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Germany Inc. Shudders as Deutsche Bank, BMW, Mercedes, Volkswagen and Other German Giants Face Crises

24

How much longer will Germany continue to the motor of the EU? Perhaps Europe can wriggle free of their German boss and her dictates?

Germany Inc. Shudders as Deutsche Bank, Others Face Crises

From Bayer to BASF, Germany’s best-known corporations have hit a rough patch

By Sara Germano, Wall Street Journal:

BERLIN—German efficiency has taken a hit this year as many of the country’s most recognizable corporate names wrestle with a slowing local economy, questionable business decisions and trouble shifting to a digital world.

In the past week, Deutsche Bank AG DB +3.80% abandoned its global ambitions and initiated layoffs, and the chief executive of BMW AG BMW 0.57% said he would step down. Profit warnings from BASF SE and Daimler AG—which issued its second in less than a month on Friday—have rattled markets.

Those setbacks add to a worrisome mix that includes Bayer AG ’s legal trouble with its acquisition of Monsanto, the maker of weedkiller Roundup, and the challenge to German auto makers from a depressed global car market and continued fallout from the diesel-emissions scandal. Meanwhile, German blue chips—from software maker SAP SE to industrial giant Thyssenkrupp AG TKAMY 0.77% have announced tens of thousands of job cuts combined this year.

Roughly one in three large public companies in Germany’s DAX index have reported profit warnings, job cuts or restructurings, or are dealing with formidable legal disputes or investigations from authorities. Firms based here are slipping from the ranks of the world’s most-valuable companies, leading consulting firm Ernst & Young to conclude this month that “German companies are losing their importance.”

While specific challenges loom large for some companies, broad trends are also working against them. Analysts cite the effects of global trade disputes on Germany’s export-oriented economy, the increased pressure to digitize and a degree of complacency after years of robust growth.

“There is a crisis at the moment. The German economy was so good for such a long time, people thought we’d go on and go on and go on,” said Markus Schön, managing director of DVAM Asset Management in Detmold, Germany.

The nation’s economy grew just 0.7% in the 12 months through March, far behind others in the eurozone, and Berlin earlier this year slashed its growth forecast for 2019 gross domestic product to 0.5% from 1.8%. “German companies were not prepared for this situation,” Mr. Schön said.

German auto makers, in particular, have been blindsided. The collapse in demand for diesel vehicles because of emissions curbs and a global slowdown in car sales have hit them at a time when they are spending heavily on electric and autonomous vehicle development.

BMW as well as Mercedes-Benz maker Daimler have lowered their financial guidance this year, while Volkswagen AG announced it would cut 7,000 jobs. In turn, the difficulties of large car makers have filtered down through a network of smaller suppliers and service providers in the country.

Carsten Spohr, CEO of Lufthansa. In a recent effort to reassure investors, he reasserted the company’s commitment to being dependable and efficient. ‘In the end, we’re boring. We’re German.’ Photo: Henning Kaiser/Zuma Press

Volkswagen was at the center of an emissions-cheating scandal that surfaced in 2015, and it is still feeling the effects. In March, the U.S. Securities and Exchange Commission sued the auto maker and former Chief Executive Martin Winterkorn, alleging they defrauded U.S. investors. And a month later, German prosecutors indicted Mr. Winterkorn and four others, accusing them of fraud.

Volkswagen called the SEC complaint “legally and factually flawed” and said it would contest the charges. A lawyer for Mr. Winterkorn declined to comment at the time of the charges and didn’t respond to a request for comment Friday.

Other German companies say their problems are closer to home. Last month, days after Deutsche Lufthansa AG said aggressive competition from European low-cost carriers hurt its profit, Chief Executive Carsten Spohr acknowledged that the airline had made missteps navigating the local short-haul market, including efforts to capitalize on the 2017 bankruptcy of rival Air Berlin.

“Did we underestimate the complexity? We did,” he said. In an effort to reassure investors, Mr. Spohr affirmed the company’s commitment to being dependable and efficient. “In the end, we’re boring. We’re German.”

Another contributor to German corporate troubles is the country’s legally mandated board structure—which flanks the management board with a powerful supervisory board, half of whose members represent workers. While such checks and balances have helped maintain labor peace at large companies, they can also inhibit quick decision-making and discourage risk-taking.

“It can be an advantage to have a strong CEO, who can react quickly in times of crisis,” said Christian Lawrence, a partner at consulting firm Brunswick Group in Munich. “Whereas if you have a German system, the CEO is one of many making decisions and there must be consensus for things to be done.”

Hubert Barth, chief executive of Ernst & Young Germany, said some German blue chips aren’t keeping pace with the transformation of the economy toward “more digitized business models.”

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