Mechanical and plant engineering in Germany is grappling with significant challenges as 2024 progresses, with a bleak forecast for 2025. Manz AG, facing fierce competition and filing for insolvency, highlights the sector’s struggles. While industries like medical technology thrive, the automotive sector suffers from declining sales and unmet electromobility expectations. Calls for reducing bureaucratic hurdles and tax reforms aim to enhance competitiveness, yet skepticism remains about proposed solutions from political parties. Employment stability is at risk if confidence doesn’t improve.
Mechanical and plant engineering faces challenges as 2024 unfolds – is there hope for improvement in 2025?
The Reutlingen-based machinery manufacturer Manz aimed to secure its future by investing in electromobility and advancing its technologies, particularly in battery cell production. Despite these efforts, the company’s outlook remains grim.
In January 2024, then-CEO Martin Drasch voiced concerns about the intense competitive landscape, stating, “Our costs are 30 to 40 percent higher when competing with Asian firms.” Shortly before the holidays, the troubling announcement came: Manz AG would be filing for insolvency.
According to the company’s statement, “The anticipated market potential in Europe has failed to materialize, partly due to insufficient political support. In fact, the European battery cell market saw a significant downturn in 2024, leading numerous major international manufacturers to postpone or cancel investments.”
This situation implies that the substantial investments in technology and innovation by the company have not been matched by sales revenue, creating a challenging scenario.
Struggles in the Mechanical Engineering Sector
The mechanical and plant engineering sector, a cornerstone of Germany’s economy, faced a turbulent 2024, with a lackluster outlook for 2025. The Association of Mechanical and Plant Engineers (VDMA) in Baden-Württemberg emphasized that the weak order situation continues to dampen spirits.
Dietrich Birk, managing director of VDMA Baden-Württemberg, noted that the performance of companies greatly varies by industry and customer base. While sectors such as medical technology, aerospace, and defense are thriving, the automotive industry is struggling. This downturn is attributed to declining passenger car sales and unmet expectations regarding the shift to electromobility.
The association projects an eight percent decline in production for mechanical and plant engineering in 2024, which Birk describes as a significant challenge. The forecast for the following year anticipates a further two percent decrease.
Bureaucratic Hurdles Persist
Birk criticized the coalition government’s approach, urging for a concerted effort to cut bureaucratic red tape at all levels to avoid further disadvantages in international competition. He argues that deregulation should be prioritized politically.
According to Birk’s calculations, bureaucratic costs can consume up to three percent of sales, funds that could otherwise be allocated to research and development, often wasted on documentation that drains time and resources.
Additionally, he advocates for tax reforms, suggesting that corporate tax rates should be reduced from 30 percent to 25 percent to enhance competitiveness on a global scale. Energy costs, too, need to be addressed to keep pace with competitors in the USA and China. Birk’s appeal to the new government is for a stable economic policy framework.
Concerns About Economic Solutions
VDMA President Bertram Kawlath expressed skepticism about the Alternative for Germany (AfD) party’s proposals, pointing out that while some of their ideas, like reducing bureaucracy and taxes, align with broader economic improvement goals, they are overshadowed by more harmful suggestions.
Kawlath warned that the AfD’s call to exit the Euro could pose severe risks for an export-driven sector like mechanical engineering. “We need open borders and an inclusive society to remain competitive against the USA and China,” he emphasized.
Furthermore, he criticized any rejection of climate targets and CO2 pricing, asserting, “Climate change is undeniable, and we must address it using modern mechanical engineering technologies. The AfD’s approach lacks viable solutions for the German economy.”
Job Security in Question
On a more positive note, VDMA Baden-Württemberg has reported that the employment landscape remains stable. However, if confidence does not rebound, there may be a need for “employment adjustment measures,” which could include short-time work and increased pressure on existing jobs.
This analysis was featured in a report by ‘Plusminus’ on ARD on May 8, 2024, at 9:45 PM.