Let's take a look at some of the firms and the overall situation in the German industry.
For example BMW:
|Wages and Salaries||€7.086b||€5.541b||27.9|
|Social charges and reserves||€1.449b||€1.047b||38.4|
|Total personnel expenses||€8.535b||€6.588b||29.6|
BMW is today able to produce 69 percent more cars with the almost the same number of employees (+4.4 %) as in 2002. In 2002, the personnel expenses made up 15.6 percent of the revenue, last year only 11.5 percent. But the company pays significantly more than the relevant collective agreement demands. Every employee gets a so called "Erfolgsbeteiligung", aka. for a worker 2.5 additional monthly wages in 2012. It seems pretty silly, to on the one hand pay very well and on the other hand cry about high labor costs.This is actually true for most of the German car manufacturers; (even Daimler paid an additional €3,200 as "Erfolgsbeteiligung". )
So, in fact BMW is today a much more competitive company than it was 10 years ago. Labor costs are playing a significantly smaller role than they did in 2002, and a large chunk of those are voluntary payments, which would allow to cut these significantly in case of problems. With the new electric cars, which will most likely in the beginning not cannibalize other sales, and instead open new markets, this trend will probably continue (though revenue stagnated in 2013, while sales significantly increased).
I think the situation in Germany can be broken down to this:
- We see islands of astonishing productivity increases e.g. in parts of the German automotive industry.
- The situation at BASF (chemicals) is very similar. Employee expenses (€9.089 billion) are roundabout at the EBIT level (€8.976 billion). While in 2003 the situation was €2.658 billion EBIT to €5.891 billion employee expenses. In that time frame revenue increased from €33.3 billion to €78.7 billion (source pdf page 237). All that was done while only moderately increasing the workforce by 27 percent to 112,388.
- At Daimler the picture is still looking a bit different. The firm has reduced its employee expenses from €24.7 billion after getting rid of Chrysler in 2005 to €18.0 billion and increased EBIT from €2.9 billion to €8.6 billion.
- VW and Continental are competitive, but not at the above levels. VW had an operating margin of "only" 5.9 percent in the first 9 months of 2013.
- Opel/Vauxhall is struggling. GM lost around $200 million in the third quarter of 2013 in Europe.
- The German automotive industry produced 5.4 million cars domestically; and that was done with a total of only 743,000 employees plus 100,000 temporary and 250,000 contract workers.
- Other industrial firms that produce run-of-the-mill products like DC04 steel (pun intended) are having problems remaining competitive, but this isn't just a labor cost problem. It is a combination of labor, almost no raw materials like coal and iron in Germany and relatively high energy costs.
- In part the collective agreements of the last decade were a compromise designed to keep the struggling firms competitive. It was a conscious decision on part of the the IG Metall (metal workers' union) to avoid real wage increases to help reduce the unemployment numbers.
- On the one hand, the talk about competitiveness bogus for many German firms. Some firms of the production industries are in a situation where 10 percent higher employee expenses means around 10 percent lower EBIT. Labor is becoming a less and less relevant factor overall through increasing revenue at almost constant real wages.
- On the other hand, many other companies, especially suppliers are not as profitable.
Instead of the extremely shortsighted criticism that the CEOs offered I actually expect that they are able to demonstrate how their idea which is pretty much based on real wage stagnation is supposed to function. Less and less people are producing an ever larger number of products for the same amount of real money as they did in the 1990s. Guess what? In the end one will either have to go the US way of creating massive credit bubbles over and over again; or the European path of collapsing demand. In the end neither "solution" helps those firms or the German economy for that matter in the long run. We are facing an absolutely miserable "return on investment" on our trade surplus; and even the car sales in Germany are terrible; (though not as bad as in other European countries).
*her "yellow press nickname" is actually "Mutti" (mum)