Bremer Vulkan joins Germany's casualty list

The government refuses a rescue for the country's largest shipyard, writes Imre Karacs in Bonn
The list of prestigious German companies recently found wanting in the global market gained a new name yesterday when the Bonn government ruled out a salvage operation for Bremer Vulkan, the country's largest shipbuilders. Though Vulkan's agony is set to drag on for another six months as creditors try to recoup some of their investment, the fate of its shipyards in Bremen are sealed. At best, the famous logo will linger for a few more years, adding a nostalgic veneer to a rump outfit, stripped of its assets in a demoralising effort to pay the banks. Under the worst- case scenario, even the name will disappear, along with all 23,000 jobs it represents.

Local politicians in Bremen appear to have abandoned attempts to rescue their shipyards. When Vulkan filed for credit protection on Wednesday, the regional parliament's deliberations focused on saving 14,000 jobs in Bremen and Bremerhaven. By yesterday, their attention had shifted to the monumental task of creating the equivalent number of new jobs after the inevitable happened. Few doubt any longer that shipbuilding in Bremen, a Hanseatic port with a glorious maritime history, will soon cease, pushing the unemployment rate above 20 per cent.

At a time when Germans are drowning in the daily torrent of adverse economic reports, Vulkan's plight has captured the public's attention in a way that the dry statistics of the last two months have failed to do. The company and the city where it is based seemed to embody all that was good about German industry: a tradition of excellence pursued with vigorous efficiency in the teeth of the rising challenge from Asia. Its demise has now revealed the symptoms of a malaise afflicting a growing number of companies in Europe's economic powerhouse: insolvency and faltering profits masked only by large infusions of public subsidies.

Only four years ago, Vulkan was wallowing in what seemed to be an ever- lasting economic miracle. As the dry docks of Britain and other West European competitors were being turned into marinas, the company could not keep up with orders, and expanded into eastern Germany. The rationale for absorbing the derelict slipways of the east appeared to be sound: west German management harnessing cheap skilled workers in the east would see off the Japanese. Throw in large dollops of EU subsidies for the shipyards in the east, and the recipe could not fail.

That it didn't, until now, owed more to creative accounting, however, than to engineering ingenuity or clever marketing. The creditors, led by Germany's largest banks, happily kept the money flowing until late last year, convinced that Vulkan's payment problems were temporary. Only last week, when the EU started asking probing questions about the fate of its subventions, did the horrible truth dawn on the banks: Vulkan's books were a sham, its profits a figment of imagination, its debts vast enough to bust the limits of public generosity.

The EU discovered that Vulkan had kept itself afloat by syphoning off DM600m (about pounds 260m) of funds from Brussels destined for the shipyards in the east. The European Competition Commissioner, Karel Van Miert, described the manoeuvre as "scandalous"and demanded the money back - in effect forcing the company into bankruptcy. Now a magistrate court in Bremen must decide whether to allow Vulkan to follow the "composition" procedure, which would keep the creditors at bay by guaranteeing a minimum of 35 per cent of their loans.

If the EU money is recovered, the shipyards in the east will become viable, at the expense of a meltdown of Vulkan's core business in Bremen. "Certainly parts of the company that have no chance of becoming profitable must be cast off. And surely, the number of employees overall cannot be maintained," was the grim verdict yesterday of Gunter Rexrodt, the German Economics Minister.

As Vulkan sinks, Germans are anxiously wondering which household name will be next. In January, Daimler-Benz - the country's industrial flagship - reported annual losses of DM6bn and pulled the plug on its loss-making Dutch subsidiary,the aircraft manufacturer Fokker. Another victim of Daimler- Benz's efforts to return to profitability was AEG, the electronics group once renowned for its reliable products ranging from sturdy washing machines to the shiny high-speed trains which tried to take on France's TGV. AEG now survives in name only, as a Cinderella in the Daimler household, its workforce cast to the winds.

Grundig, another brand that conjures up images of technical excellence, languishes in a similar fate. Earlier this month, the Dutch parent company, Philips, gritted its teeth and agreed to cover the debts for a little longer, but much of the production has already moved abroad. The death throes of AEG and Grundig have highlighted structural deficiencies in German industry that pose the greatest risk to the national economy.

Factory closures in the smokestack industries of Saarland, the Ruhr and the Baltic coast have become an almost monotonous occurence in the past two decades. That the disease is spreading to the "sun-rise" industries in the south, where both AEG and Grundig are based, is a novel experience. The decision by Siemens, an electronics group with a healthy balance sheet, to build its new factory in Britain has already shown that the sun is no longer shining so brightly on high-wage Bavaria.

The task of remaining globally competitive against the rising value of the mark is also taxing small and medium-size enterprises. The German computer industry, from which the country's leaders expect so much, are being squeezed into specialised niches, as the US and Japan flood the domestic consumer market. Biotechnology, a field of research in which Germany leads the world, is hampered by restrictive laws on genetic manipulation.

But some companies are demonstrating that even in these conditions Germany's costly workers are capable of seeing off the competition. Despite Vulkan's woes, much of the shipbuilding industry remains healthy.

The 200-year-old Meyer yard in Papenburg, for instance, has a full order book until 1998 for its specialised products. And while Daimler-Benz struggles, Volkswagen and BMW are showing that Germans can still build some of the best cars in the world - at a profit.

Comments