Future of Germany

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An article with the headline of Germany's Fragile Future, which kind of matches with my observations and views, was published in the Businessweek this week.

 

Germany is still a manufacturing based economy, mainly standing on the auto industry, and although the concepts of digitalization, industry 4.0, etc. are always topics of discussion, the transformation, if there is one, while the manufacturing, and a great deal of engineering work slides to Asian countries,  doesn't seem to be happening fast enough. At least that is how i see it.

 

What are your thoughts?

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Interesting article.

 

Yes Germany is manufacturing based, but the level of manufacturing tends to be very specialized.  Excluding the car industry, then most products made are actually not made for consumers but as components for other companies to use in there products or high-tech/specialized products used in industry/construction etc.

 

A lot of these companies also are not subject to the whims of short term profits demanded from the stock market, as they are private owned.  Which means that when investment is needed and a shift of strategy then they can take a longer term approach, which sometimes means that change is slower, or they can take a quick approach which means change is faster but they made a short/medium term loss until the ROI of the investment pays off.

 

I don't think the article considers this.

 

Yes of course every company needs to guard against complacency, and this is always a threat even for the likes of Google, Facebook and Intel who have all lost there shine recently as they are not quite as successful as in the past (although still very successful!)   

 

And that is the key.  Can these German companies do that?  Only time will tell.

 

A quick point about the car industry.  Yes new electric cars are a shift in a new direction, and some German companies are lagging behind in this area compare to some.  But I think I have read about at least 3 German startups in this area who have big ambitions so it is not as if "Germany" is doing nothing.  While these might not turn into anything themselves, I think it is very probably that they will be purchased by larger companies who will then use there technical know-how and technology in there own products.  And don't forget that the poster boy of the industry, Tesla, have had many problems themselves in the last year.  And they tend to very often make bold statements without being able to deliver on the level they claim.

 

 

The populism point made in the article I think will not be a big problem.  As even if you do want to buy from your own country, you need them to have a comparable product in terms of price and quality.  And most countries simple cannot produce everything they need, especially to such a standard and in the require volumes.  People are also not so aware where all the components/materials in the products come from, and are fickle are are often reluctant to go without something (but they will change if the alternative is viable).  And I also think that populism is a short/medium term trend.

 

 

Also.  Germany has gone through plenty of tough times before, the most recent of course being the financial crisis which affected the whole world, but don't forget that it also suffered after reunification and suffered recession at the end of the 90s and was even referred to as the "sick man of Europe" at this time.  

 

So I think that while the economy is many manufacturing heavy, companies, people and the state will adapt as required.  They just don't do it as fast as some other countries, but when they do do it, then it tends to be done well.

 

 

Then again, maybe I am one of the complacent Germans the article refers to!

 

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16 minutes ago, dj_jay_smith said:

Excluding the car industry, then most products made are actually not made for consumers but as components for other companies to use in there products

 

That's also the point in the car industry. There are hundreds of companies in Germany specialized in steering wheels, rims, car windows, car seats, headlights, paint, mirrors etc. to be delivered to car manufacturers.

 

Even when VW, BMW, Audi and Mercedes miss the transition and other companies will build the "cars of the future", these new generation cars still will need the afformentioned products.

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Interesting thread.  

 

I am very pessimistic about Germany's prospects for a few reasons which the article doesn't enumerate:

 

1.  China is or has been transitioning from one of Germany's main customers outside of the EU, to being one of Germany's competitors.   Technology transfer and IP theft will take market share from German companies.

 

2.  Germany exports around 50% of its GDP and has for many years.   This is unsustainable and the effects are especially acute within the EU.

 

3.  Germany has enjoyed favorable trade arrangements with the US which are basically a holdover from the Cold War.    Germany has benefitted from the US security blanket, especially as it relates to protection of maritime trade.   Germany's lack of commitment to NATO, insistence of building out Nordstream 2, and lack of constructive engagement with the US is suicidal.  

 

4.  60% of currency reserves worldwide and 80% of global payments are US Dollar based.    The US has an enormous amount of leverage via control of Eurodollar liquidity.    If the US allows the dollar to rise and takes a more isolationist financial policy, it will hurt Germany and the rest of the EU.    The US will not bail out the European banking system again like it did in 2008.   

 

5.  Since the article seems to focus on the auto industry, it is worth mentioning that sales have slowed down and inventories have built up.     

 

6.   Germany is correct to be suspicious of the Trump Administration, but at the same time, the emphasis on personality is preventing the political leadership from recognizing that there is a shift from Cold War security agreement which was inevitable regardless of who won the 2016 election.  

 

 

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17 hours ago, franklan said:

There are hundreds of companies in Germany specialized in steering wheels, rims, car windows, car seats, headlights, paint, mirrors etc. to be delivered to car manufacturers.

 

Even when VW, BMW, Audi and Mercedes miss the transition and other companies will build the "cars of the future", these new generation cars still will need the afformentioned products.

 

Most of these are relatively easy to manufacture parts, which can be (some already) manufactured in the low cost countries, aren't they?

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11 hours ago, balticus said:

Interesting thread.  

 

I am very pessimistic about Germany's prospects for a few reasons which the article doesn't enumerate:

 

1.  China is or has been transitioning from one of Germany's main customers outside of the EU, to being one of Germany's competitors.   Technology transfer and IP theft will take market share from German companies.

 

2.  Germany exports around 50% of its GDP and has for many years.   This is unsustainable and the effects are especially acute within the EU.

 

3.  Germany has enjoyed favorable trade arrangements with the US which are basically a holdover from the Cold War.    Germany has benefitted from the US security blanket, especially as it relates to protection of maritime trade.   Germany's lack of commitment to NATO, insistence of building out Nordstream 2, and lack of constructive engagement with the US is suicidal.  

 

4.  60% of currency reserves worldwide and 80% of global payments are US Dollar based.    The US has an enormous amount of leverage via control of Eurodollar liquidity.    If the US allows the dollar to rise and takes a more isolationist financial policy, it will hurt Germany and the rest of the EU.    The US will not bail out the European banking system again like it did in 2008.   

 

5.  Since the article seems to focus on the auto industry, it is worth mentioning that sales have slowed down and inventories have built up.     

 

6.   Germany is correct to be suspicious of the Trump Administration, but at the same time, the emphasis on personality is preventing the political leadership from recognizing that there is a shift from Cold War security agreement which was inevitable regardless of who won the 2016 election.  

 

 

Lot of truth what you are saying. But you are not saying all. Germany will get slaughtered in the survival fight of the US, no matter who starts what and were.

Germany is still an American occupied territory and the Yanks will do what fits their purpose. Germany is between a rock and a hard place. Germany has neither the 'Lebensraum'

nor the 'Hinterland 'with supplies.

As they say:tough titi.

And the present German Government should have been fired a long time ago for not seeing the conditions as they are now.

And as a point of interest, did you know that the British of the most British symbols is made in a small village in Lower Bavaria? Da Rolls Royce!

Tells you what is wrong in the not so Great Britain these days too.

The china industry the same, only they shipped them to the Far East because the climate is better and the wages lower.

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4 minutes ago, gaberlunzi said:

 

And as a point of interest, did you know that the British of the most British symbols is made in a small village in Lower Bavaria? Da Rolls Royce!

 

That`s because Rolls Royce is now a part of BMW,

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29 minutes ago, Keleth said:

That`s because Rolls Royce is now a part of BMW,

Strange, Rolls Royce did not take over BMW

Do you know what we thought BMW stands for?

(Bavarian Manur Wagen)

To think I still remember the time when the Gogomobile was made in Dingolfing.

It is kind of a familiar place. My father comes from there.

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3 hours ago, gaberlunzi said:

But you are not saying all. Germany will get slaughtered in the survival fight of the US, no matter who starts what and were.

 

Germany will need to decide which side it is on and I am being overly polite.  

 

It is surprising to me how few Germans (and Americans) understand the post World War 2 security agreements and how trade and monetary policy were crucial parts of the structure.  

 

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4 hours ago, gaberlunzi said:

And as a point of interest, did you know that the British of the most British symbols is made in a small village in Lower Bavaria? Da Rolls Royce!

Tells you what is wrong in the not so Great Britain these days too.

Small village in Lower Bavaria? 

 

More like a small village near Chichester, West Sussex, England!

https://en.wikipedia.org/wiki/Goodwood_plant

 

 

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5 hours ago, TurMech said:

 

Most of these are relatively easy to manufacture parts, which can be (some already) manufactured in the low cost countries, aren't they?

Not really.

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On 4/13/2019, 6:38:25, balticus said:

Interesting thread.  

 

I am very pessimistic about Germany's prospects for a few reasons which the article doesn't enumerate:

 

1.  China is or has been transitioning from one of Germany's main customers outside of the EU, to being one of Germany's competitors.   Technology transfer and IP theft will take market share from German companies.

 

2.  Germany exports around 50% of its GDP and has for many years.   This is unsustainable and the effects are especially acute within the EU.

 

3.  Germany has enjoyed favorable trade arrangements with the US which are basically a holdover from the Cold War.    Germany has benefitted from the US security blanket, especially as it relates to protection of maritime trade.   Germany's lack of commitment to NATO, insistence of building out Nordstream 2, and lack of constructive engagement with the US is suicidal.  

 

4.  60% of currency reserves worldwide and 80% of global payments are US Dollar based.    The US has an enormous amount of leverage via control of Eurodollar liquidity.    If the US allows the dollar to rise and takes a more isolationist financial policy, it will hurt Germany and the rest of the EU.    The US will not bail out the European banking system again like it did in 2008.   

 

5.  Since the article seems to focus on the auto industry, it is worth mentioning that sales have slowed down and inventories have built up.     

 

6.   Germany is correct to be suspicious of the Trump Administration, but at the same time, the emphasis on personality is preventing the political leadership from recognizing that there is a shift from Cold War security agreement which was inevitable regardless of who won the 2016 election.  

 

 

I do not agree with you, I think that this is one of the most promising countries of the European Union.

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4 hours ago, IndianaDunn said:

 

On 4/13/2019, 5:38:25, balticus said:

Interesting thread.  

 

I am very pessimistic about Germany's prospects for a few reasons which the article doesn't enumerate:

 

1.  China is or has been transitioning from one of Germany's main customers outside of the EU, to being one of Germany's competitors.   Technology transfer and IP theft will take market share from German companies.

 

2.  Germany exports around 50% of its GDP and has for many years.   This is unsustainable and the effects are especially acute within the EU.

 

3.  Germany has enjoyed favorable trade arrangements with the US which are basically a holdover from the Cold War.    Germany has benefitted from the US security blanket, especially as it relates to protection of maritime trade.   Germany's lack of commitment to NATO, insistence of building out Nordstream 2, and lack of constructive engagement with the US is suicidal.  

 

4.  60% of currency reserves worldwide and 80% of global payments are US Dollar based.    The US has an enormous amount of leverage via control of Eurodollar liquidity.    If the US allows the dollar to rise and takes a more isolationist financial policy, it will hurt Germany and the rest of the EU.    The US will not bail out the European banking system again like it did in 2008.   

 

5.  Since the article seems to focus on the auto industry, it is worth mentioning that sales have slowed down and inventories have built up.     

 

6.   Germany is correct to be suspicious of the Trump Administration, but at the same time, the emphasis on personality is preventing the political leadership from recognizing that there is a shift from Cold War security agreement which was inevitable regardless of who won the 2016 election.  

 

 

I do not agree with you, I think that this is one of the most promising countries of the European Union.

 

 

Thank you for sharing your view.

Could you also share why you think so?

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I develop scientific instruments for a worldwide market, in a German company. Chinese companies have tried to copy our devices to offer a lower cost version. They completely failed because:

  • our personell production costs are less than 10% of overall cost, so there is no advantage in making it in China
  • our IP cannot be copied by simply inspecting the mechanical system

This is where European companies must push forward! Making something where labour cost is not important. And adding value on parts which are hard to copy. Germany has a lot of areas where this is true, so there is a bright future there.

 

Now, regarding automotive, they are completely fucked up, because they are living in denial and shit scared of Tesla.

They should be investing strongly on battery manufacturing and not relying on Korean and Chinese suppliers. They should ditch diesel fast and move on to electrics fast.

They might be lucky because Fiat and the french manufacturers will probably go bankrupt first. So they will have time to join forces and eventually save some jobs. But sticking the head in the sand is plain stupid.

 

The other general issues with german economy are:

  • software development (or the lack of it)
  • product vs customer perspective
  • low risk taking
  • "stick to the plan" mindset
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Germany makes the best industrial machines.  The more manufacturing that China does, the more German made machines they buy.  The Chinese are way behind in that field.  Many of the things that Germany excels at you have never heard of because they do not sell the the end user.

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On 4/13/2019, 8:25:55, gaberlunzi said:

Germany is still an American occupied territory and the Yanks will do what fits their purpose. Germany is between a rock and a hard place. Germany has neither the 'Lebensraum'

well, this is the craziest thing I've read this week...and it's not even friday.

 

2 hours ago, MikeMelga said:

They might be lucky because Fiat and the french manufacturers will probably go bankrupt first.

Yeah, they just don't have the german corruption ethic to keep themselves viable.

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8 hours ago, MikeMelga said:

I develop scientific instruments for a worldwide market, in a German company. Chinese companies have tried to copy our devices to offer a lower cost version. They completely failed because:

  • our personell production costs are less than 10% of overall cost, so there is no advantage in making it in China
  • our IP cannot be copied by simply inspecting the mechanical system

 

This seems reasonable, but does not mean that the technology of ALL companies in Germany is copy-proof or IP-theft-proof.  

 

I would not underestimate its potential in developing its own technology.   For example, China has more quantum computers than the US does.    Slowly but surely, it will work its way up the value chain and start competing in markets producing more sophisticated products.   Japan basically went through this development over the course of 20-30 years.  

 

8 hours ago, MikeMelga said:

 

Now, regarding automotive, they are completely fucked up, because they are living in denial and shit scared of Tesla.

They should be investing strongly on battery manufacturing and not relying on Korean and Chinese suppliers.

 

AFAIK, Cobalt will basically be supplied by the Democratic Republic of Congo, i.e. mines in eastern Congo.    There will be resource wars between China, the US, Russia (already has Wagner people there), and probably France.   Unless Germany wants to engage Erik Prince  to help procure supply, it might be helpful to either develop military capabilities or get those NATO verbal commitments paid up.   Based on the soft support for additional spending, I doubt that the US will guarantee supplies of Cobalt, Lithium and rare earth metals the way it has maintained the flow of oil.  

 

Add point (7)

 

7.   Germany has few natural resources necessary to power a manufacturing economy outside of brown coal, water, and arable land.   With the growth of China and others,   Germany will need to rely on some of its partners with sufficient firepower, e.g. the US, UK, and France for procuring inputs.

 

 

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16 hours ago, IndianaDunn said:

I do not agree with you, I think that this is one of the most promising countries of the European Union.

 

It would be interesting to hear any response you have to the (6) and now (7) points identified.

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9 hours ago, MikeMelga said:

They might be lucky because Fiat and the french manufacturers will probably go bankrupt first.

 

 

Not so sure, car buyers are fickle and change alleigiences quickly. Look at the rise of Hyundai and Kia, they were laughed at in the 70's and 80's. Look at the annihalation of the British motor industry. PSA has now bought Vauxhall/Opel from GM. Fiat is the owner of Chrysler. The late CEO of Fiat Marchionne said that there will be no more than 5 majoe automotive manufacturers in the future.

 

Whether the German manufacturer's will be able to continue as the leaders in mass produced cars is debatable after the diesel scandal, the price fixing cartel scandal and the overpriced products they sell. Of course, we don't know how the Chinese manufacturer's will fare in thenext few years.

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1 hour ago, balticus said:

I would not underestimate its potential in developing its own technology.   For example, China has more quantum computers than the US does.    Slowly but surely, it will work its way up the value chain and start competing in markets producing more sophisticated products.   Japan basically went through this development over the course of 20-30 years.  

 

Yes, but like Japan, their workers will start demanding higher wages and prices will rise.  Then manufacturing will move to the next cheaper country (Vietnam?  Pakistan?)  That is already happening for textiles.

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