Skoda Auto Deals with Labor Issues

As Americans are coming to grips with its declining auto industry and attempting to seriously debate the issues of immigration and labor, it is interesting to take a look at how a plucky little car company in the Czech Republic is managing to boost both sales and profits while also having to deal with an intense labor shortage. The name Skoda Auto is a familiar one in the United Kingdom and Europe in general, but in the U.S. it is a complete unknown. Located in Mlada Boleslav, about forty-five miles from the capital city of the Prague, Skoda manufactured its first car in 1905 and is presently a member of the Volkswagen Group.

Skoda employs approximately 26,000 workers at three different facilities in the Czech Republic, and they recently successfully concluded labor negotiations that includes a variable pay raise that is based upon production. Skoda uses a system of employee teams, and the better the teams produce, the more money the team members make. They also increased wages for graveyard shift work and the weekends. Overall, it is anticipated that their payroll will go up 6% this year. But this figure is based upon a 10% increase in sales.

Skoda anticipates that this will allow them to improve the quality of their models, without having to raise sticker prices.

What this labor deal also does is to allow Skoda to invest in robots and further mechanization of the assembly process. Which will further increase production, which will then lead to higher bonus money for the employee teams on the line. That's the genius of this. It's in the employees best interests to accept and even invite the robots onto the line. But some may ask, won't that lead to lay-offs? And the answer is no. Well, it's no and yes.

Skoda wishes to be able to maintain its core numbers on the line. But one of the bigger problems Skoda is suffering from is an intense shortage of workers willing to work on the line. They've taken to some pretty desperate measures to attract workers. Some years ago, they established a university in Mlada Boleslav and students who accept the company's housing usually end up working on the assembly line to make financial ends meet. Also, many entry level marketing and sales people are compelled to start off on the line. But Skoda's biggest source of adding workers to the line is through what they call "agency hiring." In a way, you can say that they are using Temp Agencies to fill out anywhere from 3000 to 6000 jobs. And this is where it gets interesting. Because if not all of them are illegal workers, most of them are. But because they technically work for the agency and not Skoda Auto, Skoda can simply say that they know nothing about it. But it's an open secret. There's even a neighborhood near the Football Stadium and about two blocks from Skoda's executive headquarters building that is known as a residential haven for illegal aliens in Mlada Boleslav. And they all work at Skoda, but not for Skoda.

In the future, Skoda would like to eliminate the "agency hiring," but for the time being, they are forced to engage in it. Skoda plans on manufacturing 600,000 cars this year, and believe it or not, that's not enough to meet demand.