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  Turnaround, What Turnaround?: Germany's Export Champions Slammed by Economic Crisis

Turnaround, What Turnaround? Germany's Export Champions Slammed by Economic Crisis

By Alexander Jung

Part 2: 'People Are Suffering'

Bender, an easygoing man in his mid-50s, is sitting on a wooden bench in the garden behind the union's offices. The regional chapter is having a summer party, and Bender is getting himself a serving of pasta salad. He is one of the few people here who has already lived through a severe crisis. In 1991, then IG Metall Chairman Franz Steinkühler sent him to Chemnitz, a traditional location for engineering companies, to save what could be saved after the demise of East Germany. That experience helps him today, says Bender.

For months, he has been rushing from one employee meeting to the next. He senses the discontent brewing among workers, who face growing problems and expectations that are essentially unrealizable. On the bright side, he says, the regional chapter is gaining new members again, at a rate of about 50 a month.

The summer party has given Bender an evening of respite, with the exception of the music booming from the building. The union officials have taken refuge in the garden, where they are discussing the depressing nature of short-time work. "The people are suffering, the way a dog suffers when it has nothing to do," says Bender, slapping a colleague on the back. The man, Roland Weber, is 38 and can easily spend a quarter of an hour giving an impromptu lecture on how a piece of metal achieves the desired strength through a process of heating and cooling. This is his field, and he clearly knows it inside and out.

Weber, a metal hardener by trade, has worked for Index, an Esslingen company that manufactures machine tools, for the past 15 years. He was working six days a week until last fall, but now he works only three days a month. Short-time work has turned his life upside down.

Nowadays, Weber handles many of the household responsibilities, driving his children to sports practice or shopping for groceries. He runs into other Index employees at the supermarket, where he sometimes has a cup of coffee with them. Weber has quit smoking, saving €200 ($280) a month as a result. The family has been forced to cut corners, no longer going out to steakhouses in Stuttgart and canceling its beach vacation in Italy. Nevertheless, Weber estimates that they are still short by about €600 ($840) a month. "There's too much month left at the end of the money," he says.

Weber prefers not to think about how much longer the short-time work will last, what happens after the company's annual summer shutdown, and whether his profession as a metal hardener has a future. "If I did, I would drive myself crazy."

Hundreds of thousands of skilled workers like Weber are now idle, people the center-left Social Democrats 10 years ago were touting as the new "center" of society. They are people who were convinced that happiness is granted to those who work hard, and that success is based on performance.

The sociologist Heinz Bude calls them the "core social classes of the German model." Recently they have been feeling that they are trapped in a downward spiral, and their self-confidence has been undermined. "Fear is rampant in the places where value is created in Germany," says Bude.

In Göppingen, a traditional Swabian industrial town, the numbers reflect this fear. A year ago, the unemployment rate in the district was 3.5 percent, lower than almost anywhere else in Germany. It has since risen by at least a third. In June, 19,913 people were registered as unemployed. But this number only tells half the story.

Another 20,000 workers are on short time. Göppingen has become the capital of short-time work and, as a result, the town's reputation is changing.

Schuler, the world's largest manufacturer of presses, is in the red and has cut 600 jobs. The slump in the luxury vehicle market has sharply affected automobile parts supplier Bader, which specializes in leather trim. The well-known model railroad manufacturer Märklin has declared bankruptcy. Hard times are ahead for Göppingen. Mayor Guido Till, a member of the Social Democrats, clings defiantly to every sign of hope.

Only recently, says Till, a producer of construction machinery held a topping-out ceremony to dedicate a new building, in the midst of the recession. And he estimates that the town's commercial tax revenues this year will be almost as high as they were last year. In fact, Till insists, the crisis has not really made itself felt in his town, and it is "not even an issue" for the city council.

A few blocks from the town hall, on the first floor of the municipal employment agency, there is a meeting of a group of people with a completely different take on the crisis. They are employers from the region who have come to the agency to learn more about short-time work.

"Feel free to ask me anything you like," says Ralf Schneider, an expert from the Göppingen labor agency. Schneider knows that it takes some business owners a long time to overcome their misgivings about asking for help.

One of the attendees speaks up. He wants to know whether workers have to use up all of their accumulated vacation days from previous years before they can go onto short-time work. "Yes, the leftover vacation must be used up first," Schneider responds. But what if some have accumulated more than 100 days, going as far back as 2006? "Oh my goodness," says Schneider.

Another attendee asks whether apprentices can be put onto short time. Yes, in principle, says Schneider, but if apprentices fail their final examination later on, they can claim that they weren't properly trained. The employers nod their heads, as it dawns on them that they will have to do more than simply fill out an application form. "Your personnel department won't have to go on short time, I can promise you that," says Schneider.

Until recently, the biggest challenge for the employment advisers in Göppingen was to provide companies with enough skilled workers. Now they are struggling with a completely different set of problems.

For instance, apprentices who have not been offered full-time work after completing their training programs are increasingly claiming unemployment benefits. The number of unemployed workers under 25 has grown by 82 percent within a year. And, says agency director Martin Scheel, those who are coming to the agency to look for work are, for the first time, mainly people who have completed a vocational training program. "This time, we can't say that it's only affecting unskilled workers."

Many people have come to the bitter realization that even the kind of specialized expertise which was always prized in Germany is no guarantee against losing one's job. This is a consequence of global competition, which is becoming considerably more cutthroat now that the prosperous boom years are over.

Today, engineering companies and auto parts makers from Asia are penetrating deeply into markets for high-quality goods, markets once dominated by German specialists. The Chinese competitors are making products "of a quality that would leave you speechless," says Putzmeister founder Karl Schlecht.

Schlecht has a certain amount of admiration for his Asian competitors, for their discipline, their business acumen and their thriftiness -- all traditional Swabian virtues. "They will soon be making the things we make here just as well as we do, but for a much lower price."

For industry veterans, this raises fundamental questions, questions which are on the minds of everyone in the export industry today. Would it have been possible to prevent this sharp downturn? What should companies do now? How can they bring down labor costs even further?

Daimler has led the way in this regard. Roughly 60,000 Daimler employees now earn and work almost 9 percent less than they did before. But is this enough? Or will companies have to shift even more of their production away from Germany? Moving production abroad was in decline until recently, but now corporate strategists are rethinking their calculations.

Or could the solution be for export-focused companies to abandon their niches and expand their range of customers and products? Some companies have already taken this approach. Auto-parts maker Bosch, for example, is expanding its renewable energy business. But this is only effective to a certain extent, because Bosch's customers in the wind and solar power industries are also struggling and are often unable to secure the financing they need.

The options are unsatisfactory. "We did everything right," insists Mink CEO Zimmermann. He says that he consistently emphasized quality, delivered his products on a just-in-time basis, and maintained a broad base of 20,000 customers and 300,000 products. Even more importantly, his company produces brushes, a product which wears out and needs to be replaced. "We thought that was our life insurance policy," says Zimmermann.

Zimmermann and his son Daniel, who belongs to the seventh generation of Mink owners, walk through a building that smells of fresh paint. State-of-the-art hole-punching machines are lined up on the floor, virtually untouched, precisely placed behind yellow marker lines. Zimmermann constructed the building specifically for Trumpf, an engineering company based in Ditzingen near Stuttgart, at a cost of €3.5 million ($4.9 million). Trumpf needed plastic panels with embedded brushes, which it uses to prevent pieces of sheet metal from being scratched during shipping. But then demand also slumped at the Ditzingen company.

The Mink/Trumpf relationship is indicative of how interdependent companies are in Swabia. When the auto industry is ailing, it no longer needs hole-punching machines from Trumpf. And when Trumpf loses orders, the demand for Mink's brushes declines.

The challenge now is to ride out the recession, says Zimmermann. But there is one thing he refuses to do: sell the company. He points to his son and says: "The two of us will be the last to go."

Translated from the German by Christopher Sultan