Car makers drive up profits

The joyful ringing of tills at German car factories heralds the renaissance of an industry once thought to be in terminal decline. In 1993, all but BMW posted massive losses. This year, every German-owned car concern is suffering from an embarras de richesses.

Porsche announced yesterday it had doubled profits in the financial year which has just ended, thanks largely to a 90-per cent increase of sales in the United States. Volkswagen-Audi has been increasing its market share throughout the world, and is ready to pour billions of deutschmarks into Asia to take on the Japanese. Mercedes has turned a DM1bn (pounds 350m) loss into a DM1.5bn profit within three years. It needs to build new plants abroad to keep up with demand. The new Mercedes A-class, due to be launched at the Frankfurt motor show later this week, has already been ordered by 110,000 customers.

By the standards of its domestic competitors, BMW's progress has been unspectacular: sales up by a quarter in the US this year, and last year's profit at DM800m. The company's indifferent performance, however, is attributed not to the soaring costs of German labour but to problems at Rover, BMW's British subsidiary. The expensive German workers turn in a 7-per cent profit on turnover, says BMW's boss, Bernd Pischetsrieder. At Rover the workers "do long hours, have low wages, yet the company is making a loss".

The success of the German car industry is attributed to massive restructuring carried out since the early Nineties. Some 200,000 workers have been sacked and the factories are slow to re-hire even in the boom times. Wages have been kept low, the turnover of models has speeded up and flexible working patterns imposed. However ossified the rest of the economy might be, the car industry demonstrates Germany can be reformed.