Case Study : Company Puts Faith in Freon-Free Fridge

The story of Foron, a former East German appliance maker that launched an award-winning, environmentally friendly refrigerator, makes for a good study in the opportunities and perils to be found in privatization, German-style.

Foron started out not as a company, but as an East German brand name for refrigerators and washing machines, manufactured by two separate concerns near the Czech border. In the eyes of the Treuhand, the German privatization agency, both were real dogs, not worth saving.

Consider the refrigerator company: Although it had enjoyed a monopoly in East Germany, and even exported some refrigerators to the West, it had a near-death experience brought on by the German currency union of 1990 and lost about $56 million in 1991. After spending more than a year trying to find a buyer, the Treuhand decided to liquidate.

Meanwhile, in the western German city of Hamburg, the activist environmental group Greenpeace was caught up in a refrigerator drama of its own. Greenpeace had acquired a design for a modern, environmentally sound refrigerator from a technical institute in Dortmundt, and was making the rounds of the big, western German appliance manufacturers, trying to get someone to produce the new box.

Greenpeace was keen to proceed without what is known as Freon, the venerable DuPont coolant that is now known to seep into the atmosphere and damage Earth’s protective ozone layer. Ozone shields living things from ultraviolet radiation, and its depletion has been linked to a recent increase in skin cancer.

Greenpeace knew that inexpensive alternatives to Freon had been developed in the 1930s--hydrocarbons such as propane and butane--but no one bothered with them anymore because they were thought to be unacceptably flammable. Greenpeace argued that modern refrigeration technology all but removed the flammability risk, but nevertheless, it couldn’t interest any of the big German appliance-makers.

Only Foron, the struggling eastern German manufacturer, was willing to give the old-fashioned technology a try. It had nothing to lose, after all, what with the Treuhand’s liquidators beating at the door, and its staff of soon-to-be-unemployed engineers eager to save their jobs.

In July, 1992, after extensive talks, Greenpeace gave Foron a $17,000 contract to produce 10 prototype refrigerators. One week later, the Treuhand made public its plans to liquidate Foron.

With the clock ticking, Foron’s engineers rushed to build their prototypes, and called a news conference to unveil the unit. A battle of nerves followed, with the Treuhand’s liquidation director trying to cancel the press conference, and Foron CEO Eberhard Guenther--who believes the Treuhand was prejudiced against his engineers because they were easterners--threatening to first unveil the refrigerator, then step down in protest with the video cameras rolling.

“As a result, the Treuhand’s liquidation director got into his helicopter and flew down the next morning,” recalls Foron spokesman Siegfried Schlottig. “He was very angelic during the news conference.” The Treuhand representative agreed to let the project go forward.

“We had to force the Treuhand to keep our company alive, using the product itself,” says Schlottig, adding that once the Treuhand had backed off from its liquidation plans, it became very helpful. The search for investors was resumed, and in January, 1993, Foron was purchased by British and Scandinavian pension funds, a German bank, some wealthy Kuwaitis, and four senior Foron managers.

In March, 1993, Foron’s so-called Clean Cooler made its debut on the German market, retailing for about $400. The German Environment Ministry gave it a prestigious “Blue Angel” award.

But winning its battle with the Treuhand didn’t mean Foron’s troubles were over. Next came the battle with the established, west German refrigerator makers, which weren’t about to let an east German upstart beat them at their own game. Seven of them fired off a brochure to 17,000 appliance dealers in Germany, warning them that Foron’s Clean Cooler guzzled electricity and could set kitchens ablaze.

“At first, we were shocked,” says Schlottig, “but in the end, the negative publicity was helpful.” The accusations called attention to Foron’s new product, he says, and the company was able to show that they were all false, he claims. Eventually, the big west German manufacturers called off their advertising campaign and got down to the serious business of producing their own ozone-friendly refrigerators--using the technology that the underdog easterners had pioneered.

Today, Foron remains a small player in west Germany’s consumer appliance trade, but it is once again the biggest seller in the east. Production for 1994 was up 15% over 1993.