Turnaround, What Turnaround? Germany's Export Champions Slammed by Economic Crisis
The recession is supposedly bottoming out, but where is the upswing? The crisis is hitting southern Germany particularly hard as engineering companies and auto parts manufacturers lose orders at a faster pace than ever before. Ironically, their strength as exporters is the cause of their current troubles.
Karl Schlecht is standing on the roof terrace of his company headquarters, looking down at his life's work. He moves carefully toward the railing. Schlecht is 77, his bones ache and his new hip is causing problems. But his ailments are minor when compared with the worries of Putzmeister, the company he founded 51 years ago in Aichtal, a town in Germany's southwestern Swabia region.
"It makes my heart ache," says Schlecht, as he stares out at an area devoid of human activity. There is no one to be seen on the factory grounds -- no metal workers, no mechanics, no engineers. Most of the employees have been on short time since January, and the concrete pumps and mortar machines the company produces are beginning to accumulate throughout the plant -- inventory for which there are no longer any buyers. In other words, dead capital.
Only last year, Arab and Asian buyers were clamoring for Schlecht's products. Putzmeister had erected a separate building for making large pieces of equipment designed to convey concrete and mortar hundreds of meters into the sky on high-rise building construction sites in Dubai, Beijing and Shanghai. "It was like a beehive," says Schlecht, referring to the amount of activity in the new building. But nothing is humming on those sites anymore.
Putzmeister, with its 3,600 employees, was until recently still being celebrated as one of those typical mid-sized, virtually unknown German companies that is a world leader in its niche market. Many of these companies are mechanical engineering companies and auto parts suppliers, produce first-class products, have exceptional expertise and export a large share of what they make. Putzmeister, for example, exports about 90 percent of its products.
The German economy is famous for such "hidden champions." These closet global market leaders have served as both an engine for growth and a job-creating machine for Germany.
Their concentration is particularly high in southwestern Germany, in small cities and towns along a corridor stretching from Pforzheim to Stuttgart to Ulm. Their benchmark was the world, and now their world is falling apart.
Orders have plunged by anywhere from 30 to 50 percent, in some cases even more. This, in turn, has created massive excess capacity. Temporary workers have long been let go, and fixed-term contracts have expired. Most of the remaining workers are now on state-supported short-time working schemes, where the government helps to make up their lost income.
A company that has lost half of its business needs to grow by about 10 percent a year for at least seven years to return to former levels. More realistically, management should consider itself lucky if there is any growth at all in the near future. The direct consequences include mass layoffs, plant closures and bankruptcies.
Is there any glimmer of hope? "I don't think so," says Peter Zimmermann, the CEO of Mink, a company based in the town of Göppingen near Stuttgart. A family business in its sixth generation, Mink is the world market leader in specialized industrial brushes. Zimmermann is incensed when he hears people say that the worst is over. "This isn't a crisis," he says. "It's a catastrophe."
Zimmermann estimates that the company has been set back by a decade. Orders have declined by 40 percent, and he is now forced to reduce staff, letting people go he would like to have kept on. The priority, says Zimmermann, is to make sure the company survives, "as horrible as it sounds."
Even the boldest of optimists are slowly realizing what a break with the past the global economic crisis represents for Germany, particularly for the southwestern state of Baden-Württemberg. More than in most other regions, the population here depends heavily on exports of its products: machinery, industrial equipment and automobiles. The region was one of the main beneficiaries of globalization, making its current plunge all the more precipitous.
This regional slump is relatively unaffected by the most recent figures from Berlin, which indicate that German industry experienced a rise in orders and exports in May. The general euphoria over such figures is difficult to comprehend, especially when one considers that the number of new orders, when compared with May of last year -- the key benchmark -- has declined by almost 30 percent, while exports are down about 25 percent.
Graphic: German exports
Companies will become more cautious, taking less risk and investing less, even though nothing is more important now than to develop the products of tomorrow. But companies lack the confidence to do that.
This lack of confidence, in turn, has been most detrimental to the dynamics of the economy. "In the coming years," says McKinsey's Frank Mattern, "we will have to get used to lower growth rates."
Nowhere has the impact of economic decline been as harsh as in the region that has come to be known as Germany's Musterländle (loosely translated as "model state"). "Things are getting grim here," says Putzmeister CEO Karl Schlecht.
An economic network with roots dating back to the early 19th century is beginning to crumble. Back then, young businesses located along the Ulm-Stuttgart railroad line, including press maker Schuler in Göppingen (founded 1839), exhaust specialist Eberspächer in Esslingen (1865), auto parts maker Bosch (1886) and carmaker Daimler (1890) in Stuttgart. Companies were founded then that still shape the region's industrial landscape today.
They have survived two world wars and several monetary reforms, but now they face their toughest test yet. Sieghard Bender, the head of the local branch of the IG Metall metalworkers' union, considers 90 of the roughly 100 larger companies in his district to be problem cases. When asked how many of those companies are still doing relatively well, the union leader pauses to think for a moment. Five, he answers.
- Part 1: Germany's Export Champions Slammed by Economic Crisis
- Part 2: 'People Are Suffering'