Hanover Fair: unrest in the industry

Is Germany’s export-oriented economic model on the brink of collapse? Many managers and association officials seem to fear this since US President Joe Biden signed the Inflation Reduction Act in August 2022. Biden wants to boost his domestic industry with several hundred billion dollars. “Parts of the ‘Inflation Reduction Act’ put our companies at a disadvantage, and that in the middle of the energy crisis,” warns Peter Adrian, President of the German Chamber of Industry and Commerce.

In fact, thousands of cheap supply contracts for gas and electricity expired at the end of the year. The more expensive connection offers are difficult to finance because the end products cannot be sold at a correspondingly higher price on the world market. The energy prices that German industrial customers have to pay are five to six times higher than those of the American competition.

This hits energy-intensive sectors like the chemical industry particularly hard. Value chains are beginning to break. Plants for ammonia, Adblue, hydrochloric acid, for preliminary products of the pharmaceutical industry and basic chemicals have been shut down or production has been throttled because such products are cheaper to buy on the world market.

The auto industry is also threatened with “de-industrialization,” complains Oliver Falck, head of the Ifo Center for Industrial Economics and New Technologies. According to the Federal Employment Agency, the automotive industry has lost nine percent of manufacturing jobs since 2013. In the future, more than 400,000 employees will be directly affected by the switch from combustion engines to electric motors – partly because electric motors are far less complex to manufacture than combustion engines. Car manufacturers are still producing vehicles with both types of drive at the same time. “With the dismantling of these double structures, the reduction in employment in production will continue to accelerate in the coming years,” fears Falck.

There is also a risk of trouble in foreign trade. Falck is convinced that relations with China and the USA in a changed geopolitical environment will help determine the future competitive position of the German automotive industry – and thus also the production volumes. German car manufacturers are already producing significantly more vehicles in China than in Germany.

Trouble threatens from another side. According to German banks, the difficult economic situation and high energy prices will have a noticeable impact on lending and also lead to rising costs for borrowers. 59 percent of the 120 bank managers surveyed for the “EY credit market study” describe the economic situation in Germany as bad – only four percent as good or very good. And 86 percent consider loan defaults to be likely due to the difficult economic environment.

However, a completely different picture emerges when you look at the exhibitors at the world‘s largest industrial trade fair, which opens its doors this Monday in Hanover. Companies and researchers from Germany will present solutions for the electrification of mobile machines, such as those used in agriculture or building construction. Others show how sustainable battery recycling can be automated. Analysis systems detect weaknesses in artificial intelligence (AI), for example in the recently world-famous text-based dialogue system ChatGPT.

The digital, three-dimensional parallel world in the »Metaverse« is also becoming real: the first industrial companies are testing real work in a digital environment. In the meantime, tangible robots are testing the factory of the future: The »SWAP« production architecture should routinely deliver large quantities of the best quality, but also quickly individualized individual products. And this energy-efficient and environmentally friendly.

Examples only, but typical. According to Hermann Simon, Professor of Business Administration, there is not a single German company that plays in the world league of »consumer digitization« like Amazon, Google or Uber. Significantly, the latest sensation in AI, ChatGPT, does not come from Germany either. For the development of such “high-tech” – high mountains that everyone around the world sees and everyone knows – the demand on the small German market is too low. Nevertheless, Germany is not an innovation failure, »but a very successful innovation winner«.

Here, in addition to car and chemical companies, the much-vaunted medium-sized companies come into play. Its hidden champions dominate many industrial applications. Simon speaks of »deep tech«. He cites the technology giant Apple as an example. The number of suppliers from Germany hidden in the depths of the industrial process is 767, including the LSTM software, which is behind Apple’s Siri system and is installed on more than three billion smartphones.

Energy prices, a lack of digitization and excessive bureaucracy undoubtedly make business difficult for companies in Germany. That’s why most companies will not follow the lure from the USA any time soon. Access to scarce specialists, practice-oriented engineers and traditional industrial clusters are decisive for innovations and investments. But even for deep tech and champions there are no eternity guarantees, as the inglorious end of the German industrial legend AEG shows.