- The Washington Times - Monday, January 12, 2009

BERLIN — German car manufacturers are at the core of the country’s industrial complex and the world economic crisis is cutting to the core.

“In Germany, the car has reached an invulnerable status that can only be compared to the bank secret in Switzerland,” a Zurich newspaper wrote last year.

That is why the impact of the world crisis jarred many Germans in a way financial disruptions seldom do: Bavarian car manufacturer BMW temporarily shut down its main production plants in Munich and Regensburg at the end of last year. Other plants in Dingolfing (Bavaria) and Leipzig (Saxony) followed.

Now, after the extended five-week-Christmas break the market situation has not changed and the car builders’ nightmare goes on. December sales in the United States of BMW were 40.2 per cent lower than in the same period in 2007.

This was devastating news for the BMW workers who, after an enforced use of their compensatory time, might soon be threatened by short-time work or even layoffs.

In February 2008, the third-largest car company in Germany had already discarded 8,100 workers due to sales problems in the U.S. market caused by the strong euro. But compared to this, the current problems are more substantial.

“This crisis exceeds everything we have ever known,” said BMW Chairman Norbert Reithofer. The BMW group has produced cars since 1928 and has reached the status of a German legend.

But 2008 and 2009 might become decisive years for the manufacturer, which is being forced to make hard choices. Being repeatedly voted the most attractive employer in Europe, the company is considering cutting back on workers’ high social benefits.

Times are so bad that even cooperation with arch rival Mercedes-Benz Co., the other icon of German car-making, in the field of cost-intensive research for a future electrically powered car has become reality.

For its part, Mercedes is troubled by the flagging demand for luxury cars worldwide. Despite positive sales figures for the “smart” compact car, U.S. limousine sales in December decreased by 32 per cent compared to December 2007.

Jam-packed stocks forced Mercedes managers to plan short-time work for all the company’s plants, a development not seen since 1993.

Four or even three working days per week as well as short holidays will be the new reality for most Mercedes employees. At the same time, the Mercedes management is trying to convince workers to leave the factory, promising high compensation. A contract with the German labor union IG Metall in 2004 forbids the largest German car manufacturer to lay off workers due to business operations until 2012.

Sports car manufacturer Porsche, since 2005 the main stock-holder at Volkswagen, is bound by a similar agreement until 2010. However, the company officially confirmed the first nonrenewals of short-term contracts in their research department.

Porsche sales dropped from 30,700 cars in August to 25,000 in November. Chairman Wendelin Wiedeking predicts an even bigger demand decrease in 2009. Yet Porsche’s subsidiary, Volkswagen, known for high-quality small cars, experienced a rather smooth close of the business year. Their 2008 sales on the important U.S. market were only 3.2 per cent lower than in 2007, a minor loss compared to BMW’s slump of minus 9.7 per cent.

Volkswagen sold 3.1 per cent more cars between January and September 2008 than in 2007. Such brands as Audi, Bugatti or Seat, however, did much worse.

Volkswagen Chairman Martin Winterkorn sees “bad times” for his company in 2009, but based on the increasing introduction of temporary employment, the company has acquired a high flexibility during recent years. Despite the crisis, Volkswagen will stick to its long-term strategy.

Unlike Japanese competitor Toyota, which froze its expansion plans, the car manufacturer from North Germany will continue with the construction of a new U.S. plant in Chattanooga, Tenn.

There, Volkswagen might produce small, economical cars that may meet the demand for more efficient vehicles.

High quality and a focus on luxury helped Mercedes, BMW and Porsche to overcome minor problems in the past decades, but in times of global recession even the label “Made in Germany” does not seem to help anymore.

Companies cut back on their fleets of cars or downsized to smaller vehicles. During November, the car registrations in Europe dropped by 25.8 per cent; compared to November 2007, the registration numbers are 7.1 per cent lower. Even the markets in China and the Middle East, normally reliable in growth and sales, dropped as a reliable income source.

The crisis of the car industry affects Germany as a whole: Being one of the main job motors in the country, the lack of income taxes has an instant negative effect on the financial situation of towns, some of which are heavily dependant on single manufacturers. Towns like Sindelfingen or Wolfsburg are directly linked to the destiny of Mercedes-Benz or Volkswagen. Plus, many small and middle-size businesses have specialized in supplying the big companies with high-quality parts.

Considering the major importance of German car industry, it is no surprise that the manufacturers wait for help from the state.

Matthias Wissmann, president of the German Association of the Automotive Industry (VDA), demanded 20 to 40 billion euros as cheap loans of the European Union to help the industry survive. German secretary of finances, Michael Glos, reacted cautiously: “The car manufacturers already get credits from the European Investment Bank, also for developing energy-saving models.”

Mr. Glos also criticized the U.S. government’s intended support for the American car industry as being “no enduring solution.”

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