to Germans as soon as
possible.
A first
attempt
to do this was made in
early
1947 when several of the full-
time British
managers
and controllers were
pulled
out of the
plant.
The result of the hand-over was a near disaster. The German man-
agers
lacked the clout to ensure
regular supply
in the still baronial
world of
Occupation logistics, contributing
to the
plant's
closure
from steel
shortages
in
early
1947. Without the influence to
compel
supply,
local
managers
fell back on barter or
black-marketeering
and
"extremely
serious
thieving
and nefarious activities" resulted. Within
months the transfer was
rescinded,
the Works
Transport Manager
was arrested and the Production
Manager
dismissed and Ivan Hirst
was
brought
back into full-time residence.97
Nevertheless,
the
high
cost of
occupation
and an acute
shortage
of
personnel
made it essential to devolve control
again,98
and
finally,
in
January
1948,
the British identified a suitable German
managing
director: Heinrich Nordhoff. Nordhoff had risen
through
the ranks
of the
Opel customer-servicing organization
before the war. As a
senior
Opel manager
he
gained experience
of American
production
methods in the USA and
(ironically
in the
light
of his later
role)
was
active in the RDA
opposition
to Hitler's
plans
for a
Peoples'
Car
before the war. He
managed
the
Brandenburg
truck
factory during
the War and fled the Soviet
Occupation
at the end of the
war,
only
to fall foul of American denazification
proceedings,
which banned
senior staff at his level from future
employment
above the level of
an unskilled worker. For a while he turned to
running
an
Opel repair
shop,
but then he benefited from the more lenient
interpretation
of
denazification in the British zone when the British
military
identified
him as a suitable
top manager
and
plucked
him from
obscurity.99
From the time that he
arrived,
Nordhoff insisted on "entire freedom
9c
L. E. D. Barber
(DAF Section,
Property
Control
Branch)
to
Chief,
Financial Divi-
sion,
"Subject:
The
Volkswagenwerk Complex
52,"
June
1947,
BT
211/92,
PRO.
7
C. R.
Radclyffe
to H.
Orr-Ewing (Industry
Division),
13 Oct.
1947;
"Memorandum
for Allocations and Priorities
Board,"
11 Dec.
1946,
FO
1039/797, PRO;
L. E. D. Barber
(DAF Section,
Property
Control
Branch)
to
Chief,
Financial
Division,
"Subject:
The Volk-
swagenwerk
Complex
52,"
June
1947,
BT
211/92,
PRO.
98
"Finance Division and DAF
Properties
at
Wolfsburg,"
Oct.
1947, PRO,
FO 1046/
93.
9 Nelson, Small Wonder, 122-5;
Sloninger, Volkswagen Story
61-2.
Volkswagen
and the Automobile
Industry
/ 301
of
action",
which the British authorities were
happy
to allow him.
After a brief
period
of
co-operation
with a small
group
of British
officers,
he soon took sole
charge.
He was to remain the dominant
figure
at VW until 1967.
VW thus had an
exceptional position compared
to its
competi-
tors because of its modem
equipment, large capacity,
and room for
expansion
and because it was favored
by
the
occupying power
for its
own
pragmatic
reasons. But its
early post-war
success also
depended
on the behavior of its
competitors.
Its
principal
German
rival,
the
Auto-Union
group,
was
effectively wiped
out
by
the loss of its facto-
ries to the Russian zone. Ford and
GM-Opel,
however,
were much
better
placed
to take
advantage
of the
position
in
post-war Germany.
Their failure to do so is a crucial
part
of the VW success
story.
(iv)
American Multinationals under the
Occupation
Opel
had held 40% of the German car market in 1938 and
accordingly
was the most
likely
leader of the
industry
in
post-war
Germany. Although Opel
suffered more from war
damage
than VW
this was not in itself a decisive factor. It lost its
Brandenburg
truck
plant
to the Russian zone and Russelsheim was more
seriously
dam-
aged
than
Wolfsburg.'0?
More
importantly,
Russelsheim fell into the
American zone of
Occupation
and,
in the confused
early
months of
occupation,
the American
Military
Government took a more hawk-
ish attitude to dismantlement and
reparations
than did its British
counterparts.
At an
early stage
the Americans authorized the
produc-
tion
lines,
equipment
and
machinery
of
Opel's
Kadett to be disman-
tled and handed over to the Russians as
reparations.101
Why
did GM allow this? One reason was that
during
the War
the
company
had taken
advantage
of an
option
to write off its exist-
ing
$35m
investment in
Opel against
taxes. This both confused the
ownership position
and made GM
extremely wary
of
resuming
own-
ership
lest
recovering possession
should result in a
major
tax liabil-
ity.
As a
result,
as Alfred Sloan later
put
it,
"we were somewhat in
the air about
resuming
control of
Opel."'02 Compounding
this was
GM's own lack of faith in the future
prospects
of its German
opera-
'X0 USSBS,
Report
No.
77, NA,
M1013.
10
This became the basis for the Moskvitch 400 in the Soviet Union.
Opel technology
was a
key prop
of Russian auto
production
and
engineering
in the 1950s. For a while it
seemed that the entire Russelsheim
plant might
be dismantled and
shipped
to the Rus-
sian zone. See
Ludvigsen,
Opel,
58.
102
Sloan, My
Years With General
Motors,
331.
Steven
Tolliday
/ 302
tions. Sloan in his memoirs admits that in March 1946 he believed
that the future market would be too limited to make
Opel
a
money-
making operation. Accordingly,
for more than two
years,
the situa-
tion was allowed to slide. It was the U.S.
Occupation,
not the
company,
that restarted
production
on an interim basis and it was
General Lucius D.
Clay,
the American
military governor,
who
stepped up pressure
on GM to resume control as
post-war pessi-
mism eased.
Top management
at GM remained
extremely
divided and hesi-
tant about
Opel.
In November
1947,
the
Operations Policy
Commit-
tee recommended that GM resume
control,
but the Financial
Policy
Committee blocked this
pending
a further
investigation.
A
study
group
of senior officials recommended
resumption
of
ownership
in
March 1948 but were
again
blocked
by
the Financial
Policy
Commit-
tee,
which concluded that "in view of the
many
uncertainties sur-
rounding
the
operation
of this
property,
the
Corporation
is not
justified
in
resuming
the
responsibility
for its
operation
at this
time.""'3
Charles
Wilson,
the GM
President,
was in a
minority
of one
on the FPC in
favouring resumption,
but he
strongly
lobbied Sloan
to reverse the decision. In
May 1948,
the Committee
finally
autho-
rized
resumption
of
control,
but
only
under some
highly
restrictive
conditions. GM would resume control
only
for a
two-year
probation-
ary period
and would "not advance or in
any way guarantee
the
advance of
any
additional funds to
Opel.""'4
Even
then,
GM did not
officially
resume control until November
1948,
and only on a
proba-
tionary
or caretaker basis.'"5
Ford's German
operations
had been on a smaller scale than
those of GM before the war.
However,
like VW's
Wolfsburg,
Ford's
Cologne plant
suffered little war
damage despite
its
key
role as a
military
truck
supplier.'?6
A team of
managers
from Ford's British
Dagenham plant
was on the
spot
almost at once.
Dispersed
machin-
ery
was retrieved and the
assembly
line was
quickly put
back in
J03
Minutes of the Financial Policy Coinnittee. 5
April
1948.
quoted(
b Sloan,
My
)ears WVith General Motors, 333.
104
Minutes of Finance Policy Commnittee. 3rd May 1948.
quoted
by Sloan,
My
Years
\itlh General .fotrs, 336.
1,5
Sloaln,
.1y
Years
\'ith
General Motors, 331-6; Ludvigsen. Opel, 58-61; Dietinar
Due and Hentrich
Jorg,
Krise der
Autolilobilindustrie
Das
Beispiel
des Multis General
Motors/Opel
AC (Frankfurt. 1981), 29-32.
1'')
Despite
some
damage
from U.S.
shelling
late in the war, Allan Nevins and Frank
E. Hill conclude that "no herculeani effort would be
required
to
put
Ford-Werke of
Cologtie
back inito
operatinig
condition." See Allan Nevins and Frank E Hill, Ford
Decline and Rebirth. 1933-1962 (New York. 1962), 289.
Volkswagen
and the Automobile
Industry
/ 303
working
order.?07
Also,
like VW but unlike
GM,
Ford at its
Cologne
plant
came under the
sympathetic
British
military occupation,
which
encouraged
the
early
re-start of
production
and
organized
the distri-
bution of Ford trucks to official users. In this
respect,
Ford started
out with an even
stronger
hand than VW. Ford
actually
restarted
production
before VW.
By
the end of 1945 it had
already
built
2,443
trucks and in 1946 a further
4,550
trucks.'08
Moreover,
Ford was the
putative
direct
beneficiary
of
early
British
policy.
In the initial Level
of
Industry
Plan of March
1946,
car and truck
production
in the
British zone were
planned
to be confined to the
Fordwerke,
while
VW was to be dismantled.'09
Why
was Ford unable to
capitalize
on this headstart and favored
position?
One
problem,
which it shared with
Opel
but not with
VW,
was that its low
degree
of vertical
integration
made it vulnerable to
the
disruption
of
suppliers
and deliveries. Ford also lost its
key body
and
presswork supplier,
Ambi-Budd,
to the Russian zone and did not
get
the
tooling
returned to it until
August
1948.11 As a
result,
the
Volkswagenwerk
became Ford's
leading presswork
contractor,
work-
ing
with dies that Ford had recovered from the East. Heinrich Nor-
dhoff was
happy
to fulfill all Ford's
requirements
to use his
enormous excess
press shop capacity
since VW had the
capacity
to
supply
all of Ford's
likely
demand in the foreseeable future."'
More
critical, however,
were some of the
company's
fundamen-
tal
strategic
decisions.
Despite early
difficulties,
Ford made
signifi-
cant
profits,
and
by
March 1947 had accumulated a
large
cash
reserve of DM 36.5m which its German works
manager,
Erhard Vit-
ger, urged
it to
quickly
invest in fixed assets because of
dangers
of
inflation and
taxation."12
But hesitations in Ford's
corporate
offices
in
Dearborn,
Michigan,
and bureaucratic
delays
in
Germany
meant
that his
proposals
for a new
forge
and
foundry
and the
acquisition
of
o10
Frank
Cort,
"Report
on
Cologne
Plant," undated,
May
1945,
acc
507, box 17,
Henry
Ford Museum Archives
(HFMA).
'l"
Charles Thacker to Sir Stanford
Cooper,
8 Dec. 1947; B.
Lonsdale,
"General
Review,
January
1946 to
September
1947," ace 713, box
20,
HFMA. See also Wilkins and
Hill, American Business Abroad,
345-6.
109
Percy Mills
(CCC)
to Mark Turner (Control Office for Germany and Austria),
22
May
1946,
BT
211/92, PRO.
11" Hanns-Peter Rosellen,
Ford-Schritte in Deutschland,
1945-1970
(Frankfurt, 1988),
21, 35.
"'
E. R. Breech,
"Agenda
for
Meeting
on October 18th 1948 at
Fordwerke,"
AR
65-71, box
30,
FMC.
112
Erhard
Vitger
to R. I.
Roberge,
22
Aug.
1947,
acc
713,
box
19, HFMA;
FMC-US
Minutes of
Foreign Operations
Committee, 1
July
1947,
Acc 713 Box
20,
HFMA.
Steven
Tolliday
/ 304
adjacent
land had not been acted on.
Thus,
Ford's cash balances
were devastated
by
the national
currency
reform of
June
20 1948.113
This financial setback was
symptomatic
of more fundamental
problems
in Dearborn's
handling
of the
European
situation. From
1945 to 1948 Ford-U.S. was a
tottering company undergoing
a
major
internal
restructuring.
Issues of
European strategy
tended to receive
inadequate
and erratic attention. Ford's
strongly managed
British
and French
operations
were able to claim attention and
resources,
but the German
operations
with their weak local
management
had
less
impact.
The British
managers
secured their claims to first call on
European
resources,
while the French
managed
to
persuade
the
parent
to
put large
sums into the
recapitalization
of the French
operations
in 1945-7 to
support
a
strategic
attack on the medium-
size car
segment.
This
strategy proved
to be
misconceived,
and
resulted in Ford's failure and withdrawal from France in 1954.14 In
Germany,
however,
the
already
limited
pre-war plant
became "woe-
fully inadequate"
once demand
began
to revive. As Wilkins and Hill
put
it,
"the need for increased
production
facilities
fairly
shrieked its
urgency.... yet
Ford officials in Dearborn and
Cologne
did little to
meet the
situation.""5
The
plant
needed resources and German
management
needed
help;
but
they got
neither.
The one
possibility
that
presented
itself as an alternative to the
painful rebuilding
of the German
subsidiary
was to
jump
ahead via
the
purchase
of VW.
Many apocryphal
versions of such VW/Ford
proposals
exist. Nelson recounts that in March 1948 "the British
decided to make one last
attempt
to
give
the
company away"
and
offered it to Ford. The result was a historic
meeting
in a
Cologne
hotel in
May,
with
Nordhoff,
representatives
of the
Military
Govern-
ment and
top
executives of Ford
(including Henry
Ford
II)
present.
Ford
president
Ernest Breech slammed the door on the deal when
he turned to Ford and said: "Mr.
Ford,
I don't think that what we
are
being
offered here is worth a
damn.""16
Another
version,
by
Sloninger, alleges
that
Henry
Ford II turned down the offer of the
113
Cash fell from RM 22.6m to DM 1.6m and orders for new
plant
and
machinery
had
to be canceled. See R. I.
Roberge
to E.
Breech,
21
Jan.
1948;
"Manager's Report
to
Directors," 16
July
1948, ace 713, box
20,
HFMA.
114 Wilkins and
Hill,
American Business
Abroad, 338, 344, 377,
393.
ll"
Wilkins and
Hill,
American Business
Abroad,
390.
1 6
Nelson, SImall Wonder, 17-18,
136.
Volkswagen
and the Automobile
Industry
/ 305
plant
when he saw a
map
and was horrified at the
proximity
of
Wolfsburg
to the East German border.17
In
fact,
from the time of an
on-the-spot study
of VW in March
1948,
Ford executives were
considerably
excited about the
potential
of VW for their
organization.
In
particular, they grasped
that the
Beetle was a
unique
and valuable car.
Though
there was room for
improvement
in its
design,
materials and
fabrication,
these weak-
nesses were correctable and did not
prevent
"an
amazing
future for
this little car.""8 As a
result,
Henry
Ford II and Graeme
Howard,
the head of the International
Division,
had
preliminary
talks with
Nordhoff
during
their visit to
Europe
in March 1948.19 But the ini-
tial move came from
Nordhoff,
who in
April
1948 sent a handwrit-
ten letter to Ford
raising
the
question
of a takeover.'20 Nordhoff had
serious doubts about VW's
viability
and
thought
it
might
be better to
shelter under the
wing
of a
powerful
American
company. Following
Nordhoffs
letter,
Howard discussed the idea with
Under-Secretary
of State for War William
Draper,
the head of the Economics Divi-
sion,
in
Washington.
Howard and Ford
grasped
the wider relevance
of such a
merger
to American/German commercial relations. Follow-
ing George
Marshall's famous
speech
of 20 March 1948 and the
launch of the
European Recovery Program
(ERP),
they urged
that
"immediately following
the
passage
of the
ERP,
the
policy
of Ford
Motor Co. should be to invest dollars in
Europe."
A
major
invest-
ment in VW would
"by example
exert an
important
influence on
re-establishing practical
interest on the
part
of American
private
capital
in
Germany,
so
necessary
to its revival."1'2
Draper,
who as a
former
partner
in the investment bank Dillon Read had been
closely
involved in the extensive networks of U.S./German business interests
in the
1920s,'22
responded strongly
to the idea. He and Howard
11
Sloninger, Volkswagen Storj,
57; Wilkins and Hill
argued
that the
purchase
of VW
was "of more than
passing
interest." See Wilkins and
Hill,
American Business
Abroad,
368.
118
Henry
Ford II and Graeme
Howard,
"Report
on
European Trip, February
to
March
1948,"
AR 65-71, box 25, FMC.
119
Ford and
Howard,
"Report
on
European Trip."
120
The letter does not
appear
in the Ford archives but it is summarized in G. Howard
to H.
Nordhoff,
7
June
1948,
AR 65-71, box 30, FMC.
121
Ford and
Howard,
"Report
on
European Trip."
122
See Robert Sobel, The
Life
and Times
of
Dillon Read
(New York, 1991),
97-111
for U.S./German business relations before the war.
Steven
Tolliday
/ 306
concluded that a VW/Ford
merger
"would be of
outstanding
benefit
to the German
economy
and to the German
passenger
car and truck
consumer."123
The link to Ford would
expand
VW's
export
network and enable
the
company
to
generate exports
and
foreign exchange
from "a
prod-
uct which has never been
exported
and which has the
stigma
of
German
origin."
It would
produce
economies in
capital expenditure
and
overheads,
and it would
bring
into VW Ford's
design
and
engi-
neering
know-how. Ford
preferred
to take a
large
but
minority
share
in the new
company
"so as to eliminate the inevitable unfavorable
reaction to
foreign acquisition
of such an
important
and dramatic
company
as
Volkswagen."
Indeed,
Howard
proposed,
"The
merged
company
should have a
distinctly
German
name,
and the same
should
apply
to its
products.
In other
words,
the name 'Ford' should
be
entirely
eliminated.'"124
But would the
Military
Government
approve?
On the American
side,
the main
danger
seemed to be that a
merger might
conflict
with the
policy
of decartelization. Ford executives therefore
planned
to take this issue
up directly
with General Lucius D.
Clay.
On the
British
side,
attitudes were more mixed. The
Industry
Division
(Tregonning)
favored the
plan
as a
way
of
maximizing
the use of the
VW
factory
at an
early
date and
injecting
fresh
management
into the
company.
Others feared that an
acquisition by
Ford would be detri-
mental to the German
economy
because VW's interests would be
subordinated to those of
Dagenham.
Meanwhile the
Property
Con-
trol Division
envisaged
some ultimate form of
public ownership
for
VW and were therefore reluctant to discuss
any private
sale to
any-
body.
Nevertheless,
the
Industry
Division were
sufficiently
inter-
ested for Colonel
Radclyffe,
the Control Commission official
directly
responsible
for the car
industry
in the British
zone,
to
fly
to London
at Ford's
request
for talks with
Henry
Ford II.125
In the
meantime,
Howard
sought
to recruit Nordhoff
directly
to
Ford whether or not the
merger
eventuated.126 Nordhoff was seen
as the
outstanding
German auto executive
available,
and also as
someone who would be able to
bring
over a number of
leading pre-
123
G. Howard to H.
Nordhoff,
7
June
1948,
AR
65-71,
box
30,
FMC.
124
Ford and
Howard,
"Report
on
European Trip."
'1"
W. L.
Tregonning
to Sir Eric
Coates,
15
April
1948;
Tregonning
to R. H.
Parker,
29 and 30
April
1948;
J.
F. Cahan to
Coates,
21
April
1948;
Parker to
Tregonning,
29
April
1948,
PRO.
126
At one
stage
he believed that Nordhoff had
accepted
the
proposal.
Ford and
Howard,
"Report
on
European Trip."
Volkswagen
and the Automobile
Industry
/ 307
war
engineers
from
Opel
to
Ford,
and he himself had raised the
question
of a move to Ford in his handwritten communication. "If
you
think it
possible
and
advisable,
I would be
very glad
to come to
an
agreement
with
you
[to
take over as
Managing
Director at
Cologne] already
now-I leave that to
you."127
Howard
effectively
told him to name his own
price.
"As to
your personal compensation
... it would be
largely up
to
you
to indicate
your
needs and wishes
in this matter."'28
Through
the summer of
1948,
Howard continued to
urge
Nord-
hoff both to
press
ahead with the
merger
and to commit himself to
a move to Ford. Discussions
finally petered
out after Breech and
Howard met with Nordhoff and Colonel
Radclyffe
in a
Cologne
hotel in October 1948. Nordhoff and
Radclyffe
remained "anxious
for a
merger,"
but
by
now the
complications
from the
standpoint
of
the
murky ownership position'29
and the
financing
of the deal were
deterring
Breech.
Though
Nordhoff and
Vitger agreed
to
carry
out
one further
study,
the Ford executives believed that the difficulties
"appear
at this moment insurmountable."'30 Breech's alternative was
to continue to build the German
company
on "a sound but slow
pace."131
Thus,
during
the immediate
post-war period,
GM had the
capac-
ity
to
deploy engineering
and
managerial
resources to
support
its
German
operations
but failed to use them. Ford's own internal
prob-
lems in the United States absorbed
nearly
all its available
managerial
and
engineering
resources and
sapped
the
company's
will to over-
come
operational
and financial difficulties in
Germany.
A few
months
later,
after the
collapse
of the VW
negotiations,
Graeme
Howard's
attempt
to focus more direct attention on international
operations through
the creation of Ford International Co.
collapsed
in face of
hostility
and
allegations
of
empire-building.
Like
GM,
Ford had its share of executives that remembered the
post
World War I boom and
slump
in
Europe
and who
urged
cau-
tion,
and the 1948-9 Berlin blockade also exacerbated hesitation
127
Howard to
Nordhoff,
7
June
1948,
AR
65-71,
box
30, FMC,
quoting
Nordhoffs
handwritten letter.
128
Ibid;
Howard to
Nordhoff,
26
July
1948,
AR
65-71,
box
30,
FMC.
129
It was described as "a box on an
organisation
chart without
any
linear
attachments,"
Ford and
Howard,
"Report
on
European Trip."
'l3 E. Breech to
Henry
Ford
II,
24 Oct.
1948,
AR
65-71,
box
25,
FMC. This is
prob-
ably
the hotel room
meeting
that
appears
(in
May
1948)
in the
apocryphal
Nelson version.
Note that
Henry
Ford II was not
present.
131
E. Breech to
Henry
Ford
II,
24 Oct.
1948,
AR
65-71,
box
30,
FMC.
Steven
Tolliday
/ 308
over
expansion. Expansion planning
was
delayed
until
1950,
and
even then was
pitched
in a minor
key. Germany
was seen as "a valu-
able
hedge
and
protection
for our international
distributing
organisation"
rather than a core
production facility.
Nor would Dear-
born
contemplate
investing
parent
funds in
Germany.
Ford insisted
on
modernizing
its German
plant solely
out of local
earnings,
with no
American
capital
or even outside
borrowing.'32
Thus,
VW was able to fill a vacuum. If Ford or GM had seized
the
initiative,
or if Ford had succeeded in
taking
control of
VW,
it
seems
likely
that the
occupying powers
would have
supported
them.
The British
Occupation clearly initially
intended to favor Ford and
dismantle VW in the Level of
Industry
Plan. If the
Wolfsburg
fac-
tory
had not
already
existed,
no one would have built such a
large
and
well-equipped plant
in the
years following
the war
and,
given
the
hesitancy
of the American-owned
multinationals,
Germany
might
well have
struggled
to establish a serious domestic auto indus-
try.
However,
the U.S.-owned
companies squandered
their
opportu-
nities and VW came
through
the
gap
in the middle: in
1949-50,
VW
produced
more cars than
Opel
and Ford combined and
they
contin-
ued to do so until the 1970s.
(v)
The Transfer of
Ownership,
1948-9:
The failure of the Ford
merger
proposal
left the
question
of the
ownership
of VW unresolved. In the
year
that
followed,
British
pol-
icies introduced still further twists into the situation. The British
fumbled,
and
possibly
even
deliberately
confused the
position
before
control was handed over to the new German state. As a
result,
VW
was left with a
tangle
of rival claims for
ownership
and control that
were to
play
an
important
role in
shaping
its
development
in the next
decade.
By
the end of the Nazi
regime,
the Deutsche
Arbeitsfront
(DAF)
had become the
largest single
owner of Nazi
property,
and VW was
its
showpiece.'33
The
Military
Government's immediate solution to
the
problem
of
ownership
of Nazi
Party property
was to
place
all of
it,
including
the
Volkswagenwerk,
in control under the rules laid
down
by Supreme Headquarters
Allied
European
Forces Law No.
52. This established rather
powerless
German "custodians"
super-
132
Quotation
from Arthur
J.
Wieland at Minutes of Product
Planning
Committee,
27
Feb. 1950,
quoted by
Wilkins
and Hill, American Business Abroad,
390.
I3
"Property
of the German Labour Front," 26
Sept.
1945, FO 371/46828, PRO.
Volkswagen
and the Automobile
Industry
/ 309
vised
by
the Control Commission. The aim was little more than to
maintain the status
quo, carry
on
production
and
prevent
fraud,
until
inter-Allied
agreement
had been reached on the
disposal
of the
property,
or until the
problem
could be handed on to a
responsible
German
government.'34
This remained the framework until
April
1947 when the Control
Council issued its Directive 50 on the final
disposal
of DAF
prop-
erty, transferring
all
property
that had not
belonged
to a
specific
trade
union,
co-operative,
or charitable association to the
govern-
ment of the Land in which the
property
was situated. The Volkswa-
genwerk might
at this
stage
have been
simply
transferred to control
by
the Land of Lower
Saxony
under these
rules,
but the
Military
Government
specifically exempted
VW from this Directive and
retained control in its own hands.35 One reason for this was the
strong
claim to
ownership
of VW made
by
the German unions.
ICMetall
argued
that since DAF was
originally
based on confiscated
trade union
assets,
ownership
of DAF
property
should now revert to
them. Directive 50
rejected
this case but
Occupation
officials
remained
intensely
anxious to "shut the stable door"
against
what
one
Foreign
Office official called the "theft" of VW
by
the trade
unions.
136
Thus,
union claims were
provisionally
but
firmly
deflected. The
ownership
claims of the
Volkswagen
Savers also remained unre-
solved. The
Volkswagen
Savers had a claim
equivalent
to
267,000
cars and
they
wanted the courts to award them either cash or cars.
The Control Commission believed that an
early
court decision in
their favor would
bankrupt
the
company.'37
The
timing
and outcome
of a
judgement
in this case was
profoundly
uncertain. In the end it
was
delayed
for almost fifteen
years.
But in the meantime it
remained
hovering
in the
background,
a source of
imponderable
uncertainty.
Nevertheless,
these
problems
could
probably
have been con-
tained or overridden in a direct transfer of at least de facto
power
to
134
At
VW,
because of the
complex production
issues involved the
Industry
Division
(Mechanical
Engineering
Branch)
took control of
production
matters,
while the
Property
Control Branch held
responsibility
for the financial and
property
matters.
35
"Volkswagenwerk Complex:
Statement to Board of
Control,"
August
1947,
FO
944/196,
PRO.
'13 H. A. Goff,
(Property
Control
Section)
to R. H.
Parker,
(Property
Control Branch,
Finance
Division),
14
May
1948,
FO
1046/93, PRO;
"Minutes of the 11th Board of Con-
trol
Meeting
of the VW GmbH and DAF
Properties,"
6 Dec. 1946,
FO
944/196,
PRO.
137
Control Commission for
Germany,
"Memorandum for
Meeting
with Professor
Erhard, 8th October 1949," B115/3377, Bundesarchiv
(BA),
Koblenz.
Steven
Tolliday
/ 310
Volkswagen Factory
at
Wolfsburg ?
In this aerial view of the massive
factory,
the
original
row of administrative blocks and the
power
station can be seen on the
right.
To
the left the
original assembly plant layout
is also visible. No
plant expansions
had taken
place
at this time. The
patchwork appearance
of the
roofing
is the result of the
piecemeal
repair
of war
damage. (Photograph reproduced courtesy
of the VW
Archives.)
the Land
following general
practice. But,
impressed by
the
potential
economic
power
of the
Volkswagenwerk,
the Control Commission
hesitated to
pursue
this solution. There were
sharp
internal divisions
on the issue. The
Property
Control Division were concerned that
"such a
large
industrial unit should not
pass
into such
pure
state
control as
might prove
a
dangerous weapon
in the hands of a State
Government and could be used
ultimately against
the interests of the
victorious
powers."138 They preferred
a solution in the form of con-
trol
by
a
powerful
trustee
body
with
representatives
from all inter-
ested
parties
(Land,
unions and broader industrial
interests,
under a
Controller from the
Military
Government)
which would "create out
of the
Volkswagenwerk
a real
example
of
democratically
controlled
industry."139
But this was not
popular among
German commercial
associations,
and the
Industry
Division disliked its democratic or
socializing aspects
and blocked it. Stalemate
prevailed
until,
in
1949,
138
"Draft Directive on DAF
property
at
Wolfsburg,"
Autumn
1947,
FO
1046/93,
PRO.
139
L. E. D.
Barber,
"Subject:
The
Volkswagenwerk complex
52,"
June
1947,
BT
211/92,
PRO.
Volkswagen
and the Automobile
Industry
/ 311
with the creation of a new Federal Government
imminent,
the
Prop-
erty
Control Branch
belatedly
returned to the idea of a direct trans-
fer to Land control.
By
now the issue was
becoming
enmeshed in the
developing
contest for
spheres
of
authority
of Bund and Land in the new Fed-
eral Government. The
position
of the Land
government
was itself at
first confused. When the President of Lower
Saxony
was
approached
by
the Control Commission in
July
1949 he hesitated about assum-
ing
control because of the
large
uncertain liabilities of VW and
pre-
ferred a "custodial" role for the Land under the defensive umbrella
of the Federal Government. But his attitude shifted in
September
1949 after the election of the first Federal Government. While the
Social Democratic
Party
(SPD)
continued to dominate a
"grand
coalition" in Lower
Saxony,
a
right-wing
coalition dominated the
Federal Government.
Fearing
that control of VW would
pass
under
the control of Federal
Economy
Minister
Ludwig
Erhard and his
neo-liberal
policies including privatization,
the Land made a
renewed claim for
responsibility arguing
that this was a crucial test
case in the division of
authority
between Bund and Land.140
On the brink of involvement in sensitive internal German
polit-
ical
conflicts,
the British hastened to extricate themselves. On 6th
September, just days
before the transfer of
power
to a German
gov-
ernment,
the British issued Ordinance
202,
making
the Land of
Lower
Saxony "responsible
for the control of the
Volkswagenwerk,
but on behalf of and under the direction of the Federal Government
until such time as the
responsible
German authorities issued other
directions." As Ian Turner
notes,
this was "a
masterpiece
of
equivo-
cation: it transferred the
company
to two different
government
authorities,
yet
without
making any
clear and definite decision on the
question
of
ownership."
It was not clear as to who was
supposed
to
make the actual final decision and
lawyers
were to
puzzle endlessly
over the
identity
of the
"responsible
German authorities".'41 In
part
deliberately,
in
part through
clumsiness,
the British had botched the
issue of control. In
seeking
to avoid concentrated control
they
had
come close to
negating
control
altogether.
140
Niedersachsen
Regional Intelligence
Office,
"Subject: Volkswagenwerk,"
21 Octo-
ber
1949,
FO
371/76723,
PRO.
141
Turner,
"British
Occupation Policy,"
663.
Steven
Tolliday
/ 312
3.
Volkswagen
under the New German
State,
1949-1962:
(i) Dilemmas of Institutional Control
The situation was left in deadlock and
uncertainty.
Not
only
were the
relative roles of Bund and Land
governments
undefined,
but so too
was
any
internal allocation of
powers
within the Federal Govern-
ment. For more than a
year
after the issue of Ordinance
202,
the
exercise of Federal
authority
was
effectively paralyzed by
a stand-off
between the
Ministry
of Finance and the Economics
Ministry
over
who held
responsibility
for the Federal role in the
company.
The
Ministry
of Finance rested its claim on its
primacy
in matters of "the
administration of
property."
The Economics
Ministry
claimed lead-
ership
on the
grounds
of its control over "economic
policy." Only
in
November 1950 did the Ministries
finally
reach a
compromise
that
the
Ministry
of Finance would exercise "residual final
control,
sub-
ject
to the
agreement
of the Economics
Ministry."'
42The confusion
and inaction of the ministries soon frustrated the Land of Lower
Saxony.
At first it had backed
away
from its demands to be
recog-
nized as a
"controlling
shareholder" and seemed to
accept
a role as
a Federal Government
"representative."
But
by
late 1950 it had
concluded that VW was
being
left
effectively unsupervised
and that
neither
ministry
would
give any
clear direction or
guidance.
In
Jan-
uary
1951 it threatened to take action on its own initiative to
super-
vise the
company
unless the ministries resolved the
position.'43
By early
1951 a
rudimentary
collaboration between the minis-
tries was in
place
and both found common cause in
reacting against
the new activism and stubbornness of the Land
representatives,
who
had
expressed
concerns about Nordhoffs methods and
opposed pay-
ing
him a bonus. For a while the two ministries
seriously
considered
asking
the Cabinet to take
away
the Land's
rights
and to establish
direct Federal control instead. But the
legal
and constitutional com-
plexities gave
them
pause
and
they ultimately
backed off.144
The
consequence
of this was that from
September
1949 to
March 1953 VW was
supervised only by
a weak
Advisory
Board
142
Memorandum from Ministry of
Finance,
12
Sept.
1950 and Memorandum from
Economics
Ministry
on
meeting
between Economics Ministry and Ministry of
Finance,
14
Nov.
1950, B115/3377, BA.
143
"Notes on a
meeting
with the Finance Minister of Lower
Saxony,"
2 November
1949; Dr. Strickrodt (Lower Saxony Minister of Finance) to Federal Ministry of
Finance,
20
July
1950 and 6
Jan.
1951, B115/3377,
BA.
144
Kraner and Birnbaum
(Ministry
of Finance) to Westrick
(Economics
Ministry)
9
April
1951; Westrick to Kramer, 18
April
1951, B115/3377,
BA.
Volkswagen
and the Automobile
Industry
/ 313
which was
ill-prepared,
had little
guidance
from its
departmental
superiors,
and was
constantly unhappy
about its lack of information
or
power.
Because of the confusion about ministerial
responsibilities,
even a skeleton
Advisory
Board was not in
place
until
early
1951.
The confusion and indecision of the
supervisory
authorities
gave
Nordhoff considerable
space
to carve out his own area of
authority.
At
first,
this remained somewhat hidden. The
popular
belief was that
the ministries called the shots on
policy.145
In
theory, management
autonomy
was
strictly
limited on
key
issues. As a
public company,
for
example,
the
company's price policy
was
required by
law to conform
to the
policy
of the Federal Government. Yet it was also
recognized
that
government
intervention should not
unduly
constrain the
"elasticity"
of
company policy.'46 Interpretation
of these
require-
ments
depended
on the
supervisors receiving adequate
information,
but often
they
did not
get
it.
In March
1952,
Heinz-Maria
Oeftering,
the Chairman of the
Advisory
Board
appointed by
the
Ministry
of
Finance,
protested
when he was
given only
a
single day's
notice of an increase of DM
200-425 in the
price
of the
Transporter.
He
requested
that Nordhoff
discuss all future
price
increases in advance with a
working
commit-
tee of the
Advisory
Board. But Nordhoff
forcefully rejected
this,
insisting
on the need for
managerial
freedom to maneuver and take
quick
decisions. The result was a
compromise
that Nordhoff would
retain discretion on
price
increases smaller than this
one,
but would
consult in advance on
larger
increases.147 Within months
Oeftering
was
again protesting
that he had been
kept
in
ignorance
of the
application
of
large
sums to
"Special
Secret Reserves." And the rest
of the
year
saw a
string
of further
complaints
about the
inadequate
provision
of information to the
Advisory
Board.l48
Thus Nordhoff could evade direct
monitoring by
the
govern-
ment to a considerable extent. Yet VW was still able to make
highly
effective use of the clout of
public ownership
in these difficult
years.
One of the
greatest
difficulties for
VW,
as for most other German
manufacturers between 1949 and
1952,
was
securing adequate
steel
supplies.
In
1951,
VW
planned
to build
140,000
cars but was con-
fined to
105,000
by shortages
of
materials,
including
a total cessation
45
"Volkswagen
in the
Darkroom,"
Der Volksswirt 42
(1951).
146
Minutes of
Volkswagen Advisory
Board,
5 Oct.
1951, B115/3379,
BA.
147
Notes to Minutes of
Advisory
Board
Meeting,
5 March
1952, B115/3378,
BA.
148
H.
Oeftering
to
Volkswagen
Directors,
16
June
1952,
B
115/3378, BA;
and 28 Nov.
1952, B115/3379, BA.
Steven
Tolliday
/ 314
of its
production
for several
days
in
July
because of a lack of steel.
Nevertheless,
VW was
relatively privileged
in its access to
steel;
Opel
spent
most of the
year
limited to a 32-hour week because of steel
shortages.'49 During
the steel crisis linked to the onset of the Korean
War in
1951,
steel
supplies
to VW became a
major priority
for Ade-
nauer's
government.
In the run
up
to the Land elections in 1951
both the Land Government and the Economics
Ministry
accused
each other of insufficient efforts to maintain steel
supplies
for VW.
Adenauer intervened
personally
to ensure that
shortages
should not
endanger
the
government's
electoral
performance
or stimulate
unrest in the border
regions
more
generally,15"
and cabinet
pressure
ensured that VW was
kept working
at five rather than three
days per
week
through April
and
May
1951.'51
Until
1951,
VW was
especially dependent
on favorable
govern-
ment treatment for
adequate
steel
supplies
because of its
rapidly
increasing output.
Steel allocations were
generally
based on the
pre-
vious
year's output
and
expansion depended
on
regular
additional
allocations.152 From
1952, however,
VW
began
to extricate itself
from this
dependency by using
its
growing
cash reserves. It entered
into extensive
trading
of steel allocations and in
April
1952 con-
cluded a
major
deal with the DortmundHorder
Steelworks,
whereby
in return for a loan of DM 15m on favorable
terms,
the steelworks
guaranteed
to deliver an extra
20,000
tonnes of sheet-metal to VW
at the normal market
price.
As a result VW was able to build an
additional
20,000
cars in 1952. The
improved capacity
utilization
increased
earnings
by
DM
9m,
dwarfing
the interest
foregone
on the
loan.
153
As the
company grew
more
prosperous,
Nordhoff
grew
in confi-
dence and
independence. By
1953 the
Ministry
of Finance was com-
plaining
that he was often
taking public positions
in
speeches
"which
49
Volkswagen
Monthly
Reports,
B 115/3379, BA.
'0
Transport Ministry
to Chancellor
Adenauer,
3
April
1951, B1 15/3416, BA; Minutes
of Cabinet
Meeting,
30 March 1951, B115/3416, BA; Scholz to Kattenstroth, 30 March
1951, B102/76034, BA;
Hannotersche
Allgeleine Zeitung,
31 March 1951.
'1.
Minutes of Cabinet
Meeting,
18
April
1951; Memorandum from Hartmann (State
Secretary) to Kramer
(Ministry
of Finance), 18
April
1951; lMemorandum from Ministry
of Finance on discussions with F. Novotny of
Volkswagen,
5
Sept
1951, B 115/3416, BA;
Scholz to Kattenstroth 2
April
1951, B102/76034, BA.
152 Memoranduml from Ministry of Finance on discussions with F. Novotnv of Volk-
swagen,
5
Sept
1951, B115/3416,
BA.
'I3 11. Nordhoff to H.
Oeftering,
23
April
1952, B 1 15/3417. BA.
Volkswagen
and the Automobile
Industry
/ 315
are not
always
in accordance with the federal
government".'54
Finally,
at the insistence of the Economics
Ministry,
a
theoretically
more
powerful Supervisory
Board was set
up
in March 1953. Nord-
hoff
objected strenuously
to
any
increase in
supervisory powers,
but
after some
compromises, accepted
the new
structures.'55
(ii) Denazification and the
Shaping
of
Factory
Politics
During
the
1950s,
close and
co-operative
relations between
labor and
management
are
widely acknowledged
to have been an
important aspect
of VW's
recovery.'56
This did not
simply
reflect the
general pattern
of German industrial relations in this
period.
In
fact,
the situation at VW was unusual. In
comparison
with the rest of the
metalworking
industries,
the
relationship
between works council and
management
at VW became an
unusually
close
one,
and the role of
national unions and centralized collective
bargaining machinery
was
correspondingly
reduced. The roots of this structure of labor-
management co-operation
were established
during
the
Occupation.
Muddled
Occupation policies
on worker
representation
and the
stresses of denazification created a
space
for Nordhoff to act
oppor-
tunistically
and construct a
strong relationship
with the workforce.
Nordhoff utilised these structures in the 1950s to
develop
a distinc-
tive and
independent wage policy
that became a source of
great
ten-
sion with the German
government.
Occupation policy
on worker
representation
was muddled from
the outset. In 1945 Ivan Hirst and his officers
quickly
set
up
a Works
Council even before
Occupation
laws
formally
mandated
them.'57
But their aim was
purely pragmatic:
to create a channel of commu-
nication and to foster common interests with the workers in
reviving
the
plant.
The
underlying principles
and
rights
of
representation
were not
seriously
considered,
and
when,
in
1947,
the Works Coun-
cil itself
began
to
press
for the formalization of co-determination
rights
and the
appointment
of a Works Councillor as
Arbeitsdirektor,
the
Military
Government
rejected
the
proposal
because senior Brit-
54
Memorandum for
forthcoming
discussion with Dr.
Nordhoff,
26
Aug.
1953,
B115/
3417, BA.
'.5
H. Nordhoff to H.
Oeftering,
7 Oct.
1953;
Memorandum from Birnbaum on dis-
cussions with
Nordhoff,
8 Oct. 1953, B115/3383,
BA.
56
For a discussion of these
issues,
see Lowell
Turner,
Denu)cracy
at Work:
Chang-
ing
World
Markets and the Future
of
Labor Unions
(Ithaca NY, 1991),
117-9.
157
Giinter
Koch, Arbeitnehnmer
steuern mit:
Belegschaftsvertretung
hei Volkswagen ah
1945
(Koln, 1987),
30.
Steven
Tolliday
/ 316
ish trade unionists in its ranks
argued
that such a move would be
contrary
to the
principles
of
independent
labor
representation.'58
Under the British
administration,
the
early
Works Council was a
dependent
and clientilistic
organization
which concentrated on social
concerns. Under its
Chairman,
Otto
Peter,
it
played
a
major
role in
the distribution of
provisions, emergency
shelter,
safety,
and trans-
port.
It left
production questions
to
management.
But it had a
strong
voice in
hiring
and dismissals and was
closely
involved in denazifica-
tion. Much of its role as a "broker" for
obtaining daily
necessities
disappeared
after the
currency
reform restored an effective
price
mechanism.
Nevertheless,
a
history
of
widespread
dissatisfaction
with the Works Council's role in the distribution of food and
goods
remained
among
the workforce. The Works Council was
closely
linked to
leading politicians
in the
city
and its
"corrupt" style,
its
egotism
and its
factionalism,
weakened its
position.159
As it lost its
role in social and distributional
matters,
its influence waned and
ultraconservative
groups
became more influential.
Meanwhile,
trade union
organization developed very slowly.
Ex-
soldiers and released
prisoners-of-war
were hard to
organize
and
by
August
1946
only
20% of the workforce had been unionized. Trade
union officials came and went and a
regular
ICMetall office was not
set
up
in
Wolfsburg
until 1954. This
pattern
contrasted with the
experience
of the former Nazi
showpiece
steelworks at
Salzgitter,
where unions took a
leading
role in
organizing
workers to
struggle
against
the dismantlement of the
plant,
or in
neighbouring
Hannover
and
Braunschweig,
where there were substantial strike actions in
1946 in favour of extended union
rights.
In
contrast,
VW had a
pow-
erful British
Occupation sponsor
in Colonel
Hirst,
a
functioning
Works
Council,
and a
thriving
black market as alternatives to collec-
tive
organization.'60
The stresses of denazification and the
changing
needs of the
workforce
eventually marginalized
and
disrupted
the "clientilistic"
Works Council.
Although
the British were
generally
less forceful
about denazification than the
Americans,
VW
appeared
to be an
obvious
target.
The role of VW as a model Nazi
factory
meant that
hardly any
of the old VW workforce was untainted
by
Nazism. Most
skilled workers and foremen had been
party
members and those who
had worked there
through
the war had connived at the inhuman
'I
Volkswagen
Akte,
29 Dec. 1947,
Volkswagen
Archives
(VW),
Wolfsburg.
159
Koch, Arbeitnehmer steuern
mlit,
50-3.
'iO Koch, Arbeitnehmer steuern immit, 36, 40-63.
Volkswagen
and the Automobile
Industry
/ 317
treatment of
foreign
workers.161 Yet the
Volkswagenwerk
was
barely
touched
by
the first wave of denazification. In 1945 a handful of
employees
were sacked or demoted. But
shortages
of
key personnel
allowed
many
to
slip
back into their old
places,
and in
April
1946 the
military managers
declared that the denazification
process
at VW
was over.
But,
after
protests by
the Works Council and the interven-
tion of British labour
unions,
the
process
was resumed with a ven-
geance
in the
"Wolfgang
Action" of
June,
1946 when 179
employees
out of
8,000-mostly
in
managerial
and
supervisory positions-were
expelled, including
the first senior German
managers appointed by
Hirst. Most of these
employees
were former "Pioneers" of the Nazi
era. Adverse local reaction led to
negotiations
with local
politicians,
and the
expulsions
were first
suspended
and then canceled.162
The
Wolfgang
Action had backfired. It was both
disruptive
in
itself and
psychologically
traumatic for the rest of the ex-Nazi work-
force who also feared
expulsion,
and it enabled
reactionary groups
to
portray
the British
Occupation
as inhumane and anti-German and
the SPD as "informers." It
undoubtedly
contributed to the revival of
the nationalist
right-wing
in
Wolfsburg.
In the 1948 elections the
neo-Nazi German Reichs
Party
(DRP)
won 17 out of 25 seats in the
City
Council elections. The British
quickly
declared the
party illegal
and annulled the elections. In the new election the
party
reconsti-
tuted itself as the German
Party
(DP)
and won 48% of the
vote.'63
The Nazi tradition also remained
strong
within the VW works. Hel-
mut
Hillebrecht,
an Iron Cross holder and
founding
member of the
Socialist Reich
Party
(SRP)
in
Wolfsburg
was elected to the
Factory
Council in 1949 and received the
highest
individual vote in the elec-
tions of 1950 and 1952.64
The success of the neo-Nazis in the 1948 communal elections
came
shortly
after the transfer of control of the
plant
from the mili-
tary
authorities to Heinrich Nordhoff. In this situation of
political
confusion,
Nordhoff offered a mixture of authoritarianism and
pater-
nalism and the idea of the
factory
as a
"productive community."
The
interaction of the denazification discontents and his
early
reforms
161
Klaus-Jorg Siegfried, Rustungsproduktion
und
Zwangsarbeit
in
Volkswagenwerk,
1939-1945: Eine Dokunientation
(Frankfurt, 1986).
162
H. Hilterschied, Industrie und Geimeinde: Die
Beziehungen
zwischen der Stadt
Wolfsburg
und demi
Volkswagenwerk
und ihre
Auswirkungen auf
die
kolmmunale
Selb-
stverwaltung
(Berlin, 1977), 94; Koch, Arbeitnehmner steuern
mit, 33-4; Turner, "British
Occupation Policy,"
211-2;
Sloninger, Volkswagen Story,
56.
3 On the rise and fall of the DRP see
Turner, "British
Occupation Policy,"
680-723.
164
Koch, Arbeitnehmer steuern mit, 35.
Steven
Tolliday
/ 318
triggered
the
collapse
of the
British-sponsored
Works
Council,
which
split
over its attitude to
emerging
national trade union struc-
tures. Most of the council members felt
they
had no interest in
working
with an
externally
controlled union
organization,
and looked
towards a
"factory
union." Others linked
up
with
regional
IGMetall
leaders to
try
to win a trade union
majority
on the Works Council.
In the 1949 elections
they
failed,
and
nationalistically
oriented coun-
cil members around
Hillebrecht,
calling
for
support
for
manage-
ment,
won the best results. But
authority
and
respect
for the old
Works Council soon
crumbled,
and in October 1949 Otto Peter was
ousted after
allegations
of financial
irregularities
and
nepotism.
Ultraconservative and neo-Nazi
agitation
further confused the
pic-
ture. A
factory meeting
"went wild" and tried to call a new Works
Council election. But there was no constitutional
provision
for this
and a
period
of confusion followed until the normal scheduled elec-
tions in
April
1950,
when the IGMetall candidates won a decisive
majority
and went on to consolidate a social democratic leader-
ship.'65
These internal divisions enabled Nordhoff to take
personnel
and other
responsibilities away
from the Works Council and
give
them to
management departments.
The era of the Works Council as
"ersatz
management"
ended.
From 1951 a reformed Works Council
began
to consolidate
itself.
Hugo
Bork was elected Chairman as a
compromise
candidate,
committed to
pragmatism
and
compromise.
Over time he built
up
his
authority
and was the dominant
figure
on the labor side at VW
until 1971.166 The reformed Works Council
ultimately
took a
strong
hold in the
plant-mnore
so than the official trade union
bodies,
which remained outside the mainstream of the
plant
for a
long
time.
But the manner of its
emergence compromised
its
authority,
trust-
worthiness and
independence.
One result was
that,
from the
outset,
Nordhoff was not afraid to take on the Works Council in front of the
workforce,
counterposing
its
advocacy
of "sectional" interests to his
own vision of
community
and
harmony.
Nordhoff was able to
stamp
his
authority
on the
plant
when he
rejected
a union claim for a
gen-
6" Koch, Arbeitnehmner steuern
ilit,
40-5.
166
Bork had worked at \W before the
war,
but he had also been
imprisoned
under
the Nazis. He
only
joined
the Works Council in 1950-a
significant advantage
because he
was not involved in the "Peter Affair" which tended to discredit all
parties
involved. Koch,
Arbeitneieher steuerni mit. 83-4.
Volkswagen
and the Automobile
Industry
/ 319
eral
wage
increase and won the
support
of a
majority
of the work-
force in a
subsequent
vote.167
Confused British
policies
had stimulated
workplace
level
repre-
sentation,
but had also denied it the
scope
to link itself into formal
national
organizations.
The result was a localistic Works
Council,
highly dependent
on
servicing
the British
administration,
which was
shattered when the
clumsy handling
of denazification
briefly
turned
VW into a
"factory
of
grievances"
and
paved
the
way
for the shock-
ing
rise of neo-Nazism. Wider national factors
largely explain
the
transience of the
far-right
revival,
but its local
legacy
was demoral-
ization and a
power
vacuum. In this
context,
Nordhoff
acting
as "a
cross between a diva and a social reformer"'68 was able to consoli-
date a
leadership
role
among
the workforce
before
national trade
unions were able to establish themselves. The
development
of a
strong
union
presence
was a
long,
slow
process
and one result was
that IGMetall needed to
ally
with Nordhoff in the 1950s to build
up
its own
position.
In
particular,
as we shall
see,
this took the form of
an alliance with Nordhoff around a
high wage policy.169
(iii)
Government and
Wage Policy
at
Volkswagen
in the 1950s
When Nordhoff arrived at VW in
1948,
he found that the work-
force was
"hopeless
and
desperate"
and he believed that the com-
pany
was
"floating
towards
catastrophe."
The
city
was desolate and
apathetic.
There was no
feeling
of trust or
belonging.
Nordhoff set
himself to dissolve the "comfortable fat sinecures" in the
factory
and
destroy
the
"grotesque
laxness of the KdF domain." In this
context,
Nordhoff saw his main task as "To win the trust of the
workers,"'70
and from the start he initiated a
high wage policy
and a
paternalis-
tic
approach
to the workforce.
By
1950 VW was the
highest paying
company
in
Germany,
with
monthly wages
of c. DM 500 and annual
"social
payments"
of DM
1,600.
Inevitably
this made VW's
wages
and conditions
highly conspicuous,
and
they
became a matter of
sig-
nificant tension between
company
and
government
in the 1950s.
The
government
was not
initially
concerned about the
high wage
policy.
VW's isolated location and limited
housing
and amenities
167
K. A.
Schenzinger,
H. Simon and A. Zischka, Heinrich
Nordhoff
(Munich, 1969),
167.
168
Koch, Arbeitnehlzer steuern mrit, 63.
169
For the wider context of the
development
of German trade unions and collective
bargaining,
see Thelen.
170
Heinrich
Nordhoff,
"Report
to
Advisory
Board" 22
May
1951, B115/3378,
BA.
Steven
Tolliday
/ 320
meant that it needed to offer
high wages
to attract and stabilize its
workforce.
Moreover,
in conformance with broad
government pol-
icy,
Nordhoff linked VW's
wage policy closely
to his
pricing policy.
He insisted that
wages
could be increased
only
if the
price
of the car
could also be cut at the same time.17 The
Ministry
of Finance
approved
of this but also
stipulated
that
any departures
from this
norm in
wage
settlements would have first to be
approved by
the
Advisory
Board,
because of their
implications
for the
wage
structure
in
Germany
as a whole.172
Nordhoff first ran into
problems
on this issue in March
1953,
when,
on the occasion of the
completion
of the
500,000th Beetle,
he
proposed
to launch a
profit-sharing
scheme
giving
an
equal percent-
age
bonus to both
employees
and shareholders.173 The
Ministry
of
Finance
immediately perceived
an
important
issue of
policy
at stake
and took it to Cabinet for discussion.
There,
though
the Minister of
Labor favoured the
plan,
most other ministers
strongly opposed
it.
They argued
that it would create a
dangerous precedent
for other
state-owned
enterprises
that
might
find it hard to imitate the lead
taken
by
a
financially strong
VW.
Moreover, VW,
though financially
strong
now,
might
raise future
expectations among
its workforce
only
to
disappoint
them later. More
generally,
it would set an
example
that
might pressure
all
private companies
and could
trigger
demands
for the
widening
of state
ownership.
One of the reasons that VW
could afford a substantial bonus was that it had
negligible
dividend
payouts compared
to those in the
private
sector. In broad economic
policy
terms, moreover,
the
government
wanted to see
large profits
bringing
lower
prices,
not
higher wages.
The
proposal
was turned
down,
though
the
Ministry
of Finance was authorized to consent to
a
special
one-off
"jubilee"
bonus for VW
workers,
provided
that
there was no mention that the size of the bonus was related to the
size of
profits.174
On this
occasion,
and on several others in the
following years,
ministerial directives were
only partly
effective. Nordhoff
formally
complied
and
dropped
the
scheme,
giving only
a one-off bonus. But
within a
month,
to the consternation of the
Ministry
of
Finance,
he
was
publicly linking
the bonus to
profit
levels and
potentially
under-
''1
Heinrich Nordhoff,
"Report
to
Advisory
Board" 22
May 1951, B115/3378,
BA.
172
H.
Oeftering,
"Memorandum on
Volkswagen
labour
contract",
5
Sept.
1952,
B115/
3416,
BA.
173
Nordhoff to
Oeftering,
6 March
1953, B115/3416,
BA.
174
Minutes of Cabinet
Meeting,
23
June
1953, B115/3379, BA;
Frankfurter Allge-
meine,
7
July
1953.
Volkswagen
and the Automobile
Industry
/ 321
mining
the
Ministry's position.'75
More
seriously,
three
years
later in
1956,
Nordhoff went on to evade even more determined
attempts
to
control his
policy
on
working
hours.
In the
early
1950s,
Nordhoff had
agreed
with IGMetall to set a
long-term
aim of a 42-hour week for VW. But
during
1956,
Otto
Brenner,
the
regional
leader of
IGMetall,
utilizing
the inside track of
his
position
on the
Supervisory
Board,
reached an
agreement
with
Nordhoff for a
phased
reduction of the
working
week to 40 hours
by
the end of 1957
(more
than IGMetall had ever
formally
demanded
from
VW,
and in an unorthodox
phased
form that troubled national
IGMetall
officials).176
The Brenner-Nordhoff
agreement
was
promptly
vetoed
by
the Federal Government
representatives
on the
Supervisory
Board.
Schaffer,
the Minister of
Finance,
personally
directed Nordhoff to refuse
any
reductions in work time at
VW,
even
if this were to result in a strike. He also
spoke directly
to Brenner.
According
to
Schaffer, "[Brenner]
asked if I had directed VW's man-
agement
not to enter an
agreement concerning
a reduction of work
time. I told him that I
had."'77
He also assured the
Employers'
Association
(BDA)
that Nordhoff would work under the "clear
direction" of the
Ministry
of Finance on this
issue.'17
But,
despite
Schaffer's direct and blunt
intervention,
there were
soon indications that Nordhoff was
effectively introducing
the reduc-
tions
by
the back
door,
through
a series of local concessions. Erhard
reacted
strongly.
Nordhoff's initiative came at a difficult moment.
Erhard's forecasts were that GDP
growth
would fall to two
percent
in the
coming year
and that
inflationary pressures
were
building up.
He was in the midst of a tense situation in the coal
industry
and was
desperately
anxious,
for the sake of these
negotiations,
to hold the
line at VW. He
pressed
Schaffer for stiffer control over Nordhoff.
79
"I must
emphasize
how disturbed
entrepreneurs
feel about these
measures at VW," Erhard told Schaffer. "I should
point
out
espe-
cially
the difficulties that are
arising
in coal
mining....
The fact that
VW is a firm under the administration of the federal
government
means that the
government
has the ultimate
responsibility
for this
1'5
Ministry of Finance, "Memorandum on recent
speech by
Dr.
Nordhoff',
6
July
1953, Bl15/3416,
BA.
176
L. Erhard to H.
Oeftering,
6 Feb.
1956, B115/3422, BA.
1'
"Note of
Telephone
Dictation of Minister of Finance
Schaffer",
1 Feb.
1956,
B115/3422, BA.
178
F. Schaffer
(Finance Minister) to BDA, 8 Feb.
1956, B115/3422, BA.
'i9
Letter from Ruhr Coal
Mining Employers'
Association to F. Schaffer, 6 March
1957, B115/3423, BA;
L. Erhard to H.
Oeftering,
6 Feb. 1956, B115/3422, BA.
Steven
Tolliday
/ 322
situation.... The further
development
of
wage
and work time
poli-
cies is a serious concern for the
government
when viewed from the
perspective
of
assuring
economic
stability
and the maintenance of
purchasing prices.
I fear that the measures enacted at VW will
give
impetus
to demands
by
the labor unions to introduce
immediately
a
40-hour work week.... The situation must be discussed in the cab-
inet as soon as
possible
... !"180
The Cabinet
strongly supported
Erhard. He
was,
they
con-
cluded,
"correct in
estimating
that the
economy
will
only grow
at two
percent per year
in the future. If inflation occurs
now,
workers will
feel cheated. This could lead to a
dangerous political
climate. Nord-
hoffs behaviour is
irresponsible."'81
Rather than
wage
or hour con-
cessions
they
wanted to see
price
cuts of
up
to DM
1,000
on a
Beetle. Under this
pressure,
Nordhoff was forced to
agree
not to
sign anything
with IGMetall on
wages
or hours without first discuss-
ing
it with the Federal Government and the
BDA,
even
though
VW
was not a BDA member. As a result the
Ministry
of Finance
repre-
sentative on the
Supervisory
Board told
Schaffer,
"The issue can be
considered resolved."'82
Not so. Over the
coming year,
Nordhoff continued to
modify
and whittle
away
at the
length
of the
working
week.
Changes arising
from the movement of work to the new Hannover
plant provided
scope
for much local
shuffling
and
"temporary"
reductions in hours
on an ad hoc basis.
Also,
as Nordhoff
noted,
even under the old
48-hour
agreement
actual hours worked varied between 42 and 48
hours.
Using
this
flexibility,
actual hours were
brought
down
rapidly
in
1956,
and when the national Bremen
Agreement
authorized a
45-hour week in
1957,
VW was
actually
close to a 40 hour
week.'83
Schaffer continued to
pepper
Nordhoff with demands for his com-
pliance
with his "clear
agreement"
with the
Ministry,'84
and Erhard
and Adenauer continued to
badger
Schaffer to hold a
tough
line.185
Much to Erhard's
chagrin,
the Coal
Mining Employers'
Association
kept
the situation under
scrutiny,
and berated Erhard for VW's non-
'? L. Erhard to F. Schaffer, 12 March 1956, B115/3422, BA.
8
Minutes of Cabinet
Meeting,
13
June
1956, B115/3422, BA.
1Z2
Birnbaum to Schaffer, 12
June
1956, B115/3422,
BA.
i3
"Memorandum on
Meeting
with Dr. Nordhoff
Concerning
the
Regulation
of
Working
Time", 9
May 1956, B115/3422, BA;
H. Nordhoff to H. C. Paulssen
(President
of
Bundesvereinigung
Deutscher
Arbeitgeberverbinde
[BdA]),
31 March
1957, B115/
3423, BA.
'
Telegram
from Schaffer to
Nordhoff,
6 March 1957, B 115/3423, BA.
'L
L. Erhard to F. Schaffer,
4
April
1957; Letter from the State
Secretary
to the
Chancellor to F. Schaffer, 18
April
1957, B115/3423, BA.
Volkswagen
and the Automobile
Industry
/ 323
compliance.186 By
the summer of
1957,
as one local
paper put
it:
"Every
child in
Wolfsburg
knows....
They
have
secretly, quietly,
without
contract,
introduced a
5-day
work
week,
40 hours for
pro-
duction
workers,
42 1/2 hours for the other
divisions,
with full
wages!
Secretly-with
one
eye
on
Bonn,
on Schaffer and Erhard.
Naturally,
Bonn knows about this.
However,
Nordhoff doesn't want to cause
the
government any
undue
unpleasantness through
a
public
social-
democratic demonstration."'87 Erhard was left to seethe. Three
years
later he was still
complaining
to the Minister for Economic
Property
that "for all
practical purposes
[VW]
reduced its work week
to 40 hours at the end of 1955/
early
1956,
without
considering
the
feelings
of other
industries,
without
considering
the entire situation
and the
opinions
of
my
office."188
By
the late 1950s it was clear to Erhard that the Federal Gov-
ernment held
responsibility
for,
but little control
over,
VW
wage
policy.
His
ministry continually expressed
concern about VW's
"generous"
wages
and its
"thoughtless
contracts
pursued
at the cost
of consumers."189 The
ministry
continued to
fight
its unsuccessful
rearguard
action
against
VW,
labelling
its annual bonuses as
profit-
sharing.190 By
1959-60 the
position
had become
acutely disturbing
as Erhard
grappled
with what he
perceived
to be
incipient wage-
push
inflation. Privatization was seen as an essential
step
in extricat-
ing
the
government
from its
embarrassing position, though
VW's
wage policies
also seemed to
put
obstacles in the
path
of
privatiza-
tion. As Erhard
put
it: "The behaviour of the
management
of VW
also holds the
danger
of
influencing
views on our economic order.
When a
factory
without owners and with such
exceptional
market
conditions
guides
its social
policy
based
only
on its own
ability,
work-
ers could
get
the false
impression
that a situation without
ownership
such as at VW would be
quite
desirable. This will also
strengthen
the
opposition
of the workforce
against
a normalization of the
ownership
relations
according
to the
government's plans,
since after
privatiza-
tion,
the new owners will also want to have their share of the work's
earnings."191
186
Letter from Ruhr Coal
Mining Employers'
Association to F.
Schaffer,
30 March
1957, B115/3422, BA.
'7
Neue Ruhr
Zeitung,
29
June
1957.
'8 L. Erhard to F.
Lindrath,
12 Nov.
1959, B115/3428,
BA.
89 L. Erhard to F. Lindrath
(Minister
of Federal Economic
Property),
8 March
1958;
Letter from
Ministry
of Finance to Ruhr Coal
Association,
14 Nov.
1957, B115/3424,
BA.
"' F. Lindrath to H.
Nordhoff,
18 March 1959 and 29
April
1960, B115/3427,
BA.
191
L. Erhard to F.
Lindrath,
12 Nov.
1959, B115/3428,
BA.
Steven
Tolliday
/ 324
(iv)
Location Decisions and Government
Regional Policy
The
growing inability
of the
government
to exert effective con-
trol over VW could also be seen in issues of location in the mid
1950s. The
major
location decisions on VW's two new
plants
of the
1950s
(Hannover
and
Kassel)
were both focuses of
government
intervention. In the
first,
government policymakers
failed to
prevail
over VW's location decision. In the second case
they prevailed, only
to find the
consequences
of their decision
very
different from what
they anticipated.
In 1954 VW committed itself to
spend
c. DM 264m to
expand
its
capacity by building
a new truck
plant.
Its first choice for location
was to
enlarge
its
Wolfsburg factory, using
the
plentiful space
avail-
able
there,
despite
some fears about
making
the
city
even more
dependent
on VW for
employment.192
It soon became
clear,
how-
ever,
that this
plan
clashed with
government
location
policies.
The
expansion
came
during
a
phase
of closures and contraction in the
coal
industry,
and the Economics and Finance ministries and the
Land of Lower
Saxony
united to
pressure
VW to locate the new
works at
Barsinghausen
(26
kilometers from
Hannover)
to absorb
redundant coal miners and ease the closure of the
Barsinghausen
pits.
193
But this
governmental
consensus was soon thrown into confu-
sion
by unanticipated developments.
First,
employers
in
Hannover,
such as
Hanomag, objected
to the construction of a new VW
plant
in their
vicinity. They
could,
they argued, easily
absorb
Barsinghaus-
en's
surplus
labor in their own
factories,
and a new VW
plant
with
its
high wages
would
compete
with Hannover's electrical and metal-
working employers
for labor.194 Nordhoff too disliked the
Barsing-
hausen
proposal.
He was
skeptical
about
transforming
coal miners
into auto workers and feared
high
costs for new roads and
housing.
But,
to the consternation of Hannover's
employers,
he concluded
that if VW could not have
Wolfsburg
or their
second-preference
site
of
Braunschweig, they
would rather locate the
plant
at the center of
192
H.
Oeftering
to F. Blucher
(Deputy
Chancellor),
27 Nov.
1954, B115/3419, BA;
Minutes of the
Supervisory
Board,
27
Aug
1954.
193
Minutes of a
meeting
between the Board of
Volkswagen,
the Ministers of Lower
Saxony
and the
Deputy
Chancellor,
17
Jan.
1955, B115/3419, BA;
L. Erhard to F. Schaf-
fer,
5 Nov.
1954, BA,
B115/3421.
194
W.
Sohngen
(Director
of Rhine Steelworks) to H.
Oeftering,
19 Nov.
1954,
B115/
3419,
BA.
Volkswagen
and the Automobile
Industry
/ 325
the Hannover
metalworking
and electrical
region
at Hannover-
Stocken.'95
Nordhoffs
primary
consideration was to
get
access to the
best skilled
labour-exactly
what the Hannover
employers
feared,
and the diametrical
opposite
of what federal and Land
governments
wanted.
The Federal Government insisted that it would have a
prime
role in the resolution of the conflict: "such a decision should not be
taken without the
participation
of the
government....
since con-
cerns over the
spatial
economic order....
absolutely
must be taken
into consideration."'96 The
Ministry
of Finance stressed that "VW is
not a
private company
but is
managed by representatives
of
public
interests. What we need is a
synthesis
of economic and social/
political approaches."'97
On its
behalf,
Oeftering strongly
advised
against any "thoughts
about
establishing
a new VW
plant
in
Hannover" and blocked
any early
decision at the VW
Supervisory
Board. 198
But,
faced with a
confusing
situation,
the internal consensus of
government departments
fell
apart. Despite
an inter-ministerial
meeting
to
try
to hammer out a
single
Federal Government
position,
confusion mounted
by
the end of 1954. The Land of Lower
Saxony
continued to
support Barsinghausen,
but the
Ministry
of Finance
reversed its
position
and
supported
Hannover. The Cabinet itself
divided over the best solution and officials of different
departments
pulled
in
varying
directions.99
Finally,
the Land
accepted
a move to
Hannover,
on the condition that
displaced Barsinghausen
miners
were
given priority
in
hiring.
In
January
1955,
the
Supervisory
Board
approved
Hannover as the
site.2"'
Two
years
later,
with VW
planning
its new transmission
plant,
again
intervened on
grounds
of
regional
policy, effectively directing
the location of the new
plant
to Kassel.
As the Minister for Federal Economic
Property put
it: "VW did not
go
to Kassel out of its own
initiative,
but it was rather the unfavor-
"',
Minutes of a
meeting
between the
Deputy
Chancellor, Dr. Nordhoff and Dr. Ahr-
ens (Lower Saxonv Finance Minister),
17
Jan.
1955, B115/3419, BA;
Minutes of the
Supervisory
Board (VW) 5 Nov. 1954, B115/3419,
BA.
'6Telegram
from F. Bliicher
(Deputy
Chancellor) to H.
Oeftering.
23 Nov. 1954;
Oeftering
to Bluchler, 24 Nov. 1954. B115/3419, BA.
"
Minutes of the
Superisory
Board (VW),
24 Nov. 1954.
'9
Telegram
from F. Bliicher
(Deputy
Chancellor) to H.
Oeftenng.
23 Nov. 1954;
Oeftering
to Bliicher. 24 Nov. 1954. BI 15/3419. BA.
' H.
Oeftering
to F. Blicher, 27 Nov. 1954 and 17
Jan.
1955, B115/3419. BA; Dr.
Rust to L. Erhard, 14
Jan.
1955, B102/76037, BA.
2'X'
Minutes of
Supervisory
Board (VW), 24
Jan.
1955.
Steven
Tolliday
/ 326
able situation in
Kassel,
especially
in the Henschel
works,
that
caused the federal and Hessian Land
governments
in 1957 to use
Table 1
Volkswagen
Production and
Export
Statistics,
1945-1962
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
All vehicles
1,785?
10,020?
8,987
19,244
46,154
90,038
105,712
136,013
179,740
242,373
329,893
395,690
472,554
557,088
705,243
890,673
1,007,113
1,184,675
Cars#
58
7,677
8,987
19,244
46,146
81,979
93,709
114,348
151,323
202,174
279,986
333,190
380,561
451,626
575,407
739,455
838,513
1,004,338
Transporter
8
8,059
12,003
21,665
28,417
40,199
49,907
62,500
91,993
105,562
129,836
151,218
168,600
180,337
Exports
1,656
4,464
7,128
29,378
35,742
46,881
68,754
108,839
177,657
217,683
270,987
315,717
404,185
489,272
533,420
627,613
Notes: includes
Kubeltagens: 1945, 1,727, 1946, 2,343.
#Beetles only until 1959. Beetle
output
in 1960, 725.927; 1961, 796,825; 1962, 819,326.
Sources: H. C. Graf von Seherr-Thoss. Die Deutsche Autonwobilindustrie. Eine Dokiumentation
our
1886
bi.s
1979 (2nd ed.,
Stuttgart,
1979); Wood, Volkstcagen
Beetle; VW
Archives.
their influence on VW to
encourage
it to build a new
factory
in Kas-
sel in order to
employ
the workers laid off
by
Henschel."201 More
explicitly,
Chancellor Adenauer himself exerted
personal pressure
on
VW to
go
to Kassel
because,
as Erhard described
it,
he "considered
it
necessary
to
prevent
economic and
especially
labor market diffi-
culties from
arising
in the border zones."202 In this case
government
wishes
prevailed.
But the
resulting changes
in the labor market were
not what
they sought.
In 1957 it was assumed that Henschel would
be
making
some
5,000
workers redundant. But
by
1959 Henschel
201
F. Lindrath to L. Erhard,
10
Sept.
1959, B115/3428,
BA.
202
L. Erhard to F. Lindrath, 12 Nov. 1959, B115/3428. BA.
Volkswagen
and the Automobile
Industry
/ 327
had recovered and was
hiring
labour
again
and
complaining bitterly
about
competition
from VW
bidding
up
wages
and conditions in the
region.203
(v) Investment
Policy
and Market
Strategy
Direct
government
intervention in investment
policy
and market
strategy
was limited in the 1950s,
and Nordhoff
enjoyed
wide
scope
to
pursue
his own
strategy.
The success of the
company
in these
years
was incontrovertible. In 1948 VW
produced
less than 20,000
vehicles. But it
surpassed
100,000 in 1951, a
quarter
of a million in
1954, half a million in
1958, and a million in 1961.
Exports
were
30,000 vehicles in
1950, 177,000
in 1955 and almost half a million in
1960 (Table 1). Nordhoffs
policy,
a ruthless
pursuit
of a
single
model
policy
and economies of scale, was a
great
success. But it
clung very closely
to the vision and
strategy
of the
designers
and
planners
of the
pre-war project.
The narrowness of the
strategy
cre-
ated a serious crisis in the late 1950s and left
many
fundamental
issues unresolved at the time of the first
attempt
at
privatization
in
1961.
VW's success was
underpinned by
an enormous
surge
of
pent-up
demand. There had been four million
passenger
cars on German
roads in 1938, but
only
300,000 remained in
operation by
the end of
the war.204 In 1952 there were still
only
945,000
passenger
cars in
Germany.
But
by
1960 there were 4.5 million, and
by
1964 8.3 mil-
lion. In 1948 there were 228 inhabitants
per
car in
Germany,
com-
pared
to 25
per
car in the UK.
By
1963 there were
roughly
seven
per
car in each
country
(Table 2).
The
catch-up surge
was far
stronger
in
Germany
than the UK, where the war saw
aging
but little
outright
destruction of the car stock. In the early years this sellers' market in
Germany
was avid for
anything cheap
that had wheels and would
go.
Until the mid-1950s there was a
strong
demand for
tiny economy
vehicles or
"stickingplaster"
cars,
bridging
between
motorcycles
and
cars and
typified by
the
Goggomobil.
But
by
the late 1950s this
seg-
2o3
"Notes on a
Telephone
Conversation Between the Chancellor and the President of
the BDA", 26
June
1959. B115/3428,
BA.
204
Olley,
"Motor Car Industry in
Germany,"
BIOS Overall
Report
No. 21, IWM.
Steven
Tolliday
/ 328
Evolution
of Factory
Methods at
Volkswagen
.
The crude conditions at
Wolfsburg
in the
early postwar years
are
clearly
shown in a
photograph
of the
assembly
line at Wolfs-
burg
in 1946
(top). By
1949,
assembly
methods were more
robust,
but still crude
(mid-
dle).
By
the
early
1960s the full flow of coordinated mass
production
is
clearly
visible
(bottom).
(Photographs reproduced courtesy
of the VW
Archives.)
Volkswagen
and the Automobile
Industry
/ 329
Table 2
Development
of Motorization in West
Germany,
Britain, France,
Italy
and the United
States,
1948-1962
Inhabitants Per Car
USA
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
3
3
3
3
3
3
3
3
2.8
2.8
2.8
2.8
UK West
Germany
32
27
25
25
23
22
21
20
18
16
14
13
12
11
10
9.2
8.6
7.9
7.0
6.3
228
141
98
75
57
46
36
31
25
21
17
15
14.8
10.3
8.7
7.6
6.8
France
41
38
37
35
34
31
24
23
21
16
14
13
11
10
9
8.1
7.4
6.6
5.9
4.9
Italy
389
303
249
211
174
137
111
93
78
65
55
48
40
36
30
25.2
20.7
16.8
13.1
11.1
Source:
Jaroslav
Purs, "The Internal Combustion
Engine
and the Revolution in
Transport:
The
Case of Czechoslovakia with Some
European Comparisons"
in T. C. Barker
ed.,
The Economic
and Social
Effects of
the
Spread
of
Motor Vehicles
(London,1987),
p.
205;
K. W.
Busch, Struk-
turnantdlunget
der Westdeutschen Autonobilindustrie (Berlin, 1966),
p.
180.
ment was
fading
and the most intense demand focused on the size-
class of vehicle where the Beetle
reigned supreme.2?
One of the undoubted foundations of VW's success between
1948 and 1965 was Nordhoffs
single-minded pursuit
of a
single-
model
policy,
to an extent that made him almost more Fordist than
the first
Henry
Ford.206 The
policy
was not an automatic and obvi-
ous choice. The
early post-war
Beetles were
noisy, shoddy
and
205
Fritz
Blaich,
"The
Development
of the Distribution Sector in the German Car
Industry,"
in A. Okochi and K. Shimokawa,
eds.,
The
Development of
Mass
Marketing
(Tokyo,
1981).
206 For a historical
analysis
of "Fordism" see Steven
Tolliday
and
Jonathan
Zeitlin,
"Between Fordism and
Flexibility,"
in Steven
Tolliday
and
Jonathan
Zeitlin, eds.,
The
Automtobile Industry and Its Workers: Between Fordism and
Flexibility (Cambridge,
1987).
Steven
Tolliday
/ 330
uncomfortable,
and the life of its
engine
was short. When Nordhoff
arrived at
Wolfsburg
he declared that Beetle "had more
things
wrong
with it than a
dog
has fleas."
Many
dealers in the 1940s
pressed
for a
newly-designed
car.
Nordhoff, however,
based his
pol-
icy
on a
recognition
that he had inherited "a diamond
very
much
worth our while
polishing."2"
He
immediately
committed himself to
a
single-model policy
and concentrated on
improving quality
and
process,
and on
increasing exports.
He confined
product develop-
ment to refinements and refused to make basic
changes.
He
rejected
even modest
styling changes
since
any
sheet-metal alterations were
very
costly.
For
example, engineering experiments
on
reshaping
the
hood to allow more
luggage-room
resulted in decreased
aerodynam-
ics,
which
placed
the
engine
under excessive strain at
higher
speeds.208
Porsche's
original design
had enormous
developmental possibil-
ities, however,
which the
engineers brought
out. In 1960 Nordhoff
noted,
"Our
designers
have now been
working
for twelve
years
on
only
one
job:
to
perfect
the VW
technically."2?9
The main
changes
were
styling
refinements or
improvements
to
ventilation,
heating,
seating
and accessories. The
engine
was refined and made more
powerful
and
quieter,
and the transmission
improved.
The
range
of
colors was somewhat
expanded.
But even the tiniest details were
constantly
tended to with
loving
care,
and
by
the mid 1960s over
2,000
detailed
changes
had been
incorporated.21"
The model
policy
was rooted in
prudence
and
caution,
and VW
largely
allowed itself to be
pulled along by
the tide of demand. In the
early
1950s,
Nordhoff s
prognosis
was that the wave of
expansion
was
unlikely
to last and that he should make use of the
good
times to
secure the
company's position
for
coming
conditions of slower
growth.
VW's investment and dividend
policies
were, therefore,
extremely
cautious and conservative. Nordhoff concentrated on
building up big
cash reserves for
stability
and
against
the
contingen-
cies of the outcome of the Savers' Trial. From 1951 to 1953 the
company
invested DM 130m in fixed assets but
put away
DM 150m
207
Nelson,
Small WVo(nder, 272; Wood,
~VW Beetle, 54.
208
H. R.
Etzold,
The Beetle: The Chronicles
of
the
People's
Car
(Newbury Park, Calif.,
1988),
6.
209
Nelson, Slmall Wonder, 272.
210
All
loxingly
and tirelessly
catalogued
in
Etzold,
The Beetle.
Volkswagen
and the Automobile
Industry
/ 331
into its
publicly
recorded reserves.211 In
addition,
VW's
(legally per-
missible)
"secret reserves" were known to be substantial and a
source of
controversy
with the
Ministry
of Finance. The
Ministry
wanted VW to distribute more of its
surpluses
to the
government
at
a rate
comparable
to the dividends
paid by
the American multina-
tionals
(about 9%),
but Nordhoff refused to distribute
any
more than
4% "for
psychological
reasons."212
The rather limited new investment that was undertaken was
focused on
rounding
out
existing plant
and
perfecting
the
existing
model. Until
1955,
annual investment was low and increased
produc-
tivity
was driven
by
the
improved
utilization of
plant
and
equipment.
Some mechanization did take
place,
but
capital intensity
did not rise.
Until 1954 the number of
employees
at VW rose faster than the
gross
fixed assets because
existing capital
assets made it
possible
to
expand production rapidly by simply adding
more labor to the line
without
heavy
new investment.213 In
1955,
VW made substantial
investments in
general
automation and
special-purpose
machine
tools to
replace
older
multi-purpose
tools and focused on
linking
production processes together
and more advanced
welding pro-
cesses. But VW did not introduce
any
transfer lines until 1958.214
VW's hesitant attitude toward the market was shared
by
its
rivals. Both Ford and GM's international
management
took an
extremely negative
view on the
prospects
of the German market. In
1950 Ford's market research indicated that no more than
34,000
potential private buyers
existed in
Germany
at that time.215 Ford
rejected pressure by
local
management
to invest in
largescale pro-
duction facilities in
anticipation
of
rising
demand. The
potential
results did not
appear
to warrant the risks. The low-cost
segment
of
the market was
already
dominated
by
VW,
and
entry
into that field
would involve a
huge
investment to construct a modern
integrated
plant
on similar lines to
Wolfsburg.
It would also
imply
head-on
competition against
the Beetle in a low
profit margin segment
211
Minutes of the
Working
Committee of the Advisory Board,
8
June
1951,
B115/
3379, BA; K. W.
Busch,
Stnikturwandlungen
der twestdetitschen automobilindustrie (Ber-
lin, 1966),
Tables.
212
Memorandum
by
Birnbaum for
Supervisory
Board,
15
July
1955, B115/3379,
BA.
213
Busch, Stirktlurwandlungen, 65-6, 93;
R.
Krengel, Anlagevennrigen,
Produktion
wund
Beschiiftigung
der Industrie im Gehiet der
Btndesrepublik
Deutschland von 1924 zt
1958
(Berlin, 1958).
214
Busch,
Stnrktturwandlungen,
123; Werner Abelshauser, "Two Kinds of Fordism:
On the
Differing
Roles of the Automobile
Industry
in the
Development
of the Two Ger-
man
States,"
Paper presented
to the
Fuji
Conference on Business
History, Jan.
1994.
21"
E.
Vitger
to A.
J.
Wieland,
12 Oct.
1950,
AR
75-62-616,
box 2, FMC.
Steven
Tolliday
/ 332
A Panoramic View
.
The
Volkswagen assembly
line in full flow in the 1950s.
(Photo-
graph reproduced courtesy
of the VW
Archives.)
against
a
competitor
that seemed to have the hand of the state
behind it. As Arthur
Wieland,
the head of Ford's International Divi-
sion, noted,
"To
compete price-wise
we would have to become as
highly
integrated
as
VW,
which would entail an
expenditure
of
$10-
20m. After the investment of millions of dollars.... we would be
competing
with an
operation
that would not be bound
by any profit
incentive.
Taxes,
depreciation,
amortization,
even
operating
deficit,
could be covered
up
in the
government budgets."
The
purchase
of
VW still remained "a much sounder alternative," but,
as we have
seen,
that was now
impossible.
Both Ford and
GM, therefore,
decided to concentrate on the market
segment
above the
Beetle,
making larger,
more
comfortable, and,
they
believed,
more
profit-
able cars.216
Ford
kept
its investment low. It
sought
to minimize investment
from the U.S.
parent
or local
borrowing,
and it had little interest in
developing exports
from
Germany,
which would collide with the
interests of its
English operations.
Instead Ford concentrated
simply
on
utilizing
its
existing capacity
as
fully
as
possible.
Its
strategy
was
216
A.
J.
Wieland,
"A
Program
for a New
Passenger
Car to be Produced at Ford Werke
AG,
Cologne,"
24 Feb.
1951,
AR
65-71,
box
30,
FMC.
Volkswagen
and the Automobile
Industry
/ 333
quite explicitly
the modest one of to
"Stay
No. 4" in
Germany
and
as late as 1953 it still saw little
growth potential
in the German mar-
ket. An internal review in 1953 concluded that: "Automobile
produc-
tion in
Germany
is not
likely
to increase
dramatically
from now
on.... It is
anticipated
that the
present capacity, generally speaking,
will be sufficient to take care of the increased demand."217 And in
the same
year,
Ford was still
seriously considering
the
possibility
that
it should "sell out and retrieve the Ford name from
Germany."218
Nordhoff too believed that the limits of the domestic market
would soon be reached. When 1955 saw the first
quarterly
fall in VW
sales since
1948,
he concluded: "Our
optimal
size is almost reached.
The time of
great expansion
will soon be over. We are not
intending
any
further
enlargement
of our
capacity.
Our main stress from now
on will be on modernization and rationalization. There is still much
to do in that
respect."
Further investment would therefore be
focused on the
body
erection
shop, press shop
and
spare parts
but
not on
any
increase in
capacity.219
The
subsequent upturn
in sales
and the
persistence
of
waiting
lists of over
eight
months in 1956 did
not
change
this attitude. Profits should be taken while the
going
was
good, preferably by keeping prices
firm while costs fell
through high
levels of
capacity
utilization.
Costly experiments
in model
develop-
ment were to be
strictly
eschewed. As Nordhoff
put
it: "Now
every-
thing
is
blooming
and we can take in the harvest."220 The Economics
Ministry
tried to
pressure
him to cut
prices
as
part
of the
govern-
ment's
preisepolitik,
but Nordhoff
stubbornly
and
effectively
resisted.22' And
despite
criticisms from Otto
Brenner,
the
principal
IGMetall
representative
on the
Supervisory
Board,
that the
company
was
failing
to
explore any
new model
development,
Nordhoff
explic-
itly
committed VW to no model
changes
for the next five
years.222
But as 1956
passed
it
gradually
became clear that the
anticipated
slowdown of the market was not
materializing. By September
1956
forecast demand for VWs in 1957 at home and abroad was close to
double the current
production capacity. Only
at this
point
did Nor-
dhoff
recognize
that
something urgent
had to be done to
expand
217
Ford Werke,
"Cologne Integration Program," May
1953,
AR
67-13,
box
2,
FMC.
218
A.
J.
Wieland, "Notes on
Germany," May
1953,
AR 67-13, box
1,
FMC.
219
Minutes of
Supervisory
Board
(VW),
8 Dec. 1955.
220
Minutes of
Supervisory
Board (VW),
27 March 1956.
2' Minutes of
Supervisory
Board
(VW),
8
June
1956.
22
Brenner
protested
that
"[t]he
form of the car is no
longer
discussed.... There are
cars,
and there are
Volkswagens....
and that's it." Minutes of
Supervisory
Board
(VW),
3
June
1957;
Minutes of
Supervisory
Board
(VW),
4
Sept.
1956.
Steven
Tolliday
/ 334
Single-model Policy ?
Nordhoff believed that he had inherited a "diamond well worth
polishing"
and he
continually improved
and refined all
aspects
of the Beetle while avoid-
ing any tampering
with the basic
design.
The
top photo
shows a 1946 Beetle under eval-
uation
by
British car
companies
for the
Ministry
of
Supply.
The bottom
photo
shows a
1961 Beetle with
virtually unchanged
external
appearance. (Photographs reproduced
cour-
tesy
of the VW
Archives.)
capacity.
But he was also
compelled
to admit that he had no
plans
to
deal with this situation. Investment on the scale
necessary
to meet
forecast demand would be "a
Utopia
to
put
that into
practice
in such
a short time." Nordhoff was never a man to admit mistakes and his
public
tone did not
acknowledge any
blemishes on the
company's
continuous success record. But he did admit that VW had been
Volkswagen
and the Automobile
Industry
/ 335
"overcautious" in the
past
and had held back on investment because
it had
seriously
underestimated future demand
expansion.223
In 1957
VW,
for the first time since the
war,
began
to face
up
to
the need to make decisions about investment in new
assembly capac-
ity.
The annual
capacity
of the
original
works before the war was
around
220,000 cars,224
which had been
relatively easily
stretched to
close to
300,000
by
1956
by
investment in
auxiliary
mechanization
and
by moving transporter
and
component operations
out of Wolfs-
burg.
In
1957,
Nordhoff was driven
"reluctantly"
as he
put
it,
to the
conclusion that VW must
expand
its
capacity
or else lose market
share. The immediate
problem
was not so much
Germany,
where
VW was still
unchallenged
in the
largest
and most
dynamic
market
segment,
but
export
markets,
especially
in
Europe.
From
1955-6,
Ford and
Opel
had started a race to
expand capacity
in
Europe,
with
Ford focused on Britain and
Opel
on
Germany.
Nordhoff now rec-
ognized
that the outcome of the race could determine market shares
in the
early
1960s.
Already
as a result of its restricted
expansion
in
recent
years
VW
expected
its
European
market share to fall in 1958.
VW feared that Ford of Britain and other British
companies
were
particularly
well
placed
to take
advantage
of
surging
markets and
VW's own lack of
capacity.
The British
companies
had
generally
fol-
lowed a
policy
of
building high
levels of
capacity
and
using
flexible
hours of
employment
to
employ
the
plant
more or less
fully
as
demand
permitted.
Renault and Fiat had also
already
launched
aggressive capacity expansion.225
In 1957-8 VW
delivery periods
rose to well over one
year,
cus-
tomers were
getting angry
and sales
organizations
demoralized.
Dealers were
pressing
for a 30% increase in
supply
over 1957 levels
for 1958. As
things
stood, however,
VW's maximum
output
for
export
in 1958 would fall
32,000
short of
existing export
orders. If
demand increased
substantially
in a
major
market
they
could be
short of
up
to
100,000
cars for
export!
In the home market the
shortfall would be about
70,000
cars. VW could
produce
458,000
cars in
1958,
but it needed 600,000.226 As a
result,
during
1958 VW
was unable to
cope
with "wild" demand for Beetles in the United
223
Minutes of
Supervisory
Board
(VW),
4
Sept.
1956.
224
USBSS,
Report
No. 88: FO 371/65114, "Provisional
report
of
reparations
and dis-
armament
working party, January
1946."
225
Minutes of
Supervisory
Board,
3
June
1957,
VW.
226
Minutes of
Superisory
Board,
25 Nov. 1957 and 16
June
1958,
VW.
Steven
Tolliday
/ 336
States and could
only
deal with its chronic
inability
to
supply
its
dealers
by "rationing"
cars
through allowing prices
to rise substan-
tially.227
The
delay
in
initiating expansion
had been
such, however,
that it
quickly
became clear that construction to meet even current levels
of demand would take two
years
to be
completed. By
then demand
would have accelerated
yet again.
In late
1957, therefore,
VW des-
perately
needed a
"bridge"
between its current limits and
possible
sales,
and a "double
expansion" program
was
necessary.
VW
launched a
plan
of DM 382m as
part
of an overall investment
pro-
gram
of DM 668m
by
the end of
1960,
which would raise
output
to
606,000
cars. The
following year they again
raised
planned capacity
for
1960,
this time to
650,000
capacity.228
The
huge
investment
program required
massive
financing.
But
despite
the scale of the
spending
involved,
VW was able to finance
all of it
internally
until 1960. The
big
banks were
queuing up
to offer
credit,
but VW touched bank credit
only briefly
in 1960 and had no
outstanding
debts
by
1962.229 This was
possible
because,
on its own
assessment,
VW was "one of the
highest profit-earning companies
in
the whole world" in the late 1950s. Pre-tax
profits
hovered between
10 and 15% of sales
(Table 3),
an
impressive figure
for a
company
with a
relatively low-margin product.
VW estimated its own return
on
average capital employed
at over 50%
per year
between 1956 and
1960.230
Accordingly,
the
company generated huge
cash
surpluses
(depreciation plus
retained
profits),
which were available for invest-
ment. Between 1956 and 1960 VW
generated
DM
1,405m
internal
cash
surpluses-enough
to finance all the
large
scale
capital
invest-
ment undertaken
by
the
company
in the same
period.
Its
position
as
a cash-rich
company
in a
rising
market meant that even
big
errors of
judgement
could
go unpunished.
VW's
rapid expansion
was also
greatly
facilitated
by
the structure
of its
operations.
Until the mid
1950s,
VW had been almost
entirely
integrated
on the
original single
site at
Wolfsburg
and new invest-
ment was almost
entirely
focused on cost reduction
by bringing
the
existing
lines into full
utilization,
and
by mechanizing transport
and
materials
handling.
Thereafter,
the
pattern
of
development
was to
227
Minutes of
Supervisory
Board,
6
June
1958,
VW.
'22
Minutes of
Supervisory
Board,
25 Nov. 1957 and 6
June
1958,
VW.
229
Minutes of
Supervisory
Board,
22
Jan.
1960 and 17 Nov. 1960, VW.
230
Minutes and
papers
of the
Working
Committee of the
Supervisory
Board,
May
1961, \VV.
Volkswagen
and the Automobile
Industry
/ 337
5
August
1955 . Heinrich Nordhoff
(right)
with the millionth
Beetle,
with
headlights
ablaze,
at
Wolfsburg. (Photograph reproduced courtesy
of the VW
Archives.)
Table 3
Pre-Tax Profits as a
Percentage
of Sales
Receipts
Volkswagen
Ford
Opel
Sales
Profit
% % %
(DMmillion)
1956
1,788
188 10.5 6.6 8.0
1957
2,236
312 14.0 2.2 9.6
1958
2,719
430 15.8 4.6 13.2
1959
3,544
521 14.7 7.0 NA
1960
4,607
458 10.0 8.6 18.9
Source:
Supervisory
Board
Working
Committee 4
May
1961 and
passilm.
shift
subsidiary operations
into branch
plants, leaving Wolfsburg
highly
concentrated and
specialized
on the
assembly
of Beetles. The
Steven
Tolliday
/ 338
1958-60 investment
program
continued this
pattern.
Most of the
new investment was focused on
component
and
sub-assembly plants.
Hannover was
developed
as a sole
supplier
of
engines
as well as
trucks;
transmissions and
spares
were
headquartered
at
Kassel;
axles
were concentrated at a new
plant
at
Braunschweig;
and some 700
parts
which had
previously
been made
internally
were now to be
bought
in from outside
suppliers.231 Wolfsburg
remained a
highly
dedicated central
assembly plant
devoted
solely
to a
single
model,
and
reaping
maximum economies of scale.
Thus the economics of
production
remained
tightly
intertwined
with the
continuing
success of the
single
model. VW's
supreme
cost
advantage
owed much to its
uniquely
narrow
product range, special-
ization and economies of scale.
By September
1952 VW's
daily
out-
put
of 550 cars was
already
the
highest
of
any company
in
Europe.
By
1957 its
output
of
40,000
cars
per
month from a
single factory
was
probably
matched
only by
Chevrolet and Ford in the United
States. But would
changes
in the
competitive
milieu
permit
the con-
tinuance of this
strategy?
Nordhoff foresaw that fundamental
changes
were bound to
occur: "it would be a disastrous error to think that
everything
will
continue to
go
on as
smoothly
as it has done."32 He
acknowledged
that: "One
day rapid growth
will have to end and real
competition
will
begin.
What is
happening today
is
really just playing
for the best
market
position."233
There were two main threats. The first was that
competitors might
invade VW's
quasi-monopoly
market
segment.
Opel
was
particularly aggressive
and in 1959 launched a model to
compete directly
with the Beetle while
rapidly expanding
its
capac-
ity
(ahead
of demand in contrast to
VW)
in the size-class above the
Beetle.
Opel
invested an immense DM 1.2bn at Bochum between
1960 and
1962,
and it
openly
admitted that its aim was to break
VW's
predominance
in
Germany.
Ford was more focused on
Britain,
but its
projected
"Cardinal" small car could also
directly
attack the
Beetle. VW felt it had less to fear
here,
however. Ford in this
seg-
ment was
"cooking
with water
only," lacking any magic ingredient
in
design
or
engineering.234
The second threat was that the
pattern
of market
segmentation
231
Minutes of
Supervisory
Board,
3
June
1957;
25 Nov.
1957;
6
June
1958;
13
June
1960. All in VW.
232
Minutes of
Supervisory
Board,
22
Jan.
1960,
VW.
233
Minutes of
Supervisory
Board,
10 Nov.
1959,
VW.
234
Minutes of
Supervisory
Board,
4
May
1961,
March and
April
1961
passim,
VW.
Volkswagen
and the Automobile
Industry
/ 339
might change
and the Beetle size-class decline in
popularity.
This
would
imply
the need for a wider
product range
at the same time as
market
growth
slowed. In 1959 with "real
competition" looming
into
prospect,
Nordhoff allowed VW to think hard for the first time about
a "model
policy."
Internal discussions indicated that it would take at
least five
years
to
develop
a new model. VW could draw
heavily
on
Porsche
engineers
for
design;
but,
given
the
history
of the
company,
VW was
seriously
short of
product development engineers.
More-
over,
the creation of a new model
range
would have
profound impli-
cations for
production,
distribution and
advertising strategies,
all of
which were
closely
tied to the
single
model.235
Faced with these
difficulties,
VW took no decisive
steps
towards
an all-new car.
Instead,
VW's
engineers
continued the well-tried
strategy
of
continuously improving
the
Beetle,
giving
it more
power
and new features.236 In
August
1960
they
launched a
major
revision
of the Beetle with a new and
stronger engine,
a new
synchro
trans-
mission,
and enhanced trim and features. The
price
was
kept
the
same as before in
Germany, though
it was increased for
exports.
These modifications and
improvements,
however,
began
to strain the
limits of the
original design
and
manufacturing package.
Increased
complexity
and refinement made the car more
expensive
to build
than the old version.
Company planners predicted
that
profit per
vehicle would fall
by
about one-third and the trend of
profits
on sales
from 1960 seemed to confirm this.237
Whatever the
strategy
it was clear that a vast and
continuing
program
of investment would be
necessary.
The basis of VW's tri-
umph
in the 1950s was
being
eroded. Its
unique product
had
ideally
suited the needs of the
phase
of basic
motorization,
but
Germany
was now
passing beyond
that. The diffidence and abstinence of the
American multinationals that had resulted in a lack of effective com-
petition
was
being rapidly
reversed. And VW's
powerful
financial
position
was now in
jeopardy.
Through
the 1950s its cash reserves
had been swollen not
only by
restricted investment needs and cau-
tious
policies
on
expansion,
but also
by government practices
that
had neither
tapped
VW's coffers for its own needs nor
imposed price
reductions in order to reduce VW's
surplus.
It is not clear
exactly
why government
had been so
self-denying during
the
1950s,
but the
approach
of
privatization
at the end of the decade
clearly
threatened
'5
Minutes of
Supervisory
Board,
10 Nov.
1959,
VW.
26
Minutes of
Supervisory
Board,
10 Nov.
1959, VW; Etzold,
The
Beetle,
176.
237
Minutes of
Supervisory
Board,
13
June
1960,
VW.
Steven
Tolliday
/ 340
to
significantly
cut into this
supremely strong
financial
position
at a
time when VW's investment needs had never been
greater.
(vi)
Privatization
This was the context in which the
government
launched its first
(partial) privatization
of VW. Privatization had
long
been on the
agenda,
but successive administrations had lacked either the will or
capability
to tackle it. Erhard,
however,
as we have
seen,
was
intensely
frustrated
by
the
government's relationship
with VW and
his wider
political
concerns also
pushed
the issue
high up
his
agenda
in the late 1950s.
By
then,
as A.
J.
Nicholls has
noted,
the steam
seemed to be
going
out of the Social Market
Economy.
In
1953-5,
the
pullback
of the state from the
economy
had "stumbled to a halt."
After
that,
setbacks on the anticartel bill and
unhappy
relations with
the BDI meant that "the state was still
interfering
in too
many
aspects
of the
economy
and
favoring
too
many special
interests."
One
way
that Erhard
hoped
to breathe new life into his
program
was
via his ideas of
"people's capitalism"
or
"people's
shares"
(Volksak-
tien).238
Several obstacles stood in the
way
of the
development
of a
priva-
tization
strategy
in the 1950s. The Christian Democratic Union
(CDU)
remained
internally
uncertain on the issue. An internal
debate on
privatization
was
opened
in
1951,
and it was
adopted
as a
general policy
in 1954.
By
the late
1950s, however,
there was a wid-
ening gap
between the
party's
theoretical
opposition
to state control
and its
pragmatic acceptance
of
government
intervention,
especially
at
regional
level. In
general,
Land
governments
favored
public
own-
ership
more than did the Federal
Government,
obviously
so in the
case of SPD
governments;
but
many important
CDU-led coalitions
also favored a more
dirigiste
role for the state. In
particular,
the
CDU/Christian Social Union
(CSU)
bloc of
Franz-Josef
Strauss in
Bavaria was at this time
becoming deeply
involved in rescue and
merger proposals
for the
ailing
BMW.239
Secondly,
the
immaturity
of
Germany's capital
markets hindered
privatization.
An
early
assessment
by
the
Ministry
of Finance esti-
238
A.
J.
Nicholls,
Freedom with
Responsibility:
The Social Market
Economy
in Ger-
many,
1918-1963
(Oxford, 1994),
359.
239
On BMW see Horst Monnich, The BMW
Story:
A
Comlpany
in its Time
(London,
1991), 427-479; on the wider context of CDU
dirigisme
see Aline
Kuntz,
"Conservatives
in Crisis: The Bavarian Christian Social Union and the
Ideology
of Antimodernism"
(Ph.D. diss., Cornell Univ., 1987),
198-201.
Volkswagen
and the Automobile
Industry
/ 341
mated that
large
investment
companies
would take
up
no more than
two
percent
of
any
flotation,
and
floating
the rest to small investors
would be
difficult,
especially
if (as the
Ministry always
insisted)
for-
eign companies
were to be
precluded
from
buying
into the
company.
Even in the mid 1950s the
Ministry
did not believe it
practicable
to
launch "miniature" lots of
people's
shares
through existing
stock
market channels.240
Partly
because of this and
partly
because of wider differences in
political
and economic
outlook,
the
leading
officials of the Finance
Ministry
resisted
privatizing
VW
through
most of the 1950s. It was
commonly
noted that "in Bonn it is an
open
secret that the
govern-
ment,
or rather the finance
ministry,
has
every
intention of
waiting
as
long
as
possible
before
separating
from this firm."241
By
1955
Finance Minister Fritz Schaffer was at
loggerheads
with Erhard on
the issue. Schaffer
argued
in
particular
that
only
state
ownership
could
guarantee cheap
cars for German consumers and
that,
given
VW's almost total dominance of the Lower
Saxony
labor market-a
key
border
region-continued
state control was
essential,
while the
confused
ownership position
of VW made it
inescapable.242
The internal debate reached a climax in 1955-7. Erhard nar-
rowly
won a
majority
for his
position
at the 1957 CDU
Congress.
Both internal
opinion
and external observers concluded that the
1957 election marked a
major victory
for the Erhard-Adenauer
posi-
tion and a
major
defeat for the Schaffer faction.243 It was followed
by
a Cabinet reshuffle which moved Schaffer to the
Justice
Ministry,
and the consolidation of Erhard
supporters
in an elite "economic
cabinet" within the wider Cabinet. The
privatization
of VW was one
of their clear
priorities. Accordingly,
Heinz Maria
Oeftering,
the
key
link man between the
company
and the
Ministry
of
Finance,
was
replaced
as chairman of the
Supervisory
Board,
and Fritz Lindrath
was
appointed
a new
(pro-Erhard)
Minister of State
Property,
with a
mandate to oversee the
privatization
of VW.244
The
last,
and
perhaps
the most
awkward,
difficulty
in the
priva-
tization of VW was at once
highlighted by
Lindrath and the
group
of
240
Birnbaum, "Memorandum for the
Ministry
of Finance on the Future of
Volkswagen,"
13 Oct. 1956,
B115/3391,
BA.
241
Enterprise
Letter of the German Industrial
Institute,
8 Oct.
1953;
Economic Infor-
mation Service No. 191, B115/3417,
BA.
242
L. Westrick to L.
Erhard,
19 March
1955, B102/76034, BA.
243
The
Economist,
5 Oct.
1957;
F.
Novotny,
"VW,
Aktiengesellschaft
und
Stiftung,"
4
Oct.
1957, B115/3395, BA.
244
F. Lindrath to
Birnbaum, 13
Aug. 1957, B115/3395,
BA.
Steven
Tolliday
/ 342
"CDU friends" that he convened to consider tactics. As a result of
the
complex ownership position
inherited from the
Occupation,
the
Land of Lower
Saxony
had the
power
to resist
privatization
almost
indefinitely through
the courts. It was therefore essential to devise a
compromise
to
satisfy
the Land. This
appeared
to be a much easier
prospect
after the Land elections in
September
1957. Until that
time,
an SPD
majority
in Lower
Saxony
had
strongly opposed
the
principle
of
privatization,
but the 1957 election
gave
the CDU con-
trol,
albeit in a broad coalition with the SPD.
Nevertheless,
most of
the
regional
CDU
politicians
in Lower
Saxony
showed little enthusi-
asm for
privatization,
and
they
also feared
precipitating
the with-
drawal of the SPD from the coalition if
privatization
was
pushed
through.245
But the SPD too was
changing.
In the mid-1950s the SPD and
DGB had come to
recognize
that the chances of
maintaining
out-
right
state
ownership
of VW were
poor. They
had therefore made a
strategic
retreat to a demand that the
company
be run as some sort
of
public
trust or
Stiftung
in which the
ownership
of the
company
would be
equally
divided between state and federal
governments.
Erhard was
strongly opposed
to
leaving
Lower
Saxony
in such a
powerful ownership position,
and he
initially rejected
the scheme
outright.246
But the
proposal proved
to be
very popular
with the
public
and,
buoyed by
this,
the Land threatened to create a consti-
tutional crisis over the issue
by unilaterally declaring
the creation of
a
public
trust. As a
result,
Adenauer himself
directly
intervened to
broker a
compromise
and within two months Erhard and Lindrath
brought
forward a revised
plan.247
The
compromise
took
up
the
Stiftung
idea but remade it suffi-
ciently
to take the wind out of the SPD sails and to ensure a
real,
though
limited,
privatization.
In
particular,
the
financially desperate
position
of the State of Lower
Saxony gave
scope
to offer a
generous
share of the
profits
of
privatization
to the
243
F.
Lindrath,
"Memorandum on a
Meeting
of 'CDU Friends' to Discuss
VW,"
19
Aug.
1958, B115/3391, BA;
A. Hartmann to Birnbaun, 2
Sept.
1957, B115/3395,
BA.
246
Ministry for Economic
Property,
"Memorandum on Lower
Saxony
and the Own-
ership
of NVW," 17 March
1958, B115/3394,
BA.
247
For an account of the
controversy
see statement
by
Minister Ahrens to the Land
Niedersachsen
Parliament,
2 Dec.
1959,
Parliamentary
Minutes, 311-322, B115/3391, BA;
Reich, Fruits
of
Fascism,
192.
Volkswagen
and the Automobile
Industry
/ 343
A
Photomontage of
Heinrich
Nordhoff
. Shown here in front of the
factory
and a
display
of
Volkswagen
Beetles,
he dominated
Volkswagen
in the 1950s.
(Photograph
reproduced courtesy
of the VW
Archives.)
Land to induce consent to the overall scheme.248 In the
Plan,
finally
implemented
in
1961,
DM 600m of share
capital
was created and
60% of it was sold to the
public.
The shares were subdivided into
maximum lots of five
per person,
with a
sliding
scale "social
discount" of
up
to 25% available for lower income
purchasers.249
Shareholders could not resell their stock without the consent of the
company,
thus
effectively blocking any
domestic or
foreign
takeover.
The
remaining
40% of the stock was divided
equally
between the
state and federal
governments.250
248
F.
Lindrath,
"Memorandum on
Meeting
with 'CDU Friends,'" 19
Aug.
1958;
F.
Lindrath,
"Memorandum on
Meeting
with
Wegman
(Lower
Saxony
Finance
Minister),"
12
July
1958, B115/3391,
BA.
249
Die
Welt,
28
Jan.
1961.
250
Lower
Saxony
and the Federal Government would
place
their shares in a
jointly
run
Stiftung
which would receive and administer the dividends of the
shares,
initially
being obliged
to re-lend the
proceeds
to the federal and
regional governments
for five
years
at a favorable rate. In the
long
run the
proceeds
of the
Stiftung
were to be used to
endcov
academic and technical research. The
Stiftung
would be
jointly
controlled
by
Lower
Saxony
and Federal
Government, but,
unlike the
original
SPD
proposal,
the Stif-
tung
would not be the actual
manager
of VW but a
body profiting
from the
operations
of
the
company. Ministry
of
Finance,
"Memorandum for Chancellor's Discussions with Min-
isters of Lower
Saxony,"
13 Oct.
1959, B115/3391,
BA.
,?.
.. .
Il.C: L
?i-
: r
.? ?T;I
';fPrvrSIP'rt;Xer;"?
..?
a: ;?;
.i :
Steven
Tolliday
/ 344
The
implications
of this
process
for the
company
were hard to
determine. Until 1957 Nordhoff had been embarrassed
by
the
polit-
ical and divisive nature of
privatization
(he feared a "hot and
heavy"
struggle
with the trade
unions),
and he had
stayed
close to the
posi-
tion of the
Ministry
of Finance controllers of the
Supervisory
Board.
But once Erhard had won the 1957 election it was clear that
priva-
tization would
go
ahead. Nordhoff therefore
changed
course and
sought
a solution that would
get
VW
"completely
out of the hands of
the state."
"Nothing,"
he
believed,
"could be worse than
wavering
between the necessities of a
private company
and a state-owned
one.".251
Also
important
to him was the
question
of the
capitalization
of
the
privatized company.
Before
privatization,
state
ownership
meant
that VW was not
required
to
pay any significant
dividends to share-
holders and was thus able to sustain
high
levels of reinvestment even
if
profit margins
were slim. Rival firms saw this as a
major competi-
tive
advantage
for VW.
During
the
privatization process
Nordhoff
wanted to
safeguard
this
position by keeping
the
capitalization
of the
privatized
firm low so as to
keep
dividend
obligations
low,
to
capital-
ize as little as
possible
of VW's
huge
reserves,252
and to maintain the
high
levels of retained
profit.
Nordhoff
initially
wanted a
capitaliza-
tion of no more than DM 400m while the
Ministry
of Finance
wanted DM
750-800m,
which would treble the
earnings required
to
sustain current levels of retained
profits.
After intense debate in the
Cabinet a final
figure
of DM 600m was fixed.253 Nordhoff believed
that the ministers' decision on the level of
capitalization
of the com-
pany
meant a
"complete
breach" in VW's
trajectory
of
development.
Nordhoff wanted it on the record that
management
would
accept
no
responsibility
for the
consequence
of this decision.254 The new
investments of the
early
1960s would have to be made in a far less
favorable financial context.
During
1961,
in the new
circumstances,
the minutes
noted,
VW was
making
the massive investments that it
now needed "with both
pride
and a certain inner horror."255
Nor did the
partial privatization
of VW
provide
the clarification
25' F.
Novotny
to Birnbaum, 4 Oct. 1957, B115/3395, BA.
252
DM 457m in
1958-plus
VW's
notoriously large
secret
reserves-compared
with
Ford DM 46m and
Opel
DM 195m.
253
Dr. Elmendorff to
Birbauln,
8
April
1960, B115/3393, BA;
Minutes of Cabinet
Meeting,
29
June
1960, B115/338,
BA. There was a
large
excess demand for the shares
and their value rose
sharply following
the flotation
bringing
windfall
profits.
234
Minutes of
Supervisory
Board,
10
June
1960,
VW.
255
Minutes of
Supervisory
Board, 4
May
1961,
VW.
Volkswagen
and the Automobile
Industry
/ 345
of
ownership
and
managerial
roles that Nordhoff
sought.
Indeed the
strength
of
top management
in relation to the various
ownership
interests was eroded. The federal and
regional governments
retained
a
powerful minority position
on the
Supervisory
Board,
and in their
analysis
of 1986
Brumlop
and
Jurgens suggest
that the
partial priva-
tization did little to
change
VW's essential character as a state enter-
prise.256
In the late
1960s,
for
example,
the
government
of Lower
Saxony again
fell under SPD
control,
and a coalition of Land
repre-
sentatives,
trade
unionists, Works
Councillors,
and
representatives
of
the
regional
trade union-owned bank exercised an effective
majority
on the board for several
years,
often referred to
by
the
press
as a
"red"
majority
or "overcodetermination" at VW. After Nordhoffs
retirement in 1967 in
particular,
the
Supervisory
Board became an
arena for
intrigue
and
horse-trading
in
pursuit
of IGMetall's
strategy
to use VW as a
pacesetter
for
wage bargaining
and contributed to
sclerosis in wider
strategic decision-making.257
More
generally,
the
wave of
privatizations,
of which VW formed a
strategic part,
itself
petered
out in the
early
1960.
Contrary
to Erhard's
hopes,
the first
privatization
wave did not mark the
beginning
of a radical
separation
of
enterprise
and
government.258
Conclusion
This article has not
attempted
to
present
an
explanation
of the
Wirtschaftswunder.
Nor,
at
industry
level,
does it claim to
present
the full
analysis
of
competition,
markets or
strategy
that would be
necessary
for a
proper understanding
of the
performance
of the
industry.
That must await further
study
elsewhere.
Instead,
the arti-
cle has used a close examination of the
relationship
between a
key
firm and the state
during
three
regimes
to
improve
our understand-
ing
of the institutional side of the "miracle."
256
Eva
Brumlop
and Ulrich
Jiirgens,
"Rationalisation and Industrial Relations in the
West German Auto
Industry:
A Case
Study
of
Volkswagen,"
in
O.
Jacobi
et
al, eds.,
Technological Change:
Rationalization and Industrial Relations
(London, 1986).
25' Steven W.
Tolliday,
"From 'Beetle Monoculture' to the 'German Model:' The
Transformation of
Volkswagen,
1967-1991,"
Business and Economic
History
24, (Winter
1995);
Alfred
Thimm,
"Decision-making
at
Volkswagen,
1972-75,"
Columbia
Journal of
World Business
(Spring
1976).
258
Eric Owen
Smith,
The German
Economy
(London, 1994), 464-470;
R. A. Hawk-
ins,
"Privatization in West
Germany,
1957-1991,"
NatWest Bank
Quarterly
Review
(November 1991);
G.
Denton,
M.
Forsyth,
and M.
MacLennon,
Economic
Planning
and
Politics:
Britain,
France and
Germany
(London, 1968),
66-68.
Steven
Tolliday
/ 346
Recent work has
strongly
underlined the
powerful
structural fac-
tors at work in the
recovery.259
Broad factors of
catch-up
and con-
vergence
were
undoubtedly
at work.
Yet,
on the other
hand,
it must
be
emphasized
that,
in the late 1940s and
early
1950s,
the
economy
was still
very fragile.
It could
easily
have been
disrupted
or
paralyzed
if certain
specific
crises had not been resolved. This was true at the
level of
currency
reform and the restoration of the
price
mechanism,
but even truer at the level of
particular
sectors. Borchardt and
Bucheim have stressed the role of Marshall Aid in
resolving
the sec-
toral crisis in
textiles,
and Stokes has
emphasized
the
parallel impor-
tance of such aid in chemicals.260 In the case of
VW,
the firm was
often close to the
edge
on
dismantlement,
labor
chaos,
and takeover
by foreign
firms. Its chances of success would have been
wholly
dif-
ferent if
Occupation policy,
American rivals or
enterprise managers
had
pursued
a different
strategy,
as
they might
have done.
In terms of the broader
pattern
of
recovery,
VW was also a clas-
sic,
though perhaps
extreme
example
of a wider
pattern: recovery
with limited investment based on a
legacy
of
pre-war capital
forma-
tion and human
capital.
Abelshauser, Borchardt, Dumke,
Wolf
recently,
and Wallich and Dennison at earlier
dates,
have all stressed
the
unusually great
contribution to the rise of
efficiency
made
by
putting
into full utilization an unbalanced and underutilized stock of
capital
in the
early
1950s.261 In a broader
perspective,
Abramowitz
has stressed the role of "reconstruction
growth"
and
technological
catch-up
in
European recovery
wherever social
capabilities
were
strong, facilitating
a
rapid
closure of the
gap
between
potential
and
actual
output
which had been caused
by
wartime shocks to the
sys-
2.9
For an excellent
summary
see Rolf H.
Dumke,
"Reassessing
the
Wirtschaftswunder:
Reconstruction and Postwar Growth in West
Germany
in an Interna-
tional
Context,"
Oxforld
Bulletin
of
Economlics
and Statistics
52, (1990);
the other crucial
contribution is
Abelshauser,
Die
WVirtschaftgeschichte
der
Bundesrepublik
Deutschland.
2" Knut Borchardt and
Christopher
Buchheim, "Die
Wirkungen
der
Marshallplan-
Hilfe in Schliisselbranchen der deutschen
Wirtschaft,"
Vierteljarhrshefte
fir
Zeitge-
schichte
35,
(July
1987); Stokes,
Divide and
Prosper,
151.
261
Werner
Abelshauser,
Wirtschaft
in
Westdeutschland,
1945-1948
(Stuttgart,
1975);
Knut
Borchardt, Perspectives
on Modern Genran Economic
History
and
Policy (Cam-
bridge,
1991); Dumke,
"Reassessing
the
Wirtschaftswunder"; Holger
C.
Wolf,
"The
Lucky
Miracle: Germany, 1945-51,"
in
Rudiger
Dombusch,
Wilhelm
Nolling
and Richard
Layard,
eds., Postwar Econom0ic Reconstruction and Lessons
for
the East
Today
(Cam-
bridge
Mass., 1993);
H. Wallich,
Mainsprings of
the German Revival
(New Haven, 1955);
Edward F.
Denison,
Why
Growth Rates
Differ:
Postwar
Experience
in Nine Western
Co(untries
(Washington, D.C., 1967).
Volkswagen
and the Automobile
Industry
/ 347
tem.262 In this
context,
the
importance
of VW's massive and fertile
legacy
of
plant
and
product
from the Nazi
regime
can
hardly
be
overemphasized.
It was inconceivable that
any
commercial enter-
prise
would have invested on the scale or
grandiose conception
of
the VW
project
either before or
immediately
after the war. In terms
of conventional business calculation the
project
was absurd and
infeasible. Yet it turned out to be a
"triumph
of
folly."
The
plant
survived the
war,
its debts were
effectively wiped
out,
and it was able
to achieve to the full its innate
potential
in the
radically
unforseen
environment of the
post-war recovery.
An economic institution con-
ceived for
political purposes
turned out to be the crucial vehicle for
economic
recovery
in the automobile sector.
In this
sense,
the
importance
of
politics
and institutions was
enormous for the
recovery.
In a wider
sense, however,
the evidence
of this article
gives
no
support
to either of two
prominent
approaches
to the role of
government policy
in the Wirt-
schaftswunder. Firstly
it
rejects
the idea that neo-liberal
governmen-
tal
policies
in themselves were the
key
to
rapid growth.263
But it also
finds no
support
for the views of
Abelshauser,
Reich and others that
a
systematic neo-corporatism
was the central factor.
Abelshauser,
in
particular,
has
argued
that a new "liberal
corporatism"
or
"compre-
hensive bilateralism"
emerged
in the
early
1950s,
and that the social
market
economy effectively
died in the Korean War crisis of 1951.
The
corporatist
traditions of the interwar
years,
he
argues,
were
re-established on the basis of
co-operation
between ministerial
bureaucracy
and business.24 At least in the case of
VW,
a detailed
study suggests
that this view
greatly exaggerates
the effectiveness of
"corporatist" relationships.
Rather it finds
that,
as
Berghahn put
it,
there was "both a restoration and a fresh start" in
government-
industry
relations.25
Accordingly,
this
study
has
attempted
to
develop
a more
nuanced account of
government-industry
relations to
try
and define
these
contradictory
elements. This fits with a
growing body
of schol-
262
Moses
Abramovitz,
Thinking
About Economic Growth: And Other
Essays
on Eco-
nomic Growth and
Welfare (Cambridge,
1989).
263
Sohlnen, "Competition
and
Growth"; Giersch et al.,
Fading
Miracle.
264
Abelshauser,
Wirtschaft
in
WVestdeutschland, 82; "Ansatze
korporativer
Mark-
twirtschaft in der Koreakrise der friihen
fiinfziger Jahre," Vierteljahrshefte fir Zeitge-
schichte
30, (1982); Reich,
Fruits
of
Fascism; see also
Kramer,
West German
Economly,
166-73; Giersch et al.,
Fading
Miracle,
101-5.
265
Volker
Berghahn,
The
Amlericanization of
WVest German
Industry,
1945-73
(Leam-
ington
Spa,
1986), 4,
275-82.
Steven
Tolliday
/ 348
arship
which is
beginning
to
unpack government policies
in the
1950s and
explore
the
complexities
of Erhard's
politics
and the social
market
economy.266
This work has shown that Erhard's liberalism
was a
complex
and
changing thing.
He and his close associates did
not adhere
dogmatically
to Ordoliberalismus but made a
genuine
attempt
to avoid the evils of both collectivism and unrestrained
laissez-faire.
They
were
opposed
to
dirigisme yet accepted
a con-
sciously
steered market
economy.
This "liberalism"
encompassed
a
wide
scope
for intervention
through
tax
breaks,
housebuilding,
regional policies, employment
subsidies and the
highly
selective dis-
tribution of Marshall Aid. It
permitted generous
direct subsidies to
shipping, shipbuilding, power generation
and the
synthetic
rubber
industries,
and there was
extensive,
often
nationalistic,
state
support
for the revival of the chemical
industry.
The Investment Aid Act of
January
1952 was the furthest
point
of direct intervention.
Though
not
repeated
on a
large
scale,
it was not
wholly
exceptional.
In addi-
tion,
many price
controls were continued well into the 1950s and
large
sections of
heavy industry,
such as
coal,
were never
fully
liber-
alized. In
addition,
there were
pragmatic compromises
on issues
such as the
European
Coal and Steel
Community,
deconcentration,
and anti-cartel
legislation.
Some have
argued
that the liberals' anti-
cartel stance was in
reality
much milder than it
appeared.26
Nevertheless,
in the context of a
Europe
where tendencies
towards
state-guided capitalism
and assertive industrial
policies
were
widespread,
the German
government appears notably
reticent. Cru-
cially,
it remained
implacably opposed
to
nationalization,
and it
avoided
any tendency
to rush in to
help ailing
industries in crisis.
The extent to which the
government
was able to do this because of
the role of the banks in
restructuring industry "by proxy"
for them
266A landmark work is
Nicholls,
Freedom with
Responsibility;
Volker
Berghahn,
"Ideas into Politics: The Case of
Ludwig
Erhard,"
in R.
J.
Bullen,
H.
Pogge
von Strand-
mann,
and A. B.
Polonsky,
eds., Ideas into Politics:
Aspects of European History,
1880-
1950
(London, 1984).
26:
On these issues see:
Hans-Joachim
Braun, The German
Economy
in the Twentieth
Century: The German Reich and the Federal
Republic
(London, 1990), 178-181;
Mark
Rosemnan,
Recasting
the Ruhr, 1945-1958:
Manpower,
Economic
Recovery
and Labour
Relations (Oxford, 1992); Stokes,
Opting
for Oil,
passim
(the
synthetic
rubber case is cov-
ered on
203-5); Kramer,
West Genrmn
Economy,
203-4;
Wolfgang
F.
Stolper
and Karl
W.
Roskamp, "Planning
a Free
Economy:
Germany,
1945-60,"
in R. Richter, ed.,
Cur-
rency
and Economic
Reform:
Vest
Germany After
World War Two:
Zeitschrift fir
die
gesamte Staatswissenschaft
135
(1979);
Berghahn,
Americanization, 291;
the fullest
account of manoeuvres on the anti-cartel bill is in A. Robert,
Konzentrationspolitik
in der
Bundesrepublik (Berlin, 1976).
Volkswagen
and the Automobile
Industry
/ 349
remains a matter of debate.268
Nevertheless,
this
type
of unwritten
self-restraint
sharply
marked out German
industry-government
rela-
tions and the mutual
expectations
on either side.
There were
rarely any
clear
planning objectives
in the
govern-
ment's
policies
for VW. As
elsewhere,
the tools of economic
manage-
ment were used
unsystematically. Relationships
between
managers
and ministers and officials were continuous and
direct,
although
powers
and
responsibilities
were often
peculiarly
hard to define. The
government
was
rarely
inhibited from
making specific
demands on
the
company,
often in a
fairly
erratic
fashion-indeed,
anecdotes
suggest
that ministers were
quite prepared
to interfere on
petty
matters such as the cost of
rugs
for executive
offices,
or the use of
hunting trips
as
perks
for
important
visitors. But their
capacity
to
obtain
compliance
was often weak. On issues of information disclo-
sure,
the retention of
profits, price policy,
location,
and
wage policy,
government
officials found their wishes frustrated on numerous
occasions when their views
diverged
from those of
management.
In
other areas
important
to the
company,
however,
government support
was at times crucial. The
company
was never able to
"capture"
its
governmental supervisors,
but it was
certainly
able to contain them
or to maneuver
effectively
to take
advantage
of
government
"control" on its own terms.
The
relatively strong
hand of the
company
owed much to inter-
nal divisions and conflicts within
government.
At
VW,
as in
many
other areas of economic
policy,
there were often a "confusion of
cooks"
running things,
and the
persistent
conflict between the more
interventionist Schaffer at the
Ministry
of Finance and Erhard at the
Economics
Ministry
was often
debilitating.
Erhard's
position
as an
"outsider" in the CDU without a
strong party
base also often left his
position
vulnerable to
pressures
from other ministries or the Chan-
cellor.269
It is also
important
to
recognize
the
evolving
character of state
policies
over time. The interventionism of the
early
1950s
slowly
waned. In the
mid-1950s,
there was a
long period
of doubt and half-
heartedness in
policymaking
as the
government toyed
with some sort
268
Jeremy
Edwards and Klaus
Fischer, Banks, Finance, and Investment in
Gennany
(Cambridge,
1994).
269
Nicholls,
Freedom with
Responsibility,
284, 234-47, 270-2;
Alan S. Milward, The
European
Rescue
of
the Nation State
(London, 1992), 198-9; Stokes,
Opting for
Oil,
103-5,
also notes the
importance
of such conflicts in the chemical
industry.
Steven
Tolliday
/ 350
of revival of autarkic
policies
before
committing
itself to
integration
into the international
economy.270
Finally
the
striking diversity
of sectoral
experience
and of
expe-
rience within individual sectors has to be noted. In
comparison
with
Japan
and
MITI,
Germany clearly
lacked a focused center of state
policy.
The Federal
Government, Lander,
and banks could all come
to the fore in different contexts. Even
among
the German auto
firms,
experience
differed
widely.
At
BMW,
for
example,
in contrast
to
VW,
a
major
crisis in the late 1950s was resolved
largely through
direct state intervention in
restructuring,
with the Bavarian
CSU,
the
Bavarian state bank and the Deutsche Bank all
playing
crucial roles
in financial and
managerial restructuring.271
This case
study
stresses the
importance
of institutional
legacies
and
structures,
but it
provides
little evidence of a
powerfully
direc-
tive role of
government
after the end of the
Occupation.
Thus,
over-
all,
the broad
simplicities
of both the Olsonian tabula rasa and the
proponents
of "new
corporatism"
or "fruits of fascism" have to be
rejected.
This is not
simply
because
they push
their
positions
too
far,
but because these
approaches
turn attention
away
from
exploring
the
contradictions and
paradoxes
of the German
system.
The
govern-
ment lacked the institutional
capacity
and,
for most of the
time,
the
strategic clarity
to undertake effective direction of
industry.
Its
attempts
to exert itself in crucial industrial sectors were often unsuc-
cessful. On numerous occasions it was unclear whether the minis-
tries were
shaping corporate policies
or vice versa.
Conversely,
in
contrast to Olsonian theories of
"cleansing"
there was
anything
but
an institutional clean sheet. The
legacies
from the
past
were both
impressive
and
decisive,
and the new institutional
configurations
that
emerged
were,
from the
start,
convoluted and
confusing.
The over-
lapping
institutional
structures,
argumentative
interest
groups,
and
rival
political
coalitions at VW could well have choked off
growth
in
the absence of
quite
favorable circumstances. It was
only specific
contextual factors and the
micro-politics
of
enterprise
and
govern-
ment that ensured that matters
played
out as
favorably
as
they
did.
270
This era of transition is well
captured
in
Berghahn,
Americanization at the national
level and
by
Stokes,
Optingfor
Oil at the sectoral level.
271
Monnich,
The BMW
Story,
427-30, 466,
475-9.
Front Cover: Blacksmiths Pose With Their Tools
Among Agricultural Machinery
Outside
the
"Smiddy" Building
(1910)
As with
many
other rural
craft firms, firm
size was
small,
management
structures
simple,
and
buildings
unsophisticated.
(Photograph reproduced courtesy of
National
Museums
of
Scotland,
Scottish
Ethnological
Archive,
c
10537.)
For an article
examining
the
financing of
inde-
pendent craft producers
in
Scotland, 1840-1914,
see
pp.
398-421.
Back Cover: Master Bomb
Plot,
Volkswagen Factory
The United States
Strategic Bombing Survey's
detailed
analyses of
the
impact of bombing
on the
Wolfsburgfactory during
World War II makes
pos-
sible
very precise analysis of
the
damage
to the
plant.
The illustration shows the Master bomb
plot
drawn
up after
the raids.
(Illustration
reproduced courtesy of
the National
Archives and Records
Service,
General Services
Administration,
Washington,
D.C.)
For an article on
Volkswagen
and the automo-
bile
industry,
see
pp.
273-350.
? 1996
by
The President and Fellows
of
Harvard
College.
All
rights
reserved.
ISSN 0007-6805
Front Cover: Blacksmiths Pose With Their Tools
Among Agricultural Machinery
Outside
the
"Smiddy" Building
(1910)
As with
many
other rural
craft firms, firm
size was
small,
management
structures
simple,
and
buildings
unsophisticated.
(Photograph reproduced courtesy of
National
Museums
of
Scotland,
Scottish
Ethnological
Archive,
c
10537.)
For an article
examining
the
financing of
inde-
pendent craft producers
in
Scotland, 1840-1914,
see
pp.
398-421.
Back Cover: Master Bomb
Plot,
Volkswagen Factory
The United States
Strategic Bombing Survey's
detailed
analyses of
the
impact of bombing
on the
Wolfsburgfactory during
World War II makes
pos-
sible
very precise analysis of
the
damage
to the
plant.
The illustration shows the Master bomb
plot
drawn
up after
the raids.
(Illustration
reproduced courtesy of
the National
Archives and Records
Service,
General Services
Administration,
Washington,
D.C.)
For an article on
Volkswagen
and the automo-
bile
industry,
see
pp.
273-350.
? 1996
by
The President and Fellows
of
Harvard
College.
All
rights
reserved.
ISSN 0007-6805
Second-class
postage paid
at
Boston,
Mass. Second-class
postage paid
at
Boston,
Mass.
4
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IFP.o,
. 9
MASTER BOMB
PLOT,
VOLKSWAGEN FACTORY AT WOLFSBURG
CENTRAL KITCHEN
OFFICE
TOOL & DIE & MACHINE SHOP
MITTALAND CANAL
PRESS SHOP
NORTH FRONT BUILDING
SOUTH FRONT BUILDING
BODY AND ASSEMBLY SHOP
FOOT BRIDGE
10 MACHINE SHOP
11 GAS & ACETYLENE PLANT
12 OVERHEAD CRANE
13 COAL STORAGE
14 POWER PLANT
15 HARBOR
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