German investment in the east falters Mercedes, others forced to curtail billion-dollar plans

November 08, 1992|By Carl Schoettler | Carl Schoettler,Berlin Bureau

AHRENSDORF, Germany -- The bright young mayor of thi tiny village was only faintly ironic last week when she said Mercedes-Benz had asked local kindergartners what they wanted for Christmas.

It was only two days after the automaker announced that the whole area's big gift wouldn't be under the tree. Mercedes had dropped plans to build a billion-mark ($632 million) truck factory that would have employed 4,000 people in Ahrensdorf.

In an east German region where unemployment runs 14 percent to 20 percent, Mercedes was putting stones in a lot of Christmas stockings.

Martina Borgwardt, the 32-year-old mayor who studied city management under the old Communist East German regime, wasn't angry, only disappointed. East Germans remain remarkably docile in the face of repeated rebuffs to the expectations that came with unification with the west.

The Mercedes cancellation was only the latest pullback on investment in the former East Germany by west German firms.

And it was another indication that the west German economic engine lacks the steam to pull the east out of its economic -- and psychic -- depression.

The German economy, which for all practical purposes means the west, is spinning its wheels on the edge of recession. Some economists say it has slipped over the edge.

Like almost every aspect of German life, from the rise of neo-Nazis to disputes over the price of theater tickets in East Berlin, the auto industry's problems are compounded by the ballooning cost of unification.

Germany pumps 150 billion marks ($100 billion) a year into the east. Most of the money is raised by borrowing. The German debt soars. The central bank keeps interest rates high. Happily, from its point of view, that keeps the mark more valuable and attractive to investors. But the high mark increases the cost of German exports. And car sales suffer.

L Mayor Borgwardt understands. She reads the economic reports.

"I know the car industry has difficulties," she says. "We know it would be difficult to build a plant here when people are losing their jobs in west Germany."

Mercedes is to Germany what GM is -- or used to be -- to America. It is the car and truck division of the Daimler-Benz corporation, Germany's largest industrial conglomerate. So it is an economic barometer.

Lagging sales have already prompted Mercedes to close its west German plants an extra four days at Christmas and perhaps institute shorter shifts in 1993.

Vehicle sales were down 7 percent in the first 9 months of this year, 11 percent in the car division. In an effort to become competitive in world markets once again -- essentially with the Japanese -- Mercedes expects to cut 20,000 jobs over the next few years, about 11 percent of its work force.

40,000 trucks a year

"It's understandable that they want to keep work for the people they have now," Mayor Borgwardt says. "But it's painful to have done this long planning and nothing happens."

The project had been in the works since the middle of 1991. It was to have been Daimler-Benz's major investment in eastern Germany. The company expected to produce trucks at a rate of 40,000 a year at Ahrensdorf by the end of 1994.

Ahrensdorf is the kind of place Germans affectionately call "ein kleines dorf," a tiny village.

Typically east German, the place has 385 inhabitants who live mostly on a single cobbled main street in tidy but slightly grim gray-brown stuccoed cottages with red tile roofs. There's a pub, a bakery, a kindergarten, a town hall and a somber church with a well-kept graveyard.

The townsfolk were mostly farmers who worked the fields of a collective farm. The town celebrated its 750th anniversary this year. Many families have been there 200 to 300 years. And they've made out pretty well from the Mercedes project so far.

Some became millionaires

Mercedes bought 245 hectares of land for the proposed truck plant. One hectare equals 2.47 acres, or more important for the people of Ahrensdorf, each hectare equals 10,000 square meters.

Seventy-four Ahrensdorf citizens sold land to Mercedes, the mayor says, at 13 marks a square meter. Three or four people became millionaires, she says. Luckily, the townspeople were able to prove land ownership fairly easily because they never actually gave title over to the old collective.

Land acquisition is more often a major headache for investors in the former East Germany because ownership is often extremely cloudy.

Mercedes advanced the village 6.5 million marks to get ready for the development of the plant. Ahrensdorf is used to dealing with its annual budget of 250,000 marks, Mayor Borgwardt says.

So, the town council -- 12 burghers and the mayor -- hired a western German planning company and a lawyer to advise them. The company seems to have gotten most of the money.

"People would talk"

The town spent 70,000 marks sprucing up the kindergarten, 30,000 renovating the town hall, 65,000 on a Mercedes fire truck. Mercedes offered Mayor Borgwardt a car. But she passed it on to an official in a nearby town.

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