Car manufacturing, chemicals, pharmaceuticals - Germany's flagship industries are collapsing
On Thursday another crisis meeting took place in the Chancellery. This time with Chancellor Olaf Scholz, Economics Minister Robert Habeck, Health Minister Karl Lauterbach and representatives of the pharmaceutical industry. Their message was clear: if the location conditions in Germany do not change quickly and radically, the industry will have no choice but to massively relocate jobs and added value.
The industry, which generated sales of 56 billion euros in 2022, was, like the auto and chemical industries, long one of the most profitable economic sectors with the best-paid jobs. For the German economy, they were what is known as a cash cow in managerial terms: the best money makers. Today all three have to fight against massive problems, some of their own making, but many of them brought to them by politics. After the meeting in Berlin, it became clear that Health Minister Lauterbach is particularly good at one thing: political communication. “Lauterbach wants to bring pharmaceutical production to Germany,” was the headline in the Süddeutsche Zeitung and a dozen other media outlets, as if a politician could bring in production as effortlessly as if it were like milk from the supermarket.
The main focus of the meeting in Berlin was to keep existing pharmaceutical companies in Germany. Like other sectors of the economy, they suffer from the toxic combination of bureaucracy and high energy costs. What bureaucracy means here is that even the approval of test procedures and even more so the approval of new medications takes significantly longer in Germany than elsewhere - unless it is a drug that is urgently desired politically, such as the covid vaccine. In addition to the obstacles to research, pharmaceutical companies are suffering from increased electricity and gas prices. In many cases, you cannot pass on the increased costs because the contracts with health insurance companies cap the prices for many medications. Many basic medications can therefore be produced much more cheaply in Asia. In the association “Healthy Industrial Policy – the Progress Dialogue”, several companies producing in Germany, including Amgen, Bayer, Gilead, GlaxoSmithKline, Novartis, Roche and Boehringer Ingelheim, are trying to draw attention to their situation. After the meeting, Lauterbach promised “re-industrialization in Germany” and a simplified approval process. Whether that will actually happen is completely unclear. The gap in research compared to other countries has not just existed since yesterday.
Great Britain has around 20 times more medical patents than Germany. But even if Lauterbach's full-bodied promises to reduce bureaucracy became reality, they alone will hardly help the industry if energy costs remain so high. Robert Habeck apparently doesn't want to accommodate companies here - neither in the pharmaceutical, chemical or vehicle sectors.
The crisis is hitting one company in the industry much harder than others: Bayer. The group is suffering from energy prices, but also from its own symptoms of crisis. On November 20th, the Bayer share price fell by a good 18. On the one hand, this was due to the completion of a study for a drug from which Bayer had high hopes - and to a new defeat in the series of lawsuits surrounding the crop protection ingredient glyphosate in the USA. Bayer originally set aside $16 billion for the proceedings; A good $6 billion is still in the treasury and is tying up capital that is missing for investments. The high energy costs also eat into margins.
The second major cash cow industry is also doing badly. In the chemical industry, energy costs have an even greater impact on results and jobs. Industry leader BASF therefore shut down several plants at its main plant in Ludwigshafen, including one of two ammonia plants, and cut 700 jobs in production, as well as 2,600 jobs in service and research. Evonik, number two in the chemical industry, is planning cost savings of 250 million euros. The plan includes outsourcing three divisions, two of them in Germany, which currently employ 4,000 people. It is unlikely that everyone will be taken over by the new service companies: the group expressly does not guarantee employment. The US chemical company Dow, which employs around 3,600 people in Germany, is planning to cut around 2,000 jobs. At the Cologne chemical company Lanxess, the shrinkage of 460 jobs is still comparatively mild. But across the industry it is said: If energy remains so expensive in Germany, then job cuts and production relocations abroad will continue even faster than before.
The auto industry, once the most productive of the three dairy cows, is suffering the most. It is hit by a double blow: of course also the high energy costs - but even more so the ban on combustion engines until 2035, which was ordered by the EU and eagerly supported by Economics Minister Robert Habeck. Both of these together could ultimately prove fatal for the entire industry. Of the 27,000 jobs in Bosch's automotive supply division, around 80 percent depend on combustion engines. The company, which belongs to the German industrial aristocracy, is about to undergo a restructuring with the chainsaw. The transmission manufacturer ZF has already announced that it will cut 6,000 jobs at its Saarbrücken factory for the same reason. The CEO of car manufacturing supplier Mahle, where 30,000 employees currently earn their money, is also preparing employees for a major downsizing: “We will be significantly fewer.” Tire manufacturer Michelin wants to close four of its German plants with a total of 1,500 employees by 2025 . For the group, the deciding factor is the high energy prices compared to Asian manufacturers - but also the prospect that fewer cars overall will probably find buyers in the future.
In his speeches, without explicitly using the term, Habeck invokes Josef Schumpeter's “creative destruction”: the old disappears and the new comes. However, Habecknomics only envisages the destruction of proven business models, i.e. non-creative destruction. The illusion of gaining at least some of the added value by attracting electric vehicle production facilities to Germany is currently falling apart. The desired factories are being built where cheap electricity prices and comparatively low taxes are attractive: The Chinese electric car manufacturer BYD is not building its European factory in Saarlouis, as hoped, where Ford will soon be closing its doors. But in Hungary. Ford, in turn, will manufacture its new electric car in Valencia, Spain.
So far, Chancellor Olaf Scholz and his Economics Minister do not even seem to have taken note of what threatens the economy if the country's three strongest industries simultaneously plunge into a crisis that is largely caused by politics. And not into an economic crisis after which things will look up again, but into a depth for which there is currently no end in sight.
Despite the budget freeze and a 60 billion hole, Scholz recently announced a hefty four billion injection – for the “EU-Africa Hydrogen Initiative”. And then traveled with half the cabinet to the climate conference in Dubai to promise 100 million euros for a global climate fund. The local economy? Can wait. At some point there will be another summit in the Chancellery.
Source: Tichys Einblick
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