VDA’s 14th SME Day – TTIP offers advantages particularly to smaller firms
“The EU will only be able to fulfil its promise of prosperity if it has a globally competitive industry. Whereas only 7 per cent of the global population lives in the European Union, it accounts for 50 per cent of the world’s social expenditure. Working to provide this requires the right overall conditions for a growth-oriented economy that can assert itself on the world’s markets. Global competitiveness is not an end in itself, but an essential requirement for long-term employment and social security. We will only bring about sustainable growth if we have structural reforms at home and solid finances in the Member States. We can see that the reforms are already bearing fruit in many southern European states. But the markedly falling spreads for certain euro loans must not induce us to relax our eagerness to reform. More structural adjustments are necessary – especially in social security systems,” stressed Matthias Wissmann, President of the German Association of the Automotive Industry (VDA). He was speaking to a large number of high-ranking guests at the VDA’s 14th SME Day in Bonn.
At the event, which was opened by Arndt G. Kirchhoff, Managing Partner CEO of Kirchhoff Holding GmbH and chairman of the VDA’s Committee for Small and Medium-Sized Companies, addresses were also delivered by Matthias Müller, Chairman of the Executive Board of Dr. Ing. h. c. F. Porsche AG, Dr Stefan Wolf, Chairman of the Management Board at ElringKlinger AG, Franz Fehrenbach, Chairman of the Supervisory Board of Robert Bosch GmbH, and Herbert Reul, MEP and chairman of the CDU/CSU group in the European Parliament.
Matthias Wissmann underlined, “One thing is clear from the viewpoint of the German automotive industry: as an open, globally oriented national economy, Germany benefits from deeper European integration. Those who present re-nationalisation as the better alternative for our country are misleading people.”
With a view to Brussels, Wissmann said, “Our small and medium-sized companies in particular need a reliable political framework. Constantly changing conditions only cost unnecessary energy that we urgently need if we are to really pick up speed in international competition.” Decisions and laws from Brussels were often insufficiently innovation-oriented and cost-effective, he said, with conflicting objectives practically the order of the day. “Here better co-ordination would be desirable. Energy, climate and environmental policy in particular must be more closely dovetailed with reinforcement of the industrial base. We also need targeted promotion for research and development,” Wissmann emphasised.
The VDA president also spoke out explicitly in favour of the planned Transatlantic Trade and Investment Partnership (TTIP) between the EU and the USA. He pointed out that the current public discussion was unfortunately characterised most of all by fears that opponents of the TTIP were trying to encourage instead of spelling out the advantages for everyone. The debate was being reduced to the terms “chlorine-washed chickens” and “GM sweet corn.”
Wissmann stressed, “The point of the TTIP is not to dilute social, product or environmental standards, but to eliminate duplicated regulation and red tape. The USA and the EU already have equally high standards in a lot of areas which, however, they satisfy in different ways. This state of affairs does not benefit anybody – except bureaucrats and regulators.”
Especially the small and medium-sized businesses, and citizens on both continents, would profit most from the agreement, the VDA president underscored, adding, “Different standards on both sides of the Atlantic create bureaucracy and push up administrative costs. Most smaller firms cannot afford this. Often they do not have the specialised staff or departments needed to cope with tricky approval issues. However, if these obstacles are removed, the transatlantic market will also open up for these companies. They will find it much easier to market their products in the USA. And that will generate sales and new jobs.”
Wissmann went on to say that the Ifo Institute for Economic Research expected per-capita income in Germany and the EU to rise by around 5 per cent if import duties were abolished and standards harmonised. In total, a good 2.4 million new jobs could be created, with over 1 million of them in the EU.
One reason for exploiting the opportunities offered by the TTIP was that the structure of the world’s automobile market had already altered considerably in recent years. Wissmann declared, “The future growth markets lie outside Europe, principally in China and in the USA at this time.” Overall the global passenger car market was expected to increase by 2 per cent in 2014 to 74.5 million new vehicles. The Chinese passenger car market would expand to 17.4 million units, more than double its size in 2009, while the European share fell from 25 (in 2009) to 16 per cent (in 2014).
The German passenger car manufacturers built nearly 3.5 million vehicles in China in 2013. Wissmann emphasised, “Many German suppliers are making a similar shift. At present they employ more than 70,000 people in China and have a combined annual turnover of more than 10 billion euro. The Chinese example makes it clear that only those who are globally active, or at least deliver world-wide, can benefit from the growth markets and enjoy lasting success. For this reason now small and medium-sized suppliers are also becoming more internationalised. The major suppliers have long been present on the key growth markets around the world; we think the total number of international sites comes to nearly 2,000.”
Although the tense markets in Europa and the pressure to internationalise were stoking competition precisely among medium-sized suppliers, “the German suppliers maintained their German sites in this challenging competitive environment in the year 2013. The workforce in the supply sector amounted to 291,000, matching the figure from the previous year,” Wissmann emphasised. Yet the companies’ strong position could not be taken for granted, and instead they had to work for it every day.
Wissmann drew attention to the energy costs as a factor that could differentiate sites, and stressed the need for flexibility in order to secure employment in Germany, with its high labour costs. Furthermore, the “key topics for the future,” i.e. demographic change, sound pension provision and an increasing shortage of skilled employees, would not be resolved by the current pension plans (full pension at the age of 63).
Matthias Müller, Executive Board Chairman at Porsche AG, spoke about “Success in global competition: how does premium work? And how can we keep premium in Germany?” He emphasised, “Premium is always a joint project where the suppliers’ share is just as important as that of the OEMs themselves. Without excellent business partners from the supply industry with a powerful drive for innovation and making the greatest demands of themselves, premium and luxury won’t work in the final product.” Müller underlined: “When it comes to excellent partners, fortunately we have a huge pool here in Germany we can draw on. No other country has such a diverse, SME-based supply industry. The firms are often family businesses that generally have solid financing and are characterised both by their innovative strength and by the long-term orientation of their business strategy. And they are successful internationally. Many of them are regarded as ‘hidden champions’ who have developed into world market leaders with their specialised offers.”
Dr Stefan Wolf, Board Chairman at ElringKlinger AG, spoke on the subject of “Globalisation and Germany as an industrial location: strategies for profitable growth”. “Today both the market and competition are completely global, and the cycles are becoming shorter and shorter. We are facing these challenges in German industry every day.” he pointed out that three out of four vehicles produced in Germany today are destined for the export markets. “This export success is one of the most important guarantors of Germany’s industrial success,” Dr Wolf explained.
The strongly SME-dominated supply industry represented – owing not least to its marked technological strength and globally respected research and development achievements – a major component in this success. Dr Wolf said it represented growth, employment and ultimately the job prospects of many young people: “These opportunities should be maintained. Given the demographic changes, only successful, attractive companies can secure sufficient numbers of upcoming young specialists,” Dr Wolf emphasised.
“So it is all the more crucial that we constantly scrutinise competiveness and pay attention to appropriate site-related factors. Further rises in unit labour costs and top international energy prices (in view of the switch to renewable energy) represent increasingly high hurdles. Flexible responses to market fluctuations and simple access to refinancing on favourable terms are the levers for influencing success when dealing on the world’s markets,” Dr Wolf underlined.
Franz Fehrenbach, Supervisory Board Chairman at Bosch, tackled the topic of “Long-term versus short-term thinking: the discussion of partnership in the automotive industry.” He emphasised, “One reason for the world-wide success of the German automobile makers is the close co-operation between manufacturers and the diverse suppliers. Together we have driven forward the internationalisation that today forms the basis for our leading position in global competition.” German suppliers should therefore not underestimate the value of the close development partnership with the German OEMs.
“If this co-operation between German suppliers and vehicle manufacturers no longer works and Germany then loses its appeal as an automotive location, in a few years’ time we will rightly be accused of collective stupidity,” Fehrenbach stressed. The increasing intensity of the competition, he added, naturally demanded high levels of investment in new technologies and models. “This is because the outstanding image of our German manufacturers is based precisely not only on operating excellence in purchasing, but above all on captivating, innovative vehicles that appeal to the hearts and minds of the customers. In the long term, simply pursuing quick cost benefits will endanger our lead in innovation and with it the competiveness of the entire German automotive industry. Only with long-term thinking and co-operation in partnership can we resolve the apparent contradiction between competition and simultaneous partnership, and that between being committed to our sites and simultaneous intensification of our global position,” Fehrenbach explained.
Herbert Reul, MEP, chairman of the CDU/CSU European Parliamentary group, emphasised at the SME Day: “The German SMEs are not only Germany’s future, but also the mainstay of growth throughout Europe. This base must be reinforced, and that requires a fundamental shift in the overall attitude to the industry. The burdens on the industry, in the form of ever new environmental targets, must stop once and for all – tighter CO2 targets and strict rules on using chemicals are not what innovative firms need. Instead, right from the outset we have to consider the impacts of any draft bill on the industry. Only then can we pass expedient laws that promote innovation and growth in Europe.”