German industry hit by perfect storm of trade woes, tech shifts

Bloomberg

Deep in Europe’s manufacturing core, a German company is taking radical steps to cope with a perfect storm that has sent traditional economic pillars into a tailspin and put the country on the verge of recession.
Huebner GmbH — a 73-year-old supplier of rubber and plastics that employs 3,300 people around the world — is selling its unit that makes accelerator pedals, key pads and auto-body parts after getting squeezed by Germany’s carmakers. Instead, it’ll focus on public transport and — in a completely new endeavour — making lasers.
The move reflects how Europe’s largest economy — reliant on exports and a world leader in the century-old industries of cars, machines and chemicals — is at a critical juncture. It’s being hit by President Trump’s protectionism and Brexit uncertainty just as companies struggle with a high-risk transition to greener products and smarter digital factories.
The German economy shrank in the second quarter and could do so again this quarter. The latest warning sign came, when a nationwide gauge showed orders at factories and services companies dropping at the fastest pace in six years. More German companies now expect output to fall rather than rise over the next 12 months, the first time that’s
happened since 2014.
With day-to-day business roiled by geopolitical power plays, German giants like Siemens, BASF and Daimler have been forced to lower profit forecasts and seek ways to cut costs.
The Machine Slows Down
Small and medium-sized enterprises such as Huebner make up the so-called Mittelstand, which accounts for 35% of corporate revenue and 58% of jobs in Germany. Often family-owned, they don’t have the cash buffers to sit out a downturn. Nor are they well-positioned to address structural challenges like a dramatic shift in the underpinnings of modern manufacturing.
The ultimate challenge facing German manufacturing is the transition to so-called Industry 4.0. The concept refers to so-called fourth industrial revolution as manufacturers around the globe go digital. While Germany originated the term, the country is ill-equipped to deal with the transition, with deficiencies in everything from software training to Internet infrastructure.
Amid complaints about a lack of government support and a shortage of trained labor, the Mittelstand is falling behind on research and development efforts, according to a report by the Bavarian Chamber of Commerce. The state, home to BMW and Audi, only hit its goal of R&D outlays accounting for 3% of GDP thanks to spending by big companies.
Giving voice to concerns over country’s competitiveness, more than 50,000 people attended a June rally. The goal was to prod government to help prevent widespread layoffs from the technology shift.
While political issues such as Brexit and trade tensions distort measures such as exchange rate and raw materials prices, making economic judgments “incalculable,” companies still need to look further into future, according to an economic expert.
at the German Mechanical Engineering Industry Association.

“It’s pretty gruesome right now,” said Wortmann. “Merely waiting isn’t enough. You can prepare by trying to address all the technical challenges. But simply waiting won’t do it.”

Rubber to Lasers
For Huebner, that’s meant investing in lasers. The project — far removed from the molding it’s done for decades — started in 2014 with a series of acquisitions. The photonics unit now has 70 employees, with manufacturing locations in Stockholm and at its headquarters in Kassel and sales offices in Silicon Valley and the UK. The company’s products are used for holographic films for augmented reality glasses and biomedical research.
Sales, which have doubled since the unit was established, are “growing like hell,” said Ingolf Cedra, Huebner’s managing director for materials and photonics.
He’s optimistic that Germany, which successfully rebuilt after the ravages of war and absorbed the communist east after the Berlin Wall fell 30 years ago, will ultimately weather the current turbulence.
“German industry has a fantastic chance in combining the mechanical expertise, in designing the machinery and merging that with clever software solutions,” said Cedra. “I do believe that the Mittelstand — driven by machinery business, mechanical engineering — they have a chance, and they will take the chance.”