Germany's Hot Wheels
Alois Heigl won't pick up the shiny new Mercedes SLK convertible he ordered months ago until Oct. 25. But the 39-year-old Bavarian locksmith is already advertising in a Munich paper to sell the supercharged, $40,000 roadster. Buyers have offered $3,300 over list price for the model, which is sold out until 2000, but Heigl thinks he may get $8,000. With such tempting profits, he says, "you think pretty hard about selling."
Germany's carmakers are back with a vengeance. Slimmer and savvier, they've rebounded from humiliating setbacks against Japanese competitors in the early 1990s. They are cranking out hot products from the $40,000 Mercedes-Benz M-Class sport-utility to the sexy new $62,000 Porsche 911 Carrera and the latest generation of Volkswagen's $13,500 Golf. Helped by the weak mark, they're coining profits. "[The Germans] are a dynamic, resurgent force in the world auto industry," says Nick Snee, a J.P. Morgan Securities Ltd. analyst in London.
As industry brass gather for Europe's largest auto show in Frankfurt in early September, they will finally have something to shout about. The nation's biggest exporters--accounting for 18% of all exports--they are at the leading edge of Germany's makeover as a manufacturing base. They have made factories more efficient by hammering through flexible work rules and adopting lean-production techniques (box), and they have slashed costs by trimming workforces and engineering parts out of new products.
"TEMPORARY ADVANTAGE." Now, the results are showing. Car exports jumped 8% through July, after last year's 7% gain. Carmakers and parts suppliers are scrambling to cope. Some canceled vacation-time plant closures. And the industry is hiring again--adding 17,000 new workers so far this year. Even General Motors Corp.'s Adam Opel unit, which has stumbled in Europe because of aging models, is growing in Eastern Europe and Asia. DRI/McGraw-Hill, an economic consultancy, estimates that German brands will grab 19% of the 38.5 million unit world market in 1999, up from 15% in 1993.
But German carmakers can't afford to let up. Even with recent gains, they still lag top-flight Japanese counterparts. A study by the Economist Intelligence Unit consultancy rates Nissan Motor Co.'s plant in Sunderland, England, as the most efficient in Europe. Its workers make 73 cars each per year, vs. less than 29 by those at VW's main Wolfsburg plant. Despite Mercedes' reputation, Japanese makers such as Toyota Motor Corp. and Honda Motor Co. repeatedly beat it in J.D. Power & Associates Inc. quality ratings. "The temporary advantage [the Germans] have in products will not last," warns Daniel T. Jones, an auto specialist at Wales's University of Cardiff.
The first serious test will come the next time the cyclical auto industry hits a thin patch. It could follow a stock- market downturn that prompts free-spending yuppies to close their wallets. Already, the meltdown in Asian financial markets threatens the carmakers' ambitious growth strategies in the region.
Trouble is that German cost levels are still punishingly high. Even with the weaker mark, wages are among the steepest in the world. German autoworkers earn an average $35 an hour, including benefits, vs. $21.50 in the U.S. and $15.50 in Italy, according to the German Automobile Manufacturers Assn. High taxes and the nation's thicket of regulations add to costs, too.
UNION CONCESSIONS. That's why German engineers are under constant pressure to spawn more product innovations. Mercedes' $17,000 A-Class model, for example, is the luxury brand's first entry ever into the small-car market. The size of a VW Golf, the car is chock-full of safety features, including a unique chassis design that guides the engine under the passenger compartment in a front-end collision. "The A-class sets a totally new [safety] standard for a small car," brags Jurgen Hubbert, head of Mercedes' passenger car division.
German companies have sped up product development considerably. Using computers to create "virtual" prototypes instead of costly physical ones, for instance, BMW has halved model development times to less than three years. And auto makers have cajoled or squeezed concessions from Germany's heavily unionized workforce. Now, they can respond quicker to shifts in demand. When BMW needed 900 extra workers at its Dingolfingen plant to start production of a new 5-series sedan, they were temporarily reassigned from Munich and Regensburg, 37 miles away.
German carmakers can now introduce sophisticated products and still keep a lid on prices. The new Porsche 911 costs the same as its predecessor. Still, companies have spent $5.7 billion since 1994 to build up production outside Germany. VW, competing in tough mass markets, has moved most aggressively. It has poured money into subsidiaries such as SEAT in Spain and Skoda in the Czech Republic. Last year, it made 55% of its cars and trucks outside Germany.
To save themselves in the long run, German auto makers may eventually have to drop their "Made in Germany" labels altogether. Increasingly, they are emphasizing their brands and downplaying their origins. The process will speed up once the good times end and they again have to fight for every buyer.
To continue reading this article you must be a Bloomberg Professional Service Subscriber.
If you believe that you may have received this message in error please let us know.
- Producer and DJ Known as Avicii Has Been Found Dead
- Deutsche Bank's Bad News Gets Worse With $35 Billion Flub
- Wells Fargo's $1 Billion Pact Gives U.S. Power to Fire Managers
- Oil Shrugs Off Trump Tweet to Rise for a Second Straight Week
- The U.K. Just Went 55 Hours Without Using Coal for the First Time in History