Beckhoff automation
German company owner Hans Beckhoff says the country's manufacturers are in trouble
In the 44 years since Beckhoff Automation began operating, owner Hans Beckhoff says he has not experienced an economic crisis like this.
“You can generally expect a crisis about every five to eight years,” says Beckhoff. “This time it’s a tremendous crash, very deep.”
A German company, Beckhoff Automation manufactures automated control systems for a wide range of industries, including manufacturing and the energy sector.
It belongs to Germany's famous Mittelstand, made up of small and medium-sized, often highly specialized companies that account for 99% of German businesses, provide around 59% of German jobs and are considered the “hidden champions” of the German economy.
The Mittelstand's ability to take a long-term view of company performance rather than rushing to achieve annual dividends is part of what has made Germany's manufacturing industry so robust. However, the global economy is changing rapidly and pressure is mounting.
“We are still doing well, even though the economic situation has really slowed down,” says Frederike Beckhoff, head of corporate development at Beckhoff Automation and daughter of Hans. “This year’s results will be nowhere near what we achieved over the last three years.”
German companies have faced a number of problems in recent years. These include the sharp rise in energy prices following Russia's invasion of Ukraine in 2022, rising general inflation and increased competition from China.
Businesses also complain about the poor state of Germany's infrastructure, such as the much-criticized rail network, bridges and roads, which public broadcaster Deutsche Wells describes as “aging and crumbling.”
Other companies point to what they see as a heavy bureaucratic burden at national and European levels, inconsistent decisions by the Berlin government, as well as higher labor costs and staff shortages.
“The last three years have not been easy in Germany,” says Joachim Ley, managing director of Ziehl-Abegg, a manufacturer of ventilation, air conditioning and engineering systems.
“What we really need is reliable (governmental) decision-making instead of 180-degree turns.” Even if you don't like the decisions, you can at least plan and adjust if the decision is reliable. This back and forth imposes heavy burdens on German companies.”
Ziehl Abegg
German manufacturers say they are facing a number of problems
Germany's coalition government collapsed earlier this month and a general election is now set for February 23, with a confidence vote before December 16.
U-turns by the government in recent years include the withdrawal of subsidy programs for heat pumps and electric vehicles. This affected both domestic sales and net zero targets. Berlin declined to comment.
But while the political reversals have not helped German companies, many see China as the main pressure, particularly for German automakers, which have been hit by two problems.
Domestic demand for vehicles has cooled in China, and China now has its own strong automobile industry, with an aggressive export policy.
“Since the start of 2021, Chinese exports of electric vehicles have increased by 1,150%,” says Dr. Cyrus de la Rubia, chief economist at the Hamburg Commercial Bank.
“They’re just electric vehicles (EVs). If we take all cars, including those running on fossil fuels, we still get an increase in Chinese exports of 600%. During the same period, German exports increased by 60%. So there's obviously a change in market share here.
Result: Volkswagen, Germany's largest private sector employer, threatens to close its factories in Germany for the first time in its 87-year history. This could lead to tens of thousands of job losses in Germany.
In October, the automaker reported a 64% drop in third-quarter profits from a year earlier, driven mainly by falling demand in China, a traditionally key market for premium car brands. Germans.
Mercedes-Benz reported a 54% decline over the same period, and BMW also issued profit warnings, both also citing a reduction in Chinese orders.
Ms Beckhoff believes that car manufacturers and the German manufacturing sector as a whole need to increase their competitiveness. “I really think productivity is something we need to take very seriously,” she says.
“The wealth we enjoy here, in most parts of Germany and Europe, cannot be taken for granted.”
German manufacturers that demand low-cost margins might struggle, Mr. Ley says, but he thinks there is hope for high-quality products with innovative features that rely on advanced engineering and world-class intellectual property.
Klaus Günter Deutsch, head of industrial and economic policy research at the Federation of German Industries (BDI), believes that “much will depend on our ability to increase levels of innovation much faster, better and more consistently throughout Europe”.
There is no doubt that job losses and restructuring at home will be a painful process for German manufacturers like Volkswagen and chemical group BASF, which has also warned of workforce reductions.
However, Mr. Beckhoff believes that this reality check could be healthy in the long term. “I think it's a good thing for German industry that Volkswagen is having problems because it will increase motivation,” he says.
“We finally understood that we really had to do something. What did Winston Churchill say? Never waste a good crisis!
Getty Images
Volkswagen workers recently demonstrated outside its factory in Osnabrück, Germany.
So, although we can hope for a positive transformation of the manufacturing sector in the long term, the short-term outlook will remain difficult. Whoever forms the next German government will have to make difficult decisions.
“I remain optimistic,” says economist Dr de la Rubia, who believes that the need to modernize Germany's infrastructure is now “so obvious” that whoever forms the country's next government will have to act.
“I think they'll say, 'Okay, the crisis is really here and now we're going to take a big step forward.' This is my hope and my belief.
And many agree that this crisis might just be what Germany needs. In the post-war years, the country proved that it had the capacity to produce an “economic miracle” against all odds.
Circumstances may be different today, but it is not unthinkable that, through concerted action, this could happen again.
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