Transferring institutions across borders is a perilous undertaking. Germans should know this better than most. The wholesale transfer from east to west of the Federal Republic’s institutions was a painful process. Some institutions and practices that did and do flourish in western Germany never quite took in the east. With this in mind, Volkswagen’s effort to get a works council in Chattanooga, Tennessee may be an example of hope triumphing over experience.

Why does Volkswagen want a works council in Chattanooga in the first place, and why did the United Automobile Workers union (UAW) become a part of the effort? The reasons why Volkswagen wants a works council are practical. VW management has found that working with employees through works councils in plants in Africa, Asia, Europe, and Latin America had helped the company to raise productivity, to improve quality, and to preserve labor peace. They have also found the global works council to be an effective tool for including employees in decisions about which vehicle to produce where so as to avoid interplant rivalries disrupting production.

Although Volkswagen’s motivations for wanting a works council are simple enough, actually getting one has proved to be anything but. Like many countries, the United States prohibits company dominated unions. Specifically, section 8(a)2 of the National Labor Relations Act prohibits employers from contributing “financial or other support” to any “labor organization.” Court cases in the 1990s found that “quality circles” and similar bodies that companies formed to discuss enhancing productivity with employees fit the definition of a labor organization under the Act and therefore were in violation of section 8(a)2. There was little doubt that a works council also fit the definition of a labor organization. There is a loophole, however. If a workplace has a union, and the union was involved in the formation and operation of the employee participation body, then the body is permissible. That is how Volkswagen management found itself exploring unionization in Chattanooga.

Then, things got complicated—and very political—fast. The UAW jumped on this rare opportunity to surmount the challenges of organizing in a region hostile to unions. UAW officials presented a constructive vision of the role of the union in the workplace. They worked closely with their sister union in Germany, IG Metall, to advance the organizing drive. The German union’s Chair, Berthold Huber, wrote a statement in support of the organizing drive that appeared in a pamphlet that the UAW distributed to employees. IG Metall leaders pressured VW to recognize the union. Pressure on Volkswagen was by no means one sided, however. Once the Volkswagen leadership started “talkin’ union,” it got immediate pushback from the Tennessee political elite, which is largely Republican and had ponied up millions of tax dollars in subsidies to bring VW to Chattanooga in the first place. U.S. Senator Bob Corker had been mayor of Chattanooga when VW made the decision to invest there, which led him to come out particularly strongly against the organizing drive.

Volkswagen’s management was split over unionization. The leadership, which was predominantly German and schooled on the ethos of an equal “social partnership” between labor and management, had few qualms about the Chattanooga plant becoming unionized. U.S.-born middle and lower managers, by contrast, were mostly opposed to unionization. As a result of these cross-cutting currents, Volkswagen’s leadership did clear a path for unionization, because that was the only way that the company could ever get a works council in Chattanooga, but it simultaneously tried to maintain some semblance of balance. On the one hand, VW replaced a group of unyielding anti-union managers in the plant. On the other hand, the company decided not to recognize the UAW based on a majority of the plant’s employees having signed union cards, which is permissible under U.S. law. It instead called for a union recognition election supervised by the National Labor Relations Board. In the lead up to the election, VW signed a “neutrality agreement” with the UAW that permitted the union the opportunity to speak to the employees at the plant. Volkswagen agreed to UAW suggestions on how to define the bargaining unit to remove some categories of employees who would be more likely to vote against unionization. VW also gave the UAW the employees’ email addresses, but refused to provide them to an anti-UAW group. Volkswagen also agreed to a quick election, which gave opponents little time to organize.

Unions win around 70 percent of the recognition elections when an employer signs a neutrality agreement. Volkswagen had gone much further than most employers to accommodate the UAW. So, when the results of the election were announced at 10 pm on Valentine’s Day, the leadership of both the UAW and VW was shocked: 712 voted against unionization while 626 voted in favor. Why did the UAW lose? Theories abound. UAW leaders blame the intense pressure from Tennessee Republicans and anti-union groups. Senator Corker went so far as to say in the middle of the three-day voting period that his contacts in Volkswagen, which he left unnamed, told him that the decision about where to build a new SUV would go against Chattanooga if the employees voted in favor of unionization. Top Republicans in the Tennessee statehouse added that VW would never see another penny of taxpayer money if it recognized the union. In efforts to sway employees, anti-union groups based in Washington, DC, paid for billboards that read, “unions ate Detroit,” and “United Auto Obama Workers.” Scare tactics and political pressure with at times racial overtones may certainly have played a role in the vote. A culture of anti-unionism may also have been a factor, but these are not the only explanations.

Many employees who voted no explained that things were just fine as is. They had good jobs and a progressive employer already. Bringing in the UAW would have risked upsetting a favorable status quo. Other employees said that the UAW representatives failed to make a convincing “value proposition,” that is, to explain that the services that the union would provide were worth the monthly dues that union members would have to pay. Finally, the neutrality agreement between the union and VW had a clause in it that upset several employees. It stated that the UAW agreed to “maintaining and where possible enhancing the cost advantages and other competitive advantages that VWGOA (Volkswagen Group of America) enjoys relative to its competitors in the United States and North America, including but not limited to legacy automobile manufacturers.” Union and company officials said that the intent of the clause was simply to make it clear that unionization would be good for the company in material terms, but several employees interpreted it to mean that the UAW had already agreed to a sweetheart deal with VW that would lock in their wages at a second-tier level. Additional explanations for the UAW defeat include the union’s strategy of relying virtually exclusively on tacit company support to win the recognition election rather than reach out to other progressive groups in the Chattanooga area to build a broader base of support, and simply the convoluted nature of VW management’s actions and goals—namely, a works council. It would support a union recognition election and agree to terms favorable to the UAW. But, it would not outright recognize the union based on cards signed by a majority of the employees.

Debates about the most important factors causing to the UAW’s failure are likely to continue for some time. Beyond those debates, what are the effects of the defeat, and where do things go from here? The UAW’s loss in Chattanooga is a serious blow to be sure. The union leadership was hoping to use a victory to build momentum and to set precedents that could help it organize the other German automobile transplants and even some Asian producers in the South. The loss has set a negative precedent instead. It makes it much the harder for IG Metall leaders to apply pressure successfully on BMW and Daimler to take a formally neutral and informally accommodating stance similar to Volkswagen in a union recognition election. Volkswagen still very much wants a works council in Chattanooga. Talks of creating a single-plant union to make establishing a works council legal now abound. Volkswagen must be exceedingly cautious, however. If it in any way assists such an effort, it will run afoul of NLRA section 8(a)2. It is not clear whether a majority now exists for a single-plant union at VW Chattanooga. This depends on whether the “no” voters are more anti-UAW than anti-union, and whether the “yes” voters are diehard UAW supporters, or are willing to accept a union of any sort.

Dr. Stephen Silvia is a Professor of International Economics at the American University School of International Service.