Rainer Dulger, the president of Germany’s largest industrial employers group, Gesamtmetall, should have reason to celebrate. Europe’s largest economy continues to grow at a steady clip, and demand for German cars and machinery are unbroken, even after Volkswagen’s Dieselgate fiasco. While the growth outlook for Gesamtmetall’s 6,800 companies, which employ 2.2 million people, is cautiously optimistic, there are risks on the horizon, most of them political: Brexit and the protectionism of Donald Trump. In an interview with Handelsblatt Global Editor-in-Chief Kevin O’Brien, Mr. Dulger describes the mood among the automakers, machinery makers and electro industrial companies that make up the heart of the German export economy.
Mr. Dulger, you just published your annual report on the structure of the German metals and electro industries. What are the major conclusions?
Our industry is strong, and it’s success is vital to Germany’s economic well-being. But there is a mounting feeling of uneasiness – and the study shows that this gut feeling is there for a reason. We have been facing stagnant productivity since 2011, and that is alarming, especially as it’s accompanied by rising labor costs.
There are a number of possible explanations: One is, that companies are hiring in Germany, even if they don’t really have enough work, because they foresee labor shortages in the near future, given our demographics. Another explanation points to the complexity of international production – while more and more actual production takes place in plants outside of Germany, more staff is needed to manage and organize, to design and do R&D. Statistically, that reduces productivity, too. But whatever the reason is: It’s a clear indicator that we have to be alert. Past success does not guarantee future success.
Gesamtmetall is the biggest industrial employer association in Germany and as a result is a reliable bellwether for the performance and perspectives of the overall German export economy. What is the mood among your members at the moment?
We certainly don’t see much euphoria, but we are still mildly optimistic. True enough, risks are piling up – from Brexit to the new U.S. administration, to the upcoming elections in France, the Netherlands and Germany. Entropy rising from political uncertainty is of course the last thing any business is looking for. But we are entrepreneurs. We don’t tend to be intimidated by obstacles. So we keep on doing what we do best: Serving our customers world wide, and we’ll worry about things when they come to pass, instead of letting ourselves be paralyzed by fear.
The latest German economic growth report — GDP rose 0.4 percent in the fourth quarter of 2016, was a little disappointing. Some analysts had been expecting more. Do you think this is a sign that your members are starting to feel the concrete effects of Brexit, Donald Trump and the other major influences currently at work?
Well, that’s only the fourth quarter. We expect GDP growth of about 1.9 per cent for 2016. That’s not that bad, really. And while Brexit, Trump and the rest surely will have an effect on expectations, in reality, nothing much has actually happened yet. The U.K. is still a member of the E.U. and U.S. trade policies have not changed. Real economic effects for our part of the economy have yet to materialize.
“While Brexit, Trump and the rest surely will have an effect on expectations, in reality, nothing much has actually happened yet. The U.K. is still a member of the E.U. and U.S. trade policies have not changed.”
What is the biggest risk factor for your members — the euro-dollar exchange rate or competition out of low-wage countries?
From our perspective – given the costs of production in Germany – almost every competitor comes from a low-wage country. So we are used to that competition, and everyone has developed his own strategy to cope with that. The exchange rate is an issue, but our industry is used to that as well. Not only was there a time before the euro, where we had to cope with a strong D-Mark, but export and, in its wake, dealing with foreign currency, belongs to the founding experiences of German industry. Keep in mind that at the beginning of industrialization, in the early 19thcentury, Germany did not really exist as a single nation, but was rather a federation of 41 independent states. No, the major uncertainty stems from the political challenges mentioned above.
Donald Trump criticized Germany’s balance-of-trade surplus with the United States and has threatened to levy punitive customs duties on German goods. Are your members worried and what are they doing about it?
Our customers buy our products voluntarily, and it’s most certainly not because our products are always sold at lower prices than the competition. It’s either the best value for the money, or that you need that special kind of technology. And let’s not forget that German industry does have many plants in the U.S. as well. Six out of 10 cars built in the U.S. factories of German carmakers are actually exported out of the U.S. Inhibiting international trade would hurt U.S. jobs – just as a minor example: Airbus has a plant in Alabama, but Boeing does not have one in Europe. Now, who is going to suffer more if both regions should demand local production? I still haven’t given up hope that the President will see reason – or listen to an adviser who does.
The automobile sector accounts for a big part of your membership. Despite the difficulties posed by Brexit, protectionism, Dieselgate and competition from Asia, most of them are still making healthy profits. Is there a mood of confidence among automakers or do they find themselves in a crisis right now?
The automotive industry is well aware of the challenges ahead – including the technological ones such as electric vehicles and self-driving cars. No one is taking success for granted, but you don’t get to be in the market for more than a 100 years without the ability to adapt.
How important is the subject of Industry 4.0, the digitalization of industrial processes, for your members?
It’s a vital issue on many levels. First of all, we are not only a user, but our industry is a supplier of that technology. Then, it’s a source for innovation and maybe even productivity leaps that we will need to cope with our costs and our demographics (aging population) here in Germany.