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VDA (Germany)| Global presence requires strong domestic production sites

VDA’s 15th SME Day – appeal to politicians: companies’ drive for innovation must be preserved

in VDA, 07-05-2015

“Production capacities in NAFTA and China are growing at great speed, and global demand is increasingly being met locally. Small and medium-sized suppliers also have to cope with this trend. Recent years show that global presence and a strong domestic industry are not a contradiction, but they do need political backing: we must do everything we can to safeguard the strength of the domestic sites now and in the future. Now more action is needed here from the policy-makers,” stressed Matthias Wissmann, President of the German Association of the Automotive Industry (VDA). He was addressing 200 high-ranking guests at the VDA’s 15th SME Day in Gravenbruch near Frankfurt am Main.

The event was opened by Arndt G. Kirchhoff, CEO of Kirchhoff Holding GmbH & Co. KG, VDA Vice-president and chairman of the VDA’s Committee for Small and Medium-Sized Companies, and the speakers included Dr. Rolf Breidenbach, CEO of Hella KGaA Hueck & Co. and member of the VDA’s Managing board, Barb J. Samardzich, Chief Operating Officer of Ford of Europe, Dr. Karl Pall, Director Brand Solutions, Google Europe, and Christian Lindner, Chairman of the German Free Democratic Party (FDP).

Wissmann explained that politicians must not lose any more valuable time: “The German Government’ many ‘good social policy deeds’ – the pension package, the minimum wage, planned restrictions on contracts for work/services and temporary work, to mention just a few – are, all in all, a heavy burden that businesses have to shoulder.” Last year, Wissmann added, the labor costs for Germany as an automotive location had once again risen faster than in some neighboring countries, with the difference between Germany and other European locations increasing “So the challenges of the future – an accelerated globalization trend, demographic shifts, shortage of skilled employees – are not being mastered but tend to be exacerbated instead. At this time innovative approaches are needed, for example a flexi-pension,” the VDA president underscored. Wissmann also clearly rejected other burdens. New burdens were threatening family-run firms, but on the reform of inheritance tax he said, “The companies’ drive to invest and innovate has to be preserved in this scheme in particular. The reform’s top priority must be to safeguard the continued existence of the businesses – in the general interest,” Wissmann emphasized.

In addition, Wissmann spoke in favor of a special 50 percent depreciation of the procurement costs of commercially used electric vehicles in the first year of their use, in order to stimulate the market. On the second major innovation topic – connected and automated driving – he said the supply industry was not only on board, but actually the “driver of development” in many areas. The investments necessary for this, however, represented a huge challenge for the small and medium-sized enterprises: “Here policy-makers can help. A tax benefit that already exists in key competing countries should be put back on the agenda,” Wissmann said.

He also drew attention to the large opportunities offered by the planned Transatlantic Trade and Investment Partnership (TTIP) between the US and the EU, especially for SMEs: “For small and medium-sized companies in particular it is essential to their existence that their investments can be planned and are protected from discrimination and arbitrary action. Let the industrial SMEs have the courts of arbitration!” was Wissmann’s appeal. “Investment protection is a fundamental component in our industry’s success strategy, a combination of exports from Germany and local production.” However, he continued, there was not much time left for setting important worldwide standards with the TTIP, and therefore the negotiations should be taken forward swiftly.

Christian Lindner, Chairman of the FDP, spoke at the SME Day about “More courage for the market economy,” saying, “The snapshot of German economic growth gives a deceptive picture. Our country is living on the successful reforms of recent decades. The drivers of growth are the low euro exchange rate and the falling oil price. Instead of grasping this starting point as an opportunity, the Grand Coalition is notable for its election giveaways, regulations and bureaucracy. Nothing is left of the coalition agreement’s stated aim of shaping the future. The pension package, the minimum wage and its documentation requirements, and the women’s quota have simply resulted in new burdens. There hasn’t been any action on forward-looking projects such as backing out of the Renewable Energy Act, a points system for the immigration of qualified workers, and swift implementation of the Transatlantic Trade and Investment Partnership (TTIP). The best example is the last coalition summit that can be summarized as nothing but a free lunch for the participants. The Free Democrats want to chart a different course. Our aim is to have a republic of opportunities, with the best education, a new culture of founding companies and fair conditions for competition. Germany needs investment, innovation and less bureaucracy for it to remain an engine driving growth, instead of becoming the sick man of Europe over again.”

Arndt G. Kirchhoff stressed: “This year’s VDA SME Day is focusing first on internationalization and localization and, second, on securing locations. But is that really two different sides? Have we – vehicle manufacturers and suppliers – not benefited considerably with our locations in Germany during the last two decades, from the international success and the associated investments on growth markets? Or, in other words, are the international successes of the German automotive industry and benefits from growing markets only conceivable as long as we have competitive plants here in Germany? In view of competitors in other European countries, the answer can only be: yes! The strong position that the German companies have worked for is rooted in internationalization.

“It is therefore one of the main reasons for the success of the small and medium-sized, often family businesses in Germany. We family entrepreneurs are firmly rooted in our home locations. They are and will remain the basis of our growth. The strategic ongoing development of our companies has its foundation in this strong base.

“Internationalization was needed in more than just the first-tier firms long ago. The topic is becoming more and more important to the second, and even to the third-tier companies. Staying put in a niche that may have been a lucrative one so far at home cannot be a model for the future. Our entrepreneurs know that even the smaller suppliers need an international orientation. The workshops at the SME Day should support them in precisely that.”

Dr. Rolf Breidenbach, CEO of Hella KGaA Hueck & Co., underscored: “The SMEs are the backbone of the German economy and a major driving force for innovation in the German automotive industry. As a rule small and medium-sized companies have defining features that make them strong in the long term: entrepreneurship, inventive spirit, flexibility, pragmatism and short decision-making paths. The automotive supplier Hella also has such roots. In terms of company size, we have long since outgrown the segment – but the success principles are still a firm part of our corporate culture and strategy.”

Barb Samardzich, Chief Operating Officer (COO) at Ford of Europe, spoke on the new megatrends that will affect the future of mobility, and on Ford’s viewpoint concerning future innovations in the transport business. She focused on major industrial trends, technologies and innovations of “Big Data” – on positive customer experiences and connectivity, all the way to autonomous driving. She used these topics to illustrate how Ford is working on new projects in conjunction with its development and supply partners. The objective here was to generate affordable and sustainable technological innovations for connected, efficient mobility solutions in all vehicle segments. Furthermore, Barb Samardzich talked about the plans for the continuing development of Ford in Europe, which center on the topics of costs, quality and the product.

Dr. Karl Pall, Director Brand Solutions of Google Europe, gave a presentation on “Entrepreneurial opportunities in a digitalized world” and emphasized: “Only a few years ago, tablets, smartphones and wireless internet were science fiction. Today nearly everybody carries a supercomputer around in their pocket. Big corporations – and SMEs, too – should utilize the opportunities offered by the new technologies and check how they can develop their business models. To master the digital transformation we will need the “three Ms” in particular: mindset, managers and members of staff. Digitalization must be put into practice ‘from the top down.’ A Chief Digital Officer can unite marketing, distribution and IT expertise. And not least, a company in the digital age needs motivated staff who have both the competence and the freedom to take decisions.”

At the SME Day Peter Fuss, Senior Advisory Partner Automotive at Ernst & Young (EY), presented the results of the new study entitled “Automobilstandort Deutschland 2015 – Status quo und neue Herausforderungen” (“Germany as an automotive location in 2015 – status quo and new challenges”), which Ernst & Young has compiled on behalf of the VDA. The latest finding is welcome: during recent years the German automotive industry has developed not only internationally, but also in Germany – especially in comparison with its European competitors. Since 2006 employment in the German automotive industry has risen by 6 percent, while turnover has actually soared by more than one quarter. And the international automotive managers surveyed still regard Germany as an attractive location.

Yet Germany must not rest on its laurels: “The energy and labor costs in the German automotive industry are already very high by international comparison – and high collective wage agreements will increase the pressure on manufacturers and suppliers to continue reducing costs,” the study said. Keeping the largest possible share of production within Germany would be possible only under competitive political conditions and with constant measures to reduce costs and raise efficiency. Among suppliers, high cost and innovation pressure will, in all probability, prepare the way for further consolidation, according to the study, which included a survey of 300 automotive companies around the world, over 90 percent of them supply companies.

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