Germany’s machine tool industry is gaining renewed confidence for 2010. “Though the ongoing year is once again going to be a very difficult one, we nonetheless expect a significant upturn in business during the first half of the year”, explains Martin Kapp, Chairman of the VDW (German Machine Tool Builders’ Association), at the organisation’s annual press conference.

"Since September, orders have improved month by month", he says in support of his assessment. In the fourth quarter of 2009, order bookings were up by 12 per cent from a low level. This is not due solely to the base effect: on the contrary, the order level has risen by more than 60 per cent compared to its nadir in July/August. Due to the time-lag before this shows up in sales, this will not yet suffice for growth in production output. The VDW is therefore expecting German machine tool production to fall by 10 per cent in 2010, before the German manufacturers can in 2011 profit from the international investment motor gearing up to full speed.

NIC markets are leading the recovery

The recovery in demand is being driven by export orders and project business. The newly industrialising countries China and India have recovered rapidly from the global financial and economic crisis. Other important markets like the USA, Russia or Brazil are getting back on track for growth. In structural terms, the more and more orders are coming from project business. Domestic demand is stabilising more slowly, and is at present being invigorated mainly by the warehousing cycle.

Developments in 2009 better than predicted

"2009 went better for the German machine tool industry than originally feared, although the sector suffered an unprecedented slump", reports VDW Chairman Kapp. Instead of the 40-per-cent fall in machine tool production output still being anticipated in mid-2009, at the end of the year it was down 30 per cent on a like-for-like basis, at 9.9 billion euros. 

On a historical comparison, this decline is nonetheless unprecedented. All the key statistics went deep into minus territory during 2009. Order bookings fell by more than half. Domestic orders slumped by 61 per cent, orders from abroad by 50 per cent. Exports sank by around 27 per cent in the months from January to November. Only deliveries to East and South-East Asia showed an actual increase. With German exports growing by 11 per cent to reach 1.15 billion euros, the Chinese market is now almost three times as large as the USA in second place.

Workforce downsizing has proved significantly underproportional. Since its high in the autumn of 2008, the total payroll has fallen by about 7,500 or 10 per cent, to its most recent figure of 65,900 men and women at the end of 2009.

"The more flexible labour market and short-time-working arrangements have helped firms to keep on staff for so long", is Kapp's conviction. Many companies are still determined to hang on to their permanent staff through the crisis, even under less-than-easy conditions. Not all of them will succeed, predicts a regretful Kapp. At the same time, it must not be forgotten that significant capacity adjustments have already been accomplished by downsizing overtime and temporary employment, and by terminating time-limited employment contracts.

Capacity utilisation in the machine tool industry was 67.6 per cent in January. This signals for the sector that the halving of orders is now showing up very severely in the production output. The order backlog was still at 5.6 months most recently in October 2009. Both these figures relate to the substantially reduced level of production output.

German machine tool vendors in better shape than their international competitors

Germany's machine tool industry is coming through this crisis in much better shape than was the case in earlier downturns. This is apparent not least in the fact that the German manufacturers have emphatically overtaken their principal competitors, Japan. Their machine tool production output fell twice as steeply as their German counterparts, by 60 per cent to around 5 billion euros, excluding parts and accessories. German manufacturers have slightly increased their share of the global market, and are now approximately 7 per cent in front of Japan in the rankings.

Ensure liquidity for smaller companies in particular

In the machine tool industry, there are growing concerns that the financing situation is becoming constricted. Machine tool manufacturers with customers in the automotive industry and among its component suppliers are being downrated across the board, have to meet more stringent informational requirements, and are being offered poorer conditions, report the VDW's members. This is leading to a massive increase in financing costs.

"Our business associates, particularly the banks, have to allow for the sector's idiosyncrasies", demands Kapp. The banking crisis, he says, must not lead to credit being turned off for entire sectors that are certainly not suffering a structural crisis. What is urgently needed is a concerted, complete-coverage effort by politicians, bankers and the business community both in Germany and abroad to put the industrial sector back on track. For this purpose, the politicians have to ensure that the banks perform their duty to supply the business community with money. There must be no credit crunch for the financing of projects and in the prefinancing of orders for mid-tier companies. The VDW is calling for loan negotiations to be dominated not solely by a company's results in the preceding year, but by its medium-term development prospects.

METAV 2010 showcases intelligent production technology for new requirements

The international machine tool industry is gearing up for the METAV in Düsseldorf from 23 to 27 February 2010. 680 prestigious exhibitors from 26 different counties will there be showcasing their innovations in terms of products and services for new requirements in industrial manufacturing operations. When it comes to new products, new markets, new processes, new concepts for corporate structures and cost optimisation, the German manufactures, in particular, have a lot to offer. When the Gordian knot has been cut and the global industrial sector is investing again, Germany's machine tool industry will be up there with the front-runners, emphasises VDW Chairman Martin Kapp.