Future Atlas 2016 - City Ranking

In Faraway Corner, a Late Bloomer

Ein Fahnenschwinger wirbelt am 23.06.2013 beim Hessentagsumzug in Kassel (Hessen) die hessische Fahne vor der Kunsthalle Fridericianum. Foto: Uwe Zucchi/dpa +++(c) dpa - Bildfunk+++
Nothing can threaten Kassel's newfound pride except - perhaps - Dieselgate as a VW plant is a key local employer.
  • Why it matters

    Why it matters

    The suburbs surrounding Kassel are seeking to supersede the city itself as the driving economic force for this northern part of the state of Hesse and southern part of Lower Saxony.

  • Facts

    Facts

    • The district’s portrait is part of the 2016 German Future Atlas, which is published every three years by the Swiss research institute Prognos and Handelsblatt.
    • SMA Solar Technology, a comparatively young high-tech company, produces solar-power modules and is the region’s second-largest employer.
    • Volkswagen’s second-largest factory is located in Baunatal, right next to the city of Kassel, and VW is by far the region’s most important employer.
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    Audio

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Kassel’s boom was a long time coming.

For way too long, unemployment in this small town in the heart of Germany was at 20 percent, its airport listed dates and not just times – and city officials had to phone up entrepreneurs and beg them to come. The town’s highlight was the Documenta, a major international art fair that comes once every five years.

But Kassel has bounced back, partly thanks to a solar panel factory, SMA Solar Technology, the region’s second-biggest employer. The high-tech company produces solar-power modules and its chief executive compares the sight of his factory to the baroque waterfall monument of Hercules downtown: a source of pride.

“We're watching how VW is doing pretty closely.”

Kai Lorenz Wittrock, Director, Kassel business-development agency

Back in the days when Germany was divided, Kassel was mocked as the Hessian Siberia. It was located near the border to East Germany, and travelers reluctantly changed trains there as they sped their way to hipper places.

Now, even the countryside around Kassel is booming, doing better than the city itself, according to the latest Future Atlas, published every three years by the Swiss research institute Prognos together with Handelsblatt.

In contrast to cities like Regensburg, Osnabrück, Koblenz, Weimar or Coburg, all of which are more prosperous than their surrounding areas, the city of Kassel has lagged behind the same-named administrative district in the rankings for the last six years.

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The townies aren’t fazed. “For a while now, the city has been doing well, but the surrounding district has been doing really well,” said Kai Lorenz Wittrock, director of the Kassel business-development agency.

That’s despite the fact that the boom took a good two decades to arrive after reunification. Few other West German cities had such high hopes after 1990. Kassel, suddenly finding itself at the heart of the new Federal Republic, had expected to emerge quickly from the shadow of the Iron Curtain.

But dry years followed. Kassel lost a special subsidy it had received as it was located so near the East. Jobs disappeared and firms and trucking companies moved into the new eastern states.

Only after a delay of 15 years would the favorable central Germany location finally pay off.

“The expectations that the Kassel economic region connected with reunification have finally been confirmed – even if much later,” Mr. Wittrock said. Now, he says, things are looking up thanks to the easily accessible location, the rapid-rail train station and the university.

The university in particular, which long had a miserable reputation, has since the turn of the millennium been revitalized under a new administration. Many graduates set up their own firms, especially in the areas of energy, environmental technology and software development.

That has translated to jobs. While Kassel had the highest number of people on welfare in 2003, and unemployment reached 20 percent, now it has fallen to 8.5 percent.

“Twenty years ago, we still had to seek out entrepreneurs individually on the phone,” Mr. Wittrock said. “Today investors and realtors call us up.”

This optimism was clouded last fall, however, when Volkswagen admitted to manipulating emissions for its diesel vehicles.

While VW itself is based a few hours north, in Wolfsburg, the company’s second-largest factory is located in Baunatal, right next to Kassel. The company makes gearboxes and exhaust systems and is by far the region’s most important employer. More than 16,500 people from the city and district work in production or at the replacement-parts distribution facility, which is Europe’s largest logistics center.

The whole region benefits from the commercial tax Volkswagen pays from its Wolfsburg headquarters in Lower Saxony.

“VW is the motor of the region,” Mr. Wittrock said, adding that he hopes Dieselgate won’t make this motor sputter. “In northern Hesse, we’re watching how VW is doing pretty closely.”

It’s not the first time there’s been some concern about VW. About 10 years ago Wolfgang Bernhard, then-head of the Volkswagen group’s core VW brand, wanted to break up the spare parts factory. The gearboxes and exhaust systems made there worked impeccably but production was complicated and expensive.

The plant fought back, its manager closely inspecting each stage of production to win extra seconds that translated into higher productivity. The factory in Baunatal improved its productivity in some years by as much as 12 percent, and the number of gearboxes Baunatal built rose from 2.8 million in 2008 to 4 million in 2014.

Now, the plant is the best at VW with respect to the development and production of gearboxes, especially environmentally-friendly direct shift gearboxes along with hybrid and electric motors. As for die casting, the production site is considered to be the globally leading competency center.

Within VW, Baunatal doesn’t depend on one of the carmaker’s 12 brands but produces for all of the Wolfsburg-based automaker’s models. So when VW admitted to the Dieselgate scandal, it suffered too.

“Here in Kassel we are especially disappointed, because we also build the exhaust systems here,” said an employee from the plant’s administration.

The impact on Volkswagen also affected Baunatal’s tax income. With €32 million ($35.8 million), the city of Baunatal had the highest business-tax proceeds in the entire Kassel district in absolute terms. But compared to 2014, revenues fell by €40 million – due not least of all to the problems at Volkswagen.

Kassel has other businesses. It no longer just depends on cars, as new companies specializing in logistics and renewables have sprung up. There’s also mining company K+S, oil and natural gas producer Wintershall, railway-door maker Bode, the Kassel plants of weapons manufacturers Rheinmetall and Kraus-Maffei Wegmann and railway-technology specialist Alstom.

All were drawn by Kassel’s central location and in turn attracted talented managers to the region.

This is also true for SMA Solar, the world leader for inverters, switch boxes that turn the direct current produced in solar modules into the alternating current that is fed into the electricity grid. It has a global market share of 21 percent.

But for SMA Solar as well, times weren’t always rosy. From only €104 million in 2003, revenues rose to €1.7 billion by 2011. Over the same period, the number of employees rose sevenfold to 5,500 workers. But then growth faltered amid Germany’s halting and often-confusing transition to renewable energy.

“Constant changes in governmental subsidies caused the market in Germany to implode,” Chief Executive Pierre-Pascal Urbon said.

Sales and revenues plummeted. The company in 2013 and 2014 had losses of €66 million and €179 million. It fired 1,600 employees – 1,300 of them from Kassel.

Today, 4,000 people work for SMA, and revenues have once again stabilized. In 2015, SMA achieved profits of €14.3 million – not least of all because in the crisis, the company expanded its foreign operations. Today SMA has more than 90 percent of its sales outside Germany.

Amid this turbulence, the city stood by its global market leader and managers. “Here we didn’t receive support from local politicians only in good times, as is customary, but also when things weren’t going so well for us,” Mr. Urbon said, although he acknowledged the downturn was painful and had drastic consequences for the region.

The chief executive, the mayor and district administrators kept talking and for Mr. Urbon, this cohesiveness is one reason Kassel has survived – and thrived.

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Handelsblatt’s Benjamin Wagener writes about the people behind a product or a new business strategy. To reach the author: wagener@handelsblatt.com

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