German economy must drive towards a new dynamism: As European manufacturers suffer continued recession, BMW's chairman voices his fears for employment

EBERHARD von Kuenheim leaves BMW with a sense of foreboding about the permanent effects of the German recession.

'Most firms will get through the current crisis. But they will do so at the expense of the German economy as a whole,' he says. The price will show itself in steadily rising unemployment, to levels to which modern Germany has long been unused. In the car sector, Germany's flagship industry, as many as 300,000 jobs will probably disappear in the next few years, he predicts.

In the face of increasing competition from abroad, the pressure to cut production costs has become urgent and relentless; but the structural impediments - high wage costs, high taxes and utility costs, inflexible working practices and excessive regulations, remain formidable.

The result is a growing tendency among firms in Germany's key industries to switch production and sourcing to lower-cost plants abroad. 'This is the most dangerous trend, because it is largely unseen,' Mr von Kuenheim says. 'These are the critical years as firms come to grips with the structural crisis.'

Such thinking did not paralyse Mr von Kuenheim's own strategy for BMW.

At present, all the company's main production plants are clustered in the state of Bavaria. 'This concentration has been one of our great strengths in the past, giving us the lowest stock volumes of any European producer'.

But now BMW is going Stateside. The Spartanburg works in South Carolina are to begin production in 1995, making 'a car that we do not have any more in Germany'. This suggests that one of BMW's current range is to be switched to the US, rather than an entirely new model being built there.

Costs in Spartanburg will be a third lower than in Bavaria. 'We shall have to see how one can achieve this in Germany. Otherwise it will come to a competition inside BMW, and the best will win,' he says ominously.

A similar logic applies to the company's motor production. 'At the Steyr plant in Austria taxes are 20 per cent lower than here. When we expand motor production, then of course we shall do it at Steyr.'

But the real cause for concern in the car industry is not the big manufacturers, he says. It is the suppliers. 'They are barely making it. This is where the real shake-out is occurring.' Car manufacturers demand big price reductions year after year. 'Those that are still strong enough are shifting to places like Malaysia and flying in pieces.'

A third of the value of a German car is produced abroad and the trend is rising. 'This is our real structural problem, how to keep the Mittelstand, all these small firms, alive'.

These firms have been the basis of Germany's economic strength. 'For every appliance you could find a small manufacturer. The survivors of this 'great cleansing process', as Mr von Kuenheim describes it, will be stronger. But, he added, drawn again to his central preoccupation, 'while these survivors will have solved their own economic problems, the question for Germany remains - can it solve its national economic problems?'

Mr von Kuenheim does not shy away from conceding that something akin to a cultural revolution is sweeping through the august halls of German industry. The campaign cry against the perils of over-engineering that has recently resounded from the summits of Siemens and Mercedes-Benz points to a 'new appreciation of the structural problems that have been exposed by the recession,' according to Mr von Kuenheim.

'There have been dangers associated with an emphasis on striving for perfection.' But he is quick to warn against generalisation. 'I do not like to talk of the German car industry; you have to look at each firm - the starting points in the quest for simpler production processes are very different.' Mercedes wants to go from seven to five management levels, but BMW is reducing to three or two.

But such differences pale, in his view, beside the biggest difficulties facing Germany's car giants, which come from outside the firm. If widespread unemployment is a big worry for him, then politicians are a big irritation. 'Our hardest problem today is to adjust to the prevailing political conditions, which appear devoid of consistency and predictability.'

Foremost in Mr von Kuenheim's mind is the zig-zagging discussion in Bonn about raising petrol taxes and introducing a motorway vignette as part of the constant search for new revenues to plug gaps in public finances. 'Sometimes we do not dare to open the newspaper for fear of facing some terrible new idea,' he says. This confusion exacerbates a more fundamental problem. The economy is being stifled by over-administration.

In the 1950s, 5 per cent of all in employment consisted of public servants. Today the proportion is 20 per cent, all kept busy drawing up and applying new rules and requirements. 'The German economy has become ponderous, it has lost its dynamism. We have to get back to being able to take quick decisions,' he says.

(Photograph omitted)