GERMANY: VW Law

The German Federal Ministry of Justice prepared a new draft of a law aimed at maintaining state control over German auto maker Volkswagen AG (VW). The European Court of Justice (ECJ) ruled in October 2007 that a previous version of the law, which protects Volkswagen from hostile takeovers, was illegal because it limited "the free movement of capital" and discouraged foreign direct investment in Germany. The new version authorizes VW to make radical changes like shutting down or relocating an assembly plant only with the approval of shareholders representing one share more than 80 percent of its share capital.

The state of Lower Saxony (Niedersachsen), which historically defended the interests of auto workers at VW, owns 20.3 percent of Volkswagen’s shares, thus the law would enable the state to block such moves. The new law was influenced by the decision of Nokia to shut down factory in Rurh region which costs 2300 jobs. “It’s clear the politicians and the trade unions want to retain their influence over this company”, commented the VW executives. The new law will affect mainly Porsche, the maker of sports cars, which will acquire the majority stake this year. After the announcement of the new law on the stock market Porsche’s stock fell 2 percent, while stock in Volkswagen rose 2 percent!

The European Commission (EC) initially challenged the "Volkswagen Law" in 2005. In February 2007, Advocate General of the ECJ advised the court that the law should be repealed, saying the law restricts the free movement of capital and "strengthens the position of the Federal Government and the land, preventing any intervention in the management of the company". The EC has filed similar suits or threatened to file suit against Spain and its energy companies, Italy and highway company Autosrade SpA, and Poland for intervening in Italy's UniCredit SpA business in Poland.

Sources: Jurist, NY Times