Mechanical engineering industry steers through rough waters

Anna McMaster

The consequences of the trade dispute between the USA and China are becoming increasingly noticeable. Production and incoming orders in the mechanical engineering sector have declined. The mechanical engineering industry expects more short-time work. At the same time, it stands ready to improve climate protection with its technologies.

Germany's export-driven mechanical engineering industry is increasingly suffering from the many distortions on the international markets. In particular, the still unresolved trade dispute between the USA and China is a problem because it has a direct and an indirect impact on more and more industries and countries. A recent survey conducted by the VDMA among German mechanical engineering companies in China shows that the mood there is also suffering from the trade conflict. 40 percent of the companies surveyed described their current business situation as "poor", another 40 percent as "satisfactory". These are the worst figures since the VDMA survey began three years ago. And for the fourth quarter of 2019 and the first quarter of 2020, these Chinese subsidiary companies do not anticipate any improvement in the situation.

Orders and production decline
Trade disputes, increasing protectionism around the globe and the unresolved Brexit are increasingly leaving their marks in the books of mechanical engineering companies – the same holds true for the far-reaching structural change in the automotive industry. Overall, orders in the first eight months of the year in the mechanical engineering sector were 9 percent lower in real terms than in the previous year. According to preliminary figures, production fell by 1.6 percent in the same period. "It is still unclear whether we are only in a phase of economic weakness or at the beginning of a real recession. But a rapid upturn is definitely not in sight," said VDMA President Carl Martin Welcker in a press conference at the 11th German Mechanical Engineering Summit in Berlin. "We are therefore sticking to our production forecast, which predicts a decline of 2 percent in real terms for both this year and 2020."

Short-time work becomes more important again
In July, 1.06 million people were employed in mechanical engineering companies with more than 50 employees. This was 1.1 percent more than in the previous year. And many companies are still looking for specialists, for example to implement digital change. However, in view of the slump in orders in some branches of mechanical engineering, short-time work is becoming more important again. In the first half of the year, an estimated 5,000 people were on short-time work in the mechanical engineering sector in Germany; in the first quarter of 2019, the number was only 3,200 employees. "Should there be a further economic deterioration in the country, it would make sense to extend short-time working to 24 months - as was already the case in the crisis year 2009. This must now be clarified so that companies can plan," said VDMA President Welcker. However, the right conclusion should be drawn from the experience at that time. The VDMA demands that the Federal Employment Agency should write into the law now that it should pay for social security contributions, if the companies then qualify their employees and upgrade their skills.

Transformational short-time benefits are the wrong way to go
At the same time, the VDMA rejects the transformation short-time allowance proposed by the trade union IG Metall. "It is not the right instrument for the challenges of the future," stressed Welcker. For the development of one's own company and the associated question of qualifications required are at the core of entrepreneurial freedom of decision and entrepreneurial responsibility.

The machine-builders are also concerned about the government's plans to force companies to be bound by collective bargaining agreements, e.g. by making tax incentives only applicable to companies that are covered by the regional tariff. "Only a good third of all machine builders are still organised in collective bargaining because the collective agreements are not considered attractive enough," Welcker said. "The government is declaring war on the middle class, but confrontation is the wrong way. It would be more sensible - also with regard to the next tariff round – to show more prudence!

Relief through less bureaucracy
Especially in economically difficult times, companies need all the more freedom for their actions and expect politicians to relieve them of unproductive bureaucratic tasks in particular, emphasised the VDMA President. As examples, he cited the national implementation of the European Posting of Workers Directive. It makes it almost impossible, for example, for a technician to be sent to many other EU countries as quickly as necessary. "It is imperative that there be a change here, and as quickly as possible," Welcker demanded. Approval procedures, for example for industrial plants, are now also far too cumbersome and lengthy in Germany, thus preventing new investments.

Mechanical engineering enables climate protection
Climate protection as a social task can only succeed if the necessary technologies are available. Mechanical engineering develops these technologies, which are used worldwide in a variety of ways.  "We are a key player in climate protection, without us it cannot succeed," emphasised the VDMA President. It is therefore all the more important that the political framework conditions are always created on the basis of open technology. "Not a single technology alone will enable us to achieve the Paris climate targets. An efficient mix is needed," stressed Welcker. For this reason, the association clearly rejects, for example, "glove box premiums" for electric cars or other forms of mobility. On the other hand, state funding for production research for climate protection would make much more sense because it would enable new climate protection technologies to be developed more quickly and in line with market requirements. CO2 reduction targets for individual sectors are also the wrong way to go. CO2 pricing which has a real incentive effect must come, but it must be cross-sectoral. And Germany can only be the beginning, a European solution must be found to achieve the Paris climate targets," said Welcker.

The VDMA has recently pointed out a possible way for a market-based reorganisation of energy pricing in an expert opinion. It proposes a uniform, emissions-based taxation for all energy consumption and a standardisation and systematisation of levies. CO2 then receives a continuously rising price, at the same time existing levies and taxes such as the EEG levy or the electricity tax would have to be abolished. "The change would be revenue-neutral, but it would boost investment in CO2-efficient technologies," summarised the VDMA President.