'Deindustrialization' and 'militarization of industry' in hand in hand in Germany
While the sanctions imposed on Russia after the Ukrainian war caused energy costs to soar in all of Europe, especially Germany, the claim that the threat of a continent-wide “deindustrialization” is on the agenda has even entered into everyday conversations.
Especially energy-intensive sectors, especially chemistry, for which Germany has been ambitious for decades, has been going back and forth in the spiral of downsizing/dismissal/production transportation for several years. German chemical monopoly BASF is one of the most well-known examples of this decline.
The same applies to the automotive sector. In addition to energy costs, competition from China also comes into play here. Even a company, such as Volkswagen, one of the pioneers of the German industry, was shockwaved when it announced that it would close its factories in Germany.
Shock waves had spread; because the German automotive industry is not only in Germany: Many countries, especially in Central and Eastern Europe, especially the Czech Republic, Slovakia and Hungary, are among the countries that will be most affected by a crisis in automotive.
Tens of thousands of jobs are expected to be lost in automotive
When it comes to the automotive sector, layoffs are expected to reach 40,000 in Baden-Württemberg alone this year. According to a new study commissioned by the German Automotive Industry Association (VDA) to the Prognos research institute last October, the labor supply in the German automotive industry is expected to fall by 6.3% by 2035.
The 46,000-person employment decline in Germany in 2019-2023 is linked to the transition to electric vehicles, and if this downward trend continues, the study estimates that the number of employment in the automobile sector could decrease by 190,000 by 2035 due to Germany's loss of competitiveness due to high tax rates and rising energy prices.
Moreover, these losses also have their own internal separation. According to the research, disproportionate job losses have started in jobs that previously looked the "best" in the sector.
In addition to mechanical engineering and industrial engineering, jobs, especially in the field of metalworking, have lost their importance. According to Prognos, due to the electrification of the powertrains, lower employment is generally required for vehicle production compared to the past.
The structure of employment in the sector is changing
In contrast, there were increases in jobs in the fields of automotive engineering, technical research and development, computer science, electrical engineering and software development, which are mainly in manufacturers.
For example, employment in IT jobs in the automotive sector has increased by about a quarter since 2019 and up to 85% since 2013.
Therefore, the German automotive industry is struggling not only with employment losses, but also with the change in the structure and quality of employment.
On the other hand, it is also clear that the loss of employment is not only experienced in factories producing automobiles. The "by-industry" is also affected by the crisis: Companies that produce vehicle parts or services such as Bosch, ZF, Continental, Webasto are also preparing to lay off or dispose of some parts, citing the crisis.
Gun doping to German industry
All this is one side of the matter. On the other side, there is the adaptation of the economy to military production within the scope of "preparing for war (with Russia)".
Last year, the German government allowed more arms exports than ever before. On Wednesday, the Federal Ministry of Economy confirmed this by answering the question of Sevim Dağdelen, a deputy from the Sahara Wagenknecht Alliance (BSW).
Accordingly, the Federal Security Council allowed the export of all kinds of war equipment, worth 13.3 billion euros in 2024; this figure is almost ten percent more than the previous record year, 2023 (12.1 billion euros).
By far the largest share went to Ukraine with defense equipment worth about 8.2 billion euros, followed by Singapore (1.2 billion euros); Algeria (558.7 million euros); USA (319.9 million euros) and Turkey (230.8 million euros).
Rheinmetall, the biggest winner of the war
The rapid increase in arms exports was accompanied by equally rapid growth for a number of German defense companies.
The best known example of this is Rheinmetall. The company supplied Ukraine with numerous weapons systems, including Leopard 1 and Leopard 2 main battle tanks, Marder infantry fighting vehicles, hundreds of trucks, as well as reconnaissance and air defense systems, and a field hospital.
Ammunition deliveries also play an important role. Rheinmetall announced in March 2024 that it could only sell 70,000 shells per year before the war in Ukraine, but it would reach a volume of 700,000 by the end of the year, and almost all of this production would be supplied to the Ukrainian armed forces.
At the end of 2024, the Düsseldorf-based weapon manufacturer declared that it is "now Ukraine's most important defense industry partner".
This company is also the main beneficiary of the program, which is also called a private fund and is currently funded by a debt of 100 billion euros used to finance the rearmament of the German Armed Forces (Bundeswehr).
According to the company's statement last year, Rheinmetall can claim 30 to 40 billion of the 100 billion euros.
Great shift from civil production to military production
In 2021 before the war, the company increased its turnover by 4.7 percent to just less than 5.66 billion euros, and the growth at that time was mainly based on the increasing turnover in the civilian part of the group, mainly in motor vehicles.
Last year, with a slight contraction in the civil division, group sales reached a volume of 6.3 billion euros in the first nine months, about 36 percent more than the same period of the previous year.
The order accumulation of 52 billion euros makes it seem easily achievable to increase annual sales to 13 to 14 billion euros by 2026 and even exceed the 20 billion euro limit in the long run.
The share price of Rheinmetall, which was below 100 euros before the war in Ukraine, is currently trading above 700 euros.
Truck orders from the Bundeswehr are raining: 'Added value' effect
On January 20, Bundeswehr signed a contract with Rheinmetall to supply 568 logistics vehicles.
The order covers the 349 UTF (unprotected transport vehicle) trucks in the 5t and 15t models, as well as the 219 trucks with a 121 cleared body system with a protected driver's cab. The total value of both projects is over 330 million euros gross.
UTF trucks will be delivered by 2026, and swap safes will be delivered by November 2025.
The Budget Committee of the German Bundestag on December 18, 2024, released the funds, allowing Rheinmetall to receive orders in the fourth quarter of 2024.
UTF trucks are part of the framework agreement signed in July 2024, the largest order in the company's history in the field of logistics vehicles. This agreement provides for the delivery of up to 6,500 trucks worth a gross value of 3.5 billion euros.
The framework agreement offers the Bundeswehr the option to order additional quantities flexibly over a seven-year period of UTF 5t and UTF 15t unprotected transport vehicles already on site.
Rheinmetall has made a significant contribution to the strengthening of the logistics capabilities of the Bundeswehr with a record logistics vehicle delivery of 2015, 2015 units in 2024. This helped modernize the Bundeswehr's truck fleet and greatly expand its logistics capabilities.
The UTF family has been making a significant contribution to the operational effectiveness of Bundeswehr logistics units and formations for years.
In July 2017, the Bundeswehr signed a contract with Rheinmetall MAN to supply the new UTF mil gl family in the 5 and 15 metric ton carrying capacity categories.
The use of flexible framework agreements for large quantities in military supply has made UTFs a showcase project in this respect.
Since 2017, more than 6,000 HX vehicles, including WLS and 70-ton semi-trailer tows, have been delivered to the Bundeswehr.
Much of the added value (more than 75 percent) of WLS and UTF takes place in Germany.
Civil-military cooperation is developing in the economy
It is seen that the companies are increasingly adapting to a period when Germany is once again assumed to be the "potential target of military action".
“We see that we are enemies of Russia, including companies,” said Günther Schotten, Director-General of the Security League in Economy, who spoke to Zeit last November, and welcomed the increase in 'civil-military cooperation'.
The German armed forces have also been in more contact with industrial and logistics companies for some time.
The basis of this is the "German Operation Plan", which was prepared a few months ago and called "OPLAN". The 1,000-page secret document prepared by the German Armed Forces and the Federal Ministry of the Interior explains in detail how Germany can defend itself against military attacks.
A significant part of this is civil structures, cities and municipalities and companies that are gradually informed about the roles they will play now.
“Germany is preparing in detail for the sole purpose of deterrence, against Russia's possible military attack on NATO countries in the east,” says Oliver Zander, general director of the Gesamtmetall industrial association.
Due to the abolition of compulsory military service and the reduction of the armed forces, more and more civilian companies are required to take part in the event of an alliance, tension or defense.
This applies not only to the defense industry, but also to power plant operators, transportation companies, refineries and food companies.
In the event of a conflict between NATO and Russia, Germany will have to act as a center. According to the plan, tens of thousands of soldiers will reach Bremerhaven and Wilhelmshaven in a few days. Men and women will have to be housed and provided with medical care, and food, fuel, trucks and trains will be needed.
In the event of war, the government says in the news Zeit, “even outside the will of the companies”, it can provide a thorough control over all necessary operations very quickly.
Reminding that the relevant general provisions have been in force since the Cold War, Zeit still points out that the main idea is that "such a cruel intervention" is not necessary.
“In fact, many managers seem to know how important their company is in such a situation. A recent Bundeswehr commander said that he has never spoken to business representatives as much as he has ever spoken to the last few weeks,” he says.
Profit spreads to the whole defense industry
On the other hand, the "war profit" has spread beyond Rheinmetall.
Other companies such as Diehl Defense, the military division of the Diehl Group, which produces the IRIS-T air defense system for the Ukrainian armed forces, are also growing rapidly.
The group managed to increase its annual turnover from 660 million euros in 2021 to 810 million euros in 2022 and 1.14 billion euros in 2023; more growth is expected for 2024.
Employment appetite of arms companies
The increase in production is accompanied by the increase in the number of personnel working for defense companies.
About half of the more than 1,100 new employees Diehl Group has hired in 2023 are employed at Diehl Defence. The main reason for this is that the production of IRIS-T missiles has tripled in 2023 compared to the previous year. This number is planned to be doubled in 2024.
Since the beginning of the war in Ukraine, the entire sector has been hiring new employees. For example, in the middle of last year, Augsburg-based Renk Group reported that it would increase the number of employees from about 3,800 to about 4,200, including overseas locations.
Products of these production regions include gearboxes and other components for tanks, frigates and other military equipment.
At that time, Rheinmetall said that he wanted to employ 3,500 new people in the year; the number of new jobs could increase to 6,000 in the next three years.
Moreover, this rapid increase in the number of personnel is not only a phenomenon unique to Germany. A similar trend is seen in other NATO countries with large arms manufacturers.
In June 2024, the Financial Times reported that ten percent or more of the previous workforce was newly hired in various defense companies, from Leonardo (Italy) to Thales (France) and U.S. arms manufacturers.
Automotive workers turn to the defense industry
One of the critical points here is whether a significant part of the excess labor in the automotive sector in crisis can be absorbed by the rising arms industry.
The arms industry in Germany is increasingly seen as a “safety net” for laid-off personnel in the automotive industry, which is at the clutche of the crisis.
In mid-2024, it was reported that Rheinmetall was trying to establish a recovery company with Continental and that this company would move the workers it could not employ due to the crisis. Rheinmetall's rapidly growing need for personnel would be met, at least in part by this rescue company.
Politicians in the state of Baden-Württemberg state state that traditionally has a strong automotive industry, including suppliers, that this state also has a strong defense industry with companies such as Diehl Defense, Hensoldt and ZF.
The sector directly employs 14,500 people; when suppliers are added, it is stated that this number increases to 42,000.
While the defense industry is unlikely to cover the 40,000 employment losses expected this year in the Baden-Württemberg automotive industry, many hope that the growth of this sector can at least offset some of the upcoming employment losses. The claim that "panzers can become growth engines" is expressed by Rüdiger Soldt, who wrote for the phase.
Employment in the defense industry, against employment in the chemical sector
The growth of the defense industry is accompanied by the increase in its importance.
According to the German Security and Defense Industry Association (BDSV), approximately 230 member companies employ 70,000 people.
A study conducted in 2024 assumes that there are already about 105,000 employees. If the "security sector and indirectly employed people" are added, the result is approximately 400,000 employees.
The areas where the security and arms industry has begun to expand, albeit slowly, can be seen compared to the German chemical and pharmaceutical industry: This industry currently employs about 450,000 people, and this number (albeit widely defined) is not much more than the security and weapons industry.
Bribe to Mittelstands
Mittelstand companies, which have a product portfolio that forms the backbone of Germany, contributes greatly to employment and holds almost all of some export markets, have long been complaining about the competition from China, geopolitical tensions, rising energy/labor costs and the suffocating bureaucracy of the EU and Germany.
But the defense industry, in addition to major monopolies, also whets the appetite of numerous Mittelstands, which have contributed significantly to the success of the industry as a supplier of electronics, sensors or drive technology.
For example, companies such as Rohde & Schwarz, Hensoldt and Siemens Mobility, a subsidiary of Siemens, stand out as indispensable partners in the supply chain.