Can strike at biggest car manufacturer harm the economy?

Skoda Auto Kvasiny

On Tuesday, employees at Skoda Auto - the biggest car manufacturer in the country - will go on strike, following a disagreement with company management over a pay rise. Workers' representatives at the plant have rejected a proposed salary increase of 13 percent, saying that any rise in wages should also be pegged to inflation and company profits.

With an output of 2,500 cars a day and a workforce of 26,000 people, Skoda Auto is easily one of the Czech Republic's most important firms. By itself, it accounts for nearly 8% of the country's total exports. Naturally, any industrial unrest at Skoda could have a major impact on the Czech economy and the company could lose up to 600 million crowns (some 28 million US dollars) for every day that the production lines are closed. I talked to economic analyst Tomas Sedlacek and asked him to assess the gravity of the situation:

"Of course it all depends on how long the strike will last. The hopes of avoiding the strike are still quite high. One thing that is clear is that there will be a pre-emptive, so to speak, one-hour strike next Tuesday. That should not harm the company or the economy. What might be harmed, should the strike last for a longer period of time is, of course, the image of the company. The Czech Republic has had for many years a tradition of quite reasonable negotiation between investors and the employees. That is also one of the reasons why the Czech Republic was so popular among the investors. If we should part from this tradition then there will be some raised eye-brows among all the investors that are planning to invest in the Czech Republic."

For most of us, a 13 percent pay rise sounds too good to be true and yet Skoda Auto employees want more, saying that their salaries should reflect the company's profits. Last year, it posted a net profit of 40 percent. Who, in your opinion is in the right?

"Well, I think at this moment the employees have really gone a little bit too far and they seem to be a little unrealistic. It is, of course, to have such a dramatic wage increase. The wages at this company are at the moment above the national average. Skoda Auto has been performing very well and that's why they have above-standard salaries and the pay rise is so good. But I think it is completely unreasonable to peg the wage rises on profit increases. Profit depends on many other things and not just the production line."

So what can company management do? Could the trade unions' demands backfire in some way? Could it result in layoffs, for example?

"At the moment, this is more about psychology than about numbers. I think there is a lot of emotion and I think the key challenge of the negotiator is whether all the arguments have been well calculated, are well balanced, and reasonable. But the second and very most important part of the negotiations is psychology and realising that these gentlemen are, at the end of the day, in the very same boat and if one fails to comply with the other - be it one side or the other - and should a reasonable solution not be met then both of these parties shall suffer."

President Klaus has also got involved now. He is expressing fears that other trade unions and employees may follow the example of their colleagues at Skoda Auto. How realistic is that fear?

President Vaclav Klaus visiting Skoda Auto factory in Kvasiny, photo: CTK
"I'm afraid I must agree. From a macro-economic point of view, the Czech Republic has for many years had a very low increase in consumption. This means that all the net profits or the value added of the economy has been reinvested and that money has not gone into the wages as much as it has in the other countries. That is one of the reasons why the Czech economy is doing so well. Should Czech Skoda Auto agree to a very dramatic wage increase, then that will be a psychological stimulant to other companies as well.

"So, should the strike be successful, then that creates a very dangerous precedent because people will come to the conclusion that one way how to increase one's wage is not to work harder but to strike harder. That should be avoided not only for Skoda's sake but for the sake of other trade unions as well."