As German Manufacturing Faces Competition, Will Russia Open Doors?

By Tom
Updated on

As German Manufacturing Faces Competition, Will Russia Open Doors?

It might interest many to know what current thinking in the German industry is.

Frankfurter Allgemeine has:

Hoping for America – tougher competition from America.

Degenhart doesn’t fear – like many other managements – a new global recession, and even sees good chances to distance itself from direct competition. “We want to grow 4 to 5 percent faster than out markets”, he announces. The slump in the European car market has ended according to the firm Continental, though units will slack 1 to 2 percent. On the other hand, the band should play that much louder in America, where continental expects sales of 15.5 million cars and light utility vehicles – that is a growth of 9 percent over the ended year.

The US industry will use its new competitiveness, particularly based on significantly lower energy costs – however strong the political in-fights over taxes and public spending may be – to modernise its plants. This makes the competition on the world market even harder for many German enterprises; others see the US as back in business. “There is in the US a carefully managed project to re-industrialise the country. The machinery has not been renewed for years and is outdated. Now many are investing again and the German machine building industry is profiting from it”, says Thomas Lindner, entrepreneur and president of the Machine Building Industry Association VDMA.


One should note that industrial expansion anywhere, for instance China, needs machines to build machines – in that area Germany has a high market share. In this respect German industry sees the US market as a successor should China grind to a halt. No doubt about it some of the jobs outsourced to China will return to the US – certainly not in the number they disappeared; but still. The energy price has been mentioned; however frugal the Chinese population might be – it is still a bad idea to pay for the opportunity to work over an extended period.

A country may undervalue its currency to subsidise exports, but that policy will bite back with rising prices on food and raw materials. Even without wages there comes a point when the constant loss is too great.

Personally I had – and still do – expect Russia to be the new market for German industry, especially in the capital equipment sector as I doubt very much that the huge Soviet era plants to any appreciative extend has been renovated.

The jobs returning to the US will be fewer as new equipment will be more productive, thus needing fewer hands. Furthermore sales volume in units will be higher if sold at cut rate prices, so returning to profit production will be lower and sales turnover higher or lower according to the flexibility of demand for the product in case.

I have noticed that US locomotive production is to a large extend renovating 40-50 year old wrecks. Even in that technological backwater there must be some room for the improvements of half a century. Eventually the The Boeing Company (NYSE:BA) 747 will have to go – though again transport planes are notoriously long lived on the assembly line – the DC3 and the Hercules are notable examples (though the C-130 of today is quite a different bird from the one granddad flew).

One should also notice that the German machine building industry has sold to China at nice prices and let them pay for the development of the mark 2’s of their machinery, not to mention the mark 3’s now offered to the US industry.

Yet another piece of information from the article, quote:

There are few complaints about the banks credit extension. That may have something to do with the fact that the enterprises in the latest upturn have paid off debt and filled their chests. That has improved their credit rating – and made them more attractive as debtors. “Credit access for businesses that seek finance remains very good and stable”, Jörg Zeuner, Chief Economist of the State Investment Bank KfW foresees. If credit extension sinks in spite of this, it is only due to caution in the light of unsure external circumstances. In the first half year of 2013 the credit extension should keep sinking, Zeuner summarises.


I beg to differ in that interpretation. There is still too much metaphysics in economic “science” to my taste. Business men are practical people that do not part with money according to the leaves of their morning tea. They distinguish themselves from speculators in so far as they demand a budget and a firm order.

Tunnel drilling equipment isn’t a store item.

Indubitably a lot of companies retrenched their finances after the scare of 2008/9, if for no other reason than to avoid being at the mercy of the bank managers of proven suspect competence. Another point is that investors have been looking for loans that might actually be paid back. A bond issue from a solid business that can back their request with a firm order might be more interesting than Greek sovereign bonds. Off course credit is accessible: deposits are high and quality bonds are few and far between.

It also seems like investment funds have given up trying to make good on their careless promises to savers by going to Vegas, hopeing to make up the shortfall.

Furthermore the ability to extend credit themselves to known suppliers and customers could be an attractive proposition – thus cutting out the bank. A machine building company does have any idea of the value of the collateral put up by the costumer. The business community is learning to live without banks – CEO’s are tired of being skinned, called on the carpet by bank managers making time between their court appearances. Banks keep overestimating their importance at a time when everybody is doing their best to avoid them.

Leave a Comment