German manufacturers warn of the sector’s ‘formidable crash’

[Pelican Press 0]

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******* manufacturers warn of the sector’s ‘formidable ******’

Beckhoff Automation

******* business owner Hans Beckhoff says the country’s manufacturers are struggling

In the 44 years since Beckhoff Automation opened for business, owner Hans Beckhoff says he hasn’t seen an economic crisis like this one.

“You can usually expect a crisis about once every five to eight years,” says Mr Beckhoff. “This time it’s a formidable ******, a really deep one.”

A ******* company, Beckhoff Automation makes automated control systems for a wide range of industries, including manufacturing and the energy sector.

It belongs to Germany’s famous Mittelstand, the often highly specialised small and medium-sized enterprises that make up 99% of ******* companies, provide around 59% of ******* jobs, and are considered the “hidden champions” of the ******* economy.

The Mittelstand’s ability to take a long view on business performance rather than scrambling for annual dividends is part of what has made ******* manufacturing so robust. However, the global economy is shifting rapidly, and pressure is mounting.

“We’re still doing well, though the economic situation has really slowed down,” says Frederike Beckhoff, corporate development manager at Beckhoff Automation and Hans’ daughter. “This year’s results won’t be anywhere close to what we achieved over the past three years.”

******* firms have been hit by a number of problems in recent years. These include the steep energy price hikes that followed Russia’s invasion of Ukraine in 2022, rising general inflation, and increased competition from China.

Companies also complain about rundown ******* infrastructure, such as the country’s

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bridges and roads, all three of which state-owned broadcaster Deutsche Wells describes as

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Other businesses highlight what they see as a heavy bureaucratic burden at both national and ********* levels, inconsistent government decision-making from Berlin, plus higher labour costs and staff shortages.

“The last three years have not been easy in Germany,” says Joachim Ley, chief executive at Ziehl-Abegg, a manufacturer of ventilation, air conditioning, and engineering systems.

“What we really need is reliable [government] decision making instead of 180-degree turns. Even if you don’t like decisions, you can at least plan and adjust if the decision is reliable. This back and forth is putting a lot of burden on companies in Germany.”

Ziehl-Abegg

******* manufacturers say that they face a number of problems

Germany’s coalition government fell apart earlier this month, and a general election is now

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with a confidence vote before that on 16 December.

U-turns the government has made in recent years include walking back subsidy programmes for heat pumps and electric vehicles. This hit both domestic sales and net-zero targets. Berlin declined to comment.

But while political flip-flopping hasn’t helped ******* companies, many look to China as the key strain, especially on Germany’s carmakers, which have been hit by two problems.

Domestic demand for vehicles has

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and China now has a strong car industry of its own, with an aggressive export policy.

“Since the start of 2021, the ******** export of electric vehicles has gone up by 1,150%,” says Dr Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

“That’s only EV [electric vehicles]. If you take all cars, including those running on fossil fuels, then you still get an increase of ******** exports of 600%. During the same *******, ******* exports increased by 60%. So there is obviously a shift in market shares happening here.”

The result of this is Volkswagen, Germany’s largest private-sector employer, threatening domestic plant closures for the first time in its 87-year history. It could result in tens of thousands of ******* job losses.

In October, the car manufacturer reported a 64% drop in third-quarter profits compared with a year earlier, primarily blaming a

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traditionally a key market for Germany’s premium car brands.

Mercedes-Benz reported

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over the same *******, and BMW has also issued

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both also citing reduced ******** orders.

Ms Beckhoff says that carmakers and the wider ******* manufacturing sector need to increase their competitiveness. “I really do think that productivity is something we have to take really seriously,” she says.

“The wealth we enjoy here in most parts of Germany and Europe, we can’t take it for granted.”

******* manufacturers that require low-cost margins may struggle, says Mr Ley, but he believes there is hope for high-quality products with innovative features that rely on world-class engineering and intellectual property.

Dr Klaus Günter Deutsch, head of industrial and economic policy research at the Federation of ******* Industries (BDI), believes “much will depend on whether we are able to pull the innovation levels much faster, better and more consistently across Europe”.

There is no doubt that job losses and restructuring on their home soil will be a painful process for ******* manufacturers such as Volkswagen, and chemicals firm BASF, which has also warned of cuts.

However, Mr Beckhoff believes this reality check may be healthy in the longer term. “I think it is good for ******* industry that Volkswagen is running into some problems because it will increase motivation,” he says.

“It’s finally understood that we really have to do something. What is it that Winston Churchill said? Never waste a good crisis!”

Getty Images

Volkswagen workers recently protested outside of its factory in Osnabrueck, Germany

So while there is hope for a positive transformation in the manufacturing sector in the longer term, the shorter-term

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will continue to be challenging. Whoever forms the next ******* government will have to make some difficult calls.

“I am still optimistic,” says economist Dr de la Rubia, who says that the need to upgrade Germany’s infrastructure is now “so obvious” that whoever forms the country’s next government will have to take action.

“I think they will say, ‘okay, the crisis is really there and now we will make a big leap’. That is my hope and my conviction.”

And many agree that this crisis may be just what Germany needs. In the post-war years, the country proved it had the capacity to produce an “economic miracle” against the odds.

The circumstances now may be different, but it’s not unthinkable that, with concerted action, it could do so again.

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