November 2009
Will the reserves of the record years be enough to bridge the crisis period?
Over the past decade and a half, the German mechanical engineering sector has posted record figures and overcome every obstacle that has been thrown in its path since the beginning of the decade. Even the sharp rise in raw material prices and the unfavorable exchange rate between the euro and the US dollar for exports have not been able to slow down growth. Even the crises of the decade, marked by the internet bubble and the events surrounding September 11, resulted only in short-term declines, not in prolonged setbacks. As a result, the mechanical engineering segment has become a showcase industry in the German sector landscape.
Mechanical engineering provides employment for more than 900,000 workers in Germany. German mechanical engineering accounts for just under 20% of world trade in machinery (USA at 12%), and Germany's export ratio is just under 15%.
But how crisis-experienced is the industry, how much experience does it have with a long lean period? When in the last two decades has the German mechanical engineering sector had to live from hand to mouth for an extended period?
Only twice in the past 15 years has the industry had to contend with capacity utilization rates below the industry's usual 86.5% (at the beginning of the decade during the crisis triggered by the events of September 11 and at the end of the 1990s triggered by the Asian crisis).
In both cases, the industry did not have to stand up to long-lasting recessions; the periods that had to be bridged were only one to two years, so in retrospect we must speak here of short-term slumps rather than genuine crises.
The beginning of the 1990s was the last time the industry had to overcome challenges similar to those it faces today.
On the other hand, the industry had hardly ever before experienced such a long period of positive development, during which companies were able to "eat their bacon". So if you look at the pro and con arguments about how well the mechanical engineering sector is prepared for the crisis, they balance each other out on the surface.
At this point, the heterogeneous structure of the industry, which is characterized by a few corporate groups and a high proportion of medium-sized companies, should not be ignored.
88.7% of the companies are businesses with fewer than 250 employees. These company size categories tend to be more at risk than large companies, as they have fewer opportunities to spread their activities and thus their risks. The dependence on the economic development of a few customers in a few customer industries in a few customer regions is much more pronounced in these companies than in groups and large SMEs.
Almost half of all employees working in the mechanical engineering sector are employed in the approximately 89% of smaller SMEs. Short-time working arrangements and short-term government support measures are still in place.
However, in a prolonged recession - as is currently expected - these companies will not be able to survive with the help of short-term measures; they will have to adapt to the new situation on a long-term and sustainable basis and adjust their capacities.
This is for the simple reason that the current declines do not stem exclusively from the global economic crisis that followed the financial crisis, but because the main customer industries, automotive manufacturers and automotive supplier groups, are suffering from overcapacities that have nothing to do with the financial crisis but are the result of investment decisions made in the 1990s.
Against this background, the situation of smaller mid-sized mechanical engineering companies must be regarded as highly vulnerable unless they have focused on specific market niches (e.g. medical technology, metrology, etc.). For these companies, the only options for survival are a fundamental review of their own value creation and their customer industries and a long-term strategic reorientation, rather than the "economic aid plaster" that has been applied in the short term to the wound of dramatically declining order intake.
Allow me to make a brief concluding remark to prevent any misunderstandings: If the band-aid first stops the bleeding and thus buys the company the time it needs to successfully master the restructuring process, it certainly serves its purpose. In this respect, taking advantage of the current opportunities offered by the Federal Employment Agency and the Kreditanstalt für Wiederaufbau is of course a help. However, it should be clear to the companies affected that these crisis packages are merely a building block for bridging the short-term problems and that the real work consists of aligning the businesses with market requirements in the long term.