Struggling German Industry Turns to Defense Manufacturing

0:00Today on State of the World, struggling German industry turns to defense manufacturing. You're listening to State of the World from NPR. We bring you the day's most vital international stories, up close where they're happening. I'm Greg Dixon. In Germany, the automotive industry was once the backbone of Europe's largest economy. But that industry is in rapid decline. In the past year, German car manufacturers shed more than 51 ,000 jobs. It's about 7 % of its total workforce. So to survive, some companies are pivoting to making weapons as the German government has increased its military spending.

0:44NPR's Rob Schmitz introduces us to some companies that are making the switch.

0:51A bright yellow robotic arm carefully places freshly oiled bolts onto a blue plastic tray along an assembly line run by the Job Group, an automotive supplier in the town of Bad Neustadt in northern Bavaria. These types of robots are slowly replacing workers as more companies like Jopp throughout Germany's industrial heartland shed their human counterparts. I think the automotive industry in Germany, but also in Europe, is in a bit of a crisis mode since maybe five years. Jopp Group CEO Martin Buchs says inflation, tariffs and competition from China have proven to be too much for Germany's once-dominant auto industry.

1:30At peak times, we had 2 ,000 employees. Unfortunately, we had to cut 500, so now we have 1 ,500 employees. He says that's still a sizable workforce for a German company like his, which assembles gearshift mechanisms for Ford, Porsche, and Mercedes-Benz. But all of this downsizing means that Bufs is looking to diversify what his company manufactures. So we think it's very important for the German industry and for us to find new markets. And where are new markets? Well, government has committed a lot of new funding for defense. We are quite close to what defense industry needs. So it's very obvious for us to look to this market.

2:13Bux says Job is using its in-house injection molding and machining technologies to build military drones and unmanned vehicles. The company signed its first defense contract earlier this year. If we don't want to reduce our labor force even more, we have to go into new industries. And the defense industry is a big potential. It's a big potential for Sebastian Schulte, too. He's the CEO of Deutz AG, a company in Cologne whose founder invented the four-stroke combustion engine in the 19th century. We also produced tractors, produced buses, we produced power plants, smaller power plants. So we were a pretty large company.

2:53At its peak in the 1970s, Schulte says Deutz had nearly 40 ,000 employees. But in the past 20 years, the company's been reduced to just 3 ,000 workers in Germany who focus on building combustion engines for agricultural and industrial vehicles and equipment. But now, says Schulte, Deutz's business is picking up again, thanks to diversifying their business into building electric generators and building combustion engines for military vehicles. He says this transition is helped somewhat by German society's changing view on building military hardware after Russia's invasion of Ukraine three years ago.

3:29The typical German industrial companies before 22, they tried to have nothing to do with defense. It was like, you know, somewhere between gambling and other businesses which are not perceived as the most attractive one by society. That has changed, says Schulter, and for Deutz it means building massive combustion engines for tanks and howitzer weapons. He says the requirements from his industrial clients are just as strict and demanding as those from his military clients, which equals a straightforward transition for his company. Karsten Brzezinski, an economist for ING, says the stories of both Deutz and Job are familiar ones in today's German economy.

4:10It indeed is a sign of an industry that has been struggling now for a couple of years. That is also realizing gradually that competition out of China is here to stay. So this is a sector in severe transition with new competition. And if you are in this sector, of course, it is more than natural that you try to find other opportunity in order to keep your business running. Brzezinski says there will certainly continue to be a fallout in Germany's automotive sector. But with hundreds of billions of dollars worth of new defense spending in the coming decade, he says many struggling companies would be keen to get in on all that new money put towards defending Europe.

4:52Rob Schmitz, NPR News, Bavaria.

5:00That's the State of the World from NPR. Thanks for listening. Thank you.