A real earthquake. In the space of a few weeks, Volkswagen went from national flagship to symbol of a German industry incapable of adapting to new challenges. That of decarbonization first. Because many companies in chemicals and heavy industry had based the competitiveness of their industrial processes on Russian gas via pipeline, replaced by more expensive American or Norwegian gas. Very affected, the chemical giant BASF has launched a savings plan of 2.1 billion euros by the end of 2026, which results in the closure of dozens of installations and the elimination of 2,600 jobs, including at its historic site in Ludwigshafen.
A continued weakening
In addition, the economy, which is very dependent on exports, has failed to see the signs of shrinking external demand and the evolution of its Chinese partner, which is moving from the status of importer of material goods to that of direct competitor on the world stage, particularly in machine tools and automobiles. Although these causes are well known, the extent of the phenomenon in the long term remains difficult to determine. “The current situation differs greatly from the crisis of 2009-2010says Klaus-Heiner Röhl, economist at the Institute of German Economics in Cologne. At the time, the rapid contraction of the global economy had led to a sharp decline in orders, followed by an equally rapid recovery. Today, it is a slow but steady weakening, fueled by structural factors such as energy prices and the transition to carbon neutrality.”
Entangled for months in internal quarrels, the government coalition ended up exploding, leaving investors without visibility of their environment. Finally, the magnitude of the crisis can be explained by the interdependence of industrial sectors (chemicals, steel, automobiles) which yesterday were the strength of the German economic model and which are falling today like a house of cards. In this context, relationships of trust between principals and subcontractors could be disrupted.
Traditionally, the latter invest with the certainty that they will find takers among their customers. But the machine seems to be stuck, particularly in automobiles. “Mid-sized suppliers complain of late payments, creating liquidity problems”relates Klaus-Heiner Röhl. In fact, twenty companies in the sector, each generating more than 10 million euros in turnover per year, filed for bankruptcy during the first six months of the year. Almost twice as much as in 2023, over the same period.
“When I hear that Volkswagen is trying to reduce its costs, I say it clearly: there is nothing to seek from the suppliers.assures Christian Vietmeyer, spokesperson for the German suppliers’ industry association, which brings together around 9,000 companies. The massive investments made in electromobility are far from being amortized.” With demand fading, many subcontractors say they have no choice but to reduce their payroll. Gearbox manufacturer ZF Friedrichshafen has announced the elimination of 14,000 jobs in Germany, while Bosch will eliminate 1,200 jobs in the development of its embedded systems and Schaeffler anticipates a reduction of 2,800 jobs.
Co-management weakened
An adjustment variable which provokes the indignation of IG Metall, which considers in certain cases that the companies are still sufficiently solid to avoid layoffs. “It is not personnel costs that are to blame in the Volkswagen crisis, but rather the strategic errors of management”denounces for example Daniela Cavallo, the president of its works council. Could another pillar of the German model, co-management, which allows unions to sit on the supervisory board, be called into question? “In the past, in the event of a crisis, negotiations between management and unions began well in advanceexplains a staff representative, on condition of anonymity. More and more, trade unionists are faced with a fait accompli in the event of layoffs and have no choice but to adopt a firm stance.” Hence more frequent strikes.
However, it would be reductive to see everything in black. “Pharmacy or specialty chemicals are doing wellunderlines Stefan Kooths, economist at the Institute for World Economy in Kiel. Additionally, private sector R&D investment levels remain stable, which is a good indicator. Finally, unemployment remains low, around 3.5%.” Although Germany is entering recession again this year (-0.2%), it still retains clear advantages, with a share of industry in its GDP of 20% (compared to 11% for France) and a trade surplus of 210 billion euros. A far cry from France’s nearly 100 billion deficit.
Wave of relocations in Eastern Europe
Quite a symbol. In February 2024, Miele decided to transfer the production of its washing machines from Gütersloh, Germany, to Ksawerów, Poland by 2027. The cause is the 9% drop in sales and the increase in its fixed costs across the Rhine. And this is far from being an isolated case, even if Eastern Europe was already a rear base for German industry. Eastern European countries offer qualified labor at wages lower than German standards. For Ella Grünefeld, who supports foreign companies wishing to set up in Poland, the bureaucracy there is also lighter. “In Germany, obtaining a permit for a site extension can take up to five years”describes the manager. The Polish government understands this well. It created 14 special economic zones with settlement assistance and tax exemptions. “A factory can be built in eighteen months”assures Ella Grünefeld. The energy mix, based on coal, however, remains a barrier for certain companies. A situation that the country is trying to change by slowly switching to solar and wind power.
Source: www.usinenouvelle.com
