Privatization of Former East German Firms Proceeding at Frantic Pace : Germany: The Kohl government is selling off thousands of former East German companies at the rate of 10 a day.

Tucked into a side street in Berlin’s eastern suburbs, the Niles machine tool factory may not look like much, but it was the best that communism could manage.

Under its old name, the “7th of October Combine,” it was the jewel of a showcase East Bloc industry, with exports to the West and a reputation that once led Soviet President Mikhail S. Gorbachev to devote an entire morning there to studying its methods and quizzing its managers for hints that might improve Soviet industry.

Today, the plant is merely one of more than 6,500 former East German business enterprises available for public bidding in what is doubtless the biggest, most hectic and most controversial going-out-of-business sale the industrialized world has seen.

Chancellor Helmut Kohl’s government effectively reduced the commercial sector of the former German Democratic Republic--a country that before the collapse of the Berlin Wall two years ago was the world’s 10th-biggest industrial power--to a buyer’s catalogue of 510 pages, then asked for offers.

Between October, 1990, and September this year, 3,788 enterprises producing an array of goods from automobiles to light bulbs were sold.

For professional mergers-and-acquisitions experts accustomed to spending months putting a single transaction together, the pace of 10 deals a day is astonishing.

But such speed has become routine for those at the German government-operated trust company, the Treuhandanstalt (usually shortened to Treuhand--pronounced Troy-hant ), which is responsible for the selloff.

At the organization’s central Berlin headquarters, a sprawling building originally built in the 1930s to house Hermann Goering’s Air Ministry, a sense of chaotic urgency prevails that is more akin to a media newsroom 30 minutes before deadline than a government bureaucracy.

“There are a lot of 10-minute decisions,” said Volker Charbonnier, a senior executive at Bayer USA, a unit of the German chemical company Bayer AG. The American subsidiary was recruited by the Treuhand to manage the privatization of eastern Germany’s 80 machine tool enterprises.

The pace probably will continue.

“We say, privatize as much as possible as soon as possible,” Treuhand President Birgit Breuel, 54, said in an interview.

So far, the sale has been largely a German affair. But the government has pushed hard in recent months to open the process and change the feeling expressed by foreign buyers that they were not wanted.

Only 176 Eastern enterprises have been sold to foreign firms, including a paltry nine to American companies. None have been sold to Japanese companies.

In the latest moves to stoke overseas interest, Breuel last week opened the Treuhand’s first U.S. office in New York. A Tokyo office was opened last month.

“We want more foreigners to buy,” Breuel said in a recent interview. “If we want to integrate eastern Germany into the world economy, foreign companies have to come.”

So far, however, the response has been slow.

Of the enterprises purchased by U.S. companies, five were bought by Coca-Cola Co. as part of the firm’s $400-million expansion into the region, previously poor in soft drinks.

In part, foreigners have simply found it hard to penetrate the confusion and bureaucracy that have become part of the undertaking.

The poor housing, inadequate schooling, dearth of recreational facilities and shaky communications also make eastern Germany difficult to sell to talented middle managers needed to make such an acquisition work.

“It’s true you have to be some sort of pioneer to come here,” Breuel said.

The sheer scale of the Treuhand’s effort is staggering, considering that the best-known previous European privatization--British Prime Minister Margaret Thatcher’s selloff of state-owned entities in the 1980s--involved only about 40 companies in 12 industries.

As the other former communist nations of Eastern Europe tentatively investigate ways of overhauling their obsolete, overstaffed industries to better compete in the West, Breuel talks of finishing most of the sales of eastern German business by the end of 1994.

So far, the Treuhand’s selloff has been marked by some dazzling successes and some embarrassing failures.

The organization looked good in selling the old Trabant works in Zwickau to West German auto maker Volkswagen for $95 million. It also won commitments from VW for new investments of $2.5 billion to produce its own cars there.

It was a similar story when General Motors subsidiary Adam Opel AG agreed to take over the obsolete Wartburg car plant in Eisenach and invest $600 million in a modern assembly facility.

But the Treuhand looked inept and greedy by first refusing to sell the old East German airline, Interflug, to a series of eager bidders that included British Airways. The result was that the market soured and Interflug, with 2,900 employees, had to be closed down.

Among the lucrative big-ticket items still for sale are the profitable Minol gasoline station network and the Interhotel chain of hotels.

How communist industrial entities survive the transition could provide some hints about the difficulties involved in far more complicated changes that must occur in other Eastern countries if Europe is to unify under the banners of democracy and free-market capitalism.

Kohl contends that the rapid pace of change in eastern Germany has been forced upon his government by the harsh political realities of German unity. That has exposed eastern Germany’s weak industry overnight to the full brunt of Western-style competition in its own home market, to largely unfamiliar Western export markets, and to an overnight tripling of costs with the July, 1990, currency union that introduced the strong deutsche mark.

Experts are quick to note, however, that if eastern Germany’s exposure to Western trading conditions is especially brutal, so also is the region blessed with infusions of capital and expertise that neighboring countries can only dream of.

Much of the Treuhand’s operating budget of $28 billion this year is earmarked either for keeping companies afloat until they are sold or for restructuring them to make them more attractive to potential private sector buyers.

Servicing the debt of eastern German industry left in the wake of the communist collapse will cost $10 billion this year, according to a recent Treuhand statement.

On top of this, the German government is expected to transfer an estimated $200 billion during 1991-92 to rebuild the East’s antique infrastructure and finance the social welfare and job retraining schemes that make such a radical change and increased unemployment politically tolerable.

The Niles machine tool plant is a typical example.

Since the collapse of the Berlin Wall, its work force has dropped from more than 2,000 to about 900, and 400 more will go during the next two years, according to senior managers. Old product lines that had little hope of competing in the West have been closed down, but losses continue and it has survived only because of an $8-million credit line extended by the Treuhand.

The Treuhand also gave Niles title to the land on which it sits, took over its $35 million in debt last month and plans to place two experienced West German managers on its board--all moves that brighten its balance sheet and make it more attractive to the four seriously interest buyers.

“We’ll be in private hands,” Niles managing director Peter Klopsch said. “The only question now is how and when.”

At many of the Treuhand’s companies, the picture is less rosy.

Indeed, about 800 enterprises have been judged to be beyond rescue and have been closed. Treuhand officials estimate that at least 650 more companies will probably follow.

Such decisions, along with large forced layoffs at other companies, have helped make the Treuhand highly unpopular in eastern Germany. It is viewed there as a Western-led institution selling Eastern enterprises cheaply to greedy entrepreneurs in deals where the only victims are jobless workers.

At the same time, Western financial institutions point to the Treuhand’s ballooning spending and complain that it is trying to go too fast and worries too much about the social impact of the changes.

“I agree there’s a sense of urgency, but it’s nonsense to go that fast,” commented Norbert Walther, chief economist at the Deutsche Bank in Frankfurt. “The pace needs to be less frenetic.”

A series of scandals involving accusations of fraud and underhand deals have added to the Treuhand’s poor image.

It was amid a wave of especially bitter anti-Treuhand publicity last spring that the organization’s first president, the chairman of the Ruhr-based Hoesch AG steel concern Detlev Rohwedder, was assassinated by leftist terrorists at his Duesseldorf home.

The Treuhand’s Berlin field office was bombed in April, and other regional offices have been the object of sit-ins and protests.

“By its nature, the Treuhand will remain unpopular,” Andre Leysen, a Belgian businessman and one of two foreigners on the Treuhand’s supervisory board, told the weekly Die Zeit in a recent interview. “It’s the whipping boy of the nation.”

Still, Breuel shows no signs of slowing a program that she believes will make eastern Germany the first former communist region to be competitive with the West.

“It’s a very ambitious goal,” she said.

The Great Selloff Since reunification, the Treuhand has sold nearly 3,800 former East German businesses to private companies, mostly German firms. An additional 6,500 enterprises are still on the block. Here are the purchases, by nation:

Germany: 3,612

France: 48

Switzerland: 25

Netherlands: 23

Sweden: 17

Austria: 13

Britain: 10

United States: 9

Others: 29

Source: The Treuhand