The wheels come off Germany’s economy
Just a few months ago, every car that auto worker Thomas Ortloff expertly painted was one closer to the record number expected to roll off the Opel assembly lines this year. Vacation time seemed a laughable idea.
But Ortloff and his colleagues have just wrapped up a long holiday they neither anticipated nor wanted. Amid a global financial panic and a sudden slump in demand, managers at this General Motors Corp. subsidiary decided that the best way for the Opel plant to stay afloat through the end of the year was to shut it down for three weeks.
Ortloff’s paychecks were cut 40%. Some of his home-improvement plans had to be shelved. Christmas with his wife and two children is shaping up to be a time of uncertainty rather than celebration.
“We can’t predict what’s going to happen,” said Ortloff, 45. “People are quite worried about it.”
As the world’s No. 1 exporter, Germany has relied for years on the sale of cars, precision parts, fine watches and a host of other products to fuel its economy.
But the global financial meltdown and the likelihood of a painful recession are scaring more consumers and companies into hoarding their money rather than spending it. Industries that earlier this year confidently forecast strong growth here in Europe’s largest economy are now battening down the hatches and wondering when the storm will blow over.
Last month, Germany unveiled a $635-billion bailout package for its floundering banks; the country’s largest domestic emergency aid plan since World War II. At the same time, the government downgraded its estimate of economic growth for next year to an almost imperceptible 0.2%.
The bad news comes after a couple of years of stronger-than-usual growth, during which ordinarily frugal Germans began opening their wallets and exhibiting some of the consumerist tendencies of their freer-spending counterparts in countries such as the United States and Britain. Last year, the big electronics chain Saturn even decided to ditch its enormously successful marketing slogan, “Geiz ist geil!” (“Stinginess is hip!”), to take into account the loosening of German purse-strings.
With some analysts saying Germany has already entered a recession, geiz is likely to become geil again. Domestic and international demand for consumer goods is dropping as a result of the worldwide credit crunch.
The first to feel the pinch is the automotive sector, which often serves as an early-warning system for what lies in store for the rest of the economy.
A car is the most expensive item many Germans will ever buy (most people here rent their homes). They are, therefore, willing to shell out for high-quality, high-performing vehicles, but equally unwilling to buy if hard times loom. Moreover, the credit crisis has made loans tougher to secure.
“If you don’t need a car immediately, the first thing you’ll postpone is purchasing a car. Your old car would still be workable for a year or two,” said Henrik Enderlein, a professor of political economy at the Hertie School of Governance in Berlin.
Figures released this week show German car exports fell in October 10% from the same month last year; domestic sales dropped 8%. Sales of German cars in the U.S. have also slipped.
In the U.S. through October, Mercedes sales were down 5.3%; BMW’s were off 10%; Volkswagen’s (including Audi, Bentley and Lamborghini) have slipped 1.8%; and Porsche’s were down 22.8%. Overall, auto sales in the U.S. have fallen 14.6%.
Because demand for cars can be so mercurial, automotive companies have fine-tuned ways of detecting as quickly as possible any changes in consumer spending habits.
“It’s a sector in which we’re quite forward-looking,” Enderlein said. “Car manufacturers are very careful to sense where car sales are going to be in the next few months. They see that no additional orders are coming in, and they extrapolate from that.”
So, even as the global financial crisis was still unfolding, executives at Opel decreed a three-week furlough for workers. BMW also announced plans to shut some of its plants for several days, and Daimler said it would close shop for Christmas earlier than usual.
The swagger was suddenly gone for an industry that last year posted record production of 12.1 million vehicles and employed 756,000 people, with an eighth of those jobs created in the last five years alone.
In 2007, for the first time, more than one out of every six new passenger cars in the world bore a German insignia, a testament to “the solid shape the German automotive industry is in at the start of 2008,” a trade group declared in a rosy report released earlier this year.
Such optimism no longer exists. This week, the German government announced a tax break for car buyers in a bid to resuscitate demand. But that would do nothing for foreign markets, which remain the bread and butter of German manufacturing.
Unfortunately, previous economic downturns offer no guide on how to cope with what’s happening now, said Kunibert Schmidt, a managing director of the German Assn. of the Automotive Industry.
“Normally we have a shrinking market in the U.S. but this is compensated by increasing [sales in] emerging markets, like Russia, China, India,” he said. “But now we are coming into a situation where all the markets worldwide are moving in the same direction -- mainly backwards.”
That reversal strikes at the heart of Eisenach, a venerable old town that was part of East Germany and which takes as much pride in its contributions to the German automotive industry over the last century as its contributions to the arts as the birthplace of Johann Sebastian Bach.
Generations of residents have made their living on car assembly lines here, and in local companies that supply auto components and car seats. The auto industry is the largest employer in the state of Thuringia.
At the Opel plant, set against bare autumnal hills, a workforce of 1,800 churns out a car every two minutes, around the clock. The current flagship model is the Corsa, a two-door hatchback that sells well throughout Europe.
The factory was on track to roll out a company-best 194,000 cars in 2008, but now, targets are being set “on a week-to-week basis,” said Jurgen Hinkel, a member of the workers’ council at the plant. “We don’t know what our production numbers will be at the end of the year.”
“No one knows how expensive energy’s going to be, how much gas is going to be, so people have that insecurity about how much money they can spend,” Hinkel said of potential buyers.
The same holds true for him and his fellow autoworkers. Worldwide demand is outside their control, as are the actions of the German government, leading to a feeling of resignation over what the future holds.
“In the end, we can’t decide what will happen,” said Ortloff, the auto-body painter. “Other people will.”
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