Europe July 15, 2009, 2:34PM EST

German Exporters Slammed by Crisis

The downturn is supposed to be easing, but Germany's legendary mid-sized industrial exporters are experiencing conditions worse than ever

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Karl Schlecht is standing on the roof terrace of his company headquarters, looking down at his life's work. He moves carefully toward the railing. Schlecht is 77, his bones ache and his new hip is causing problems. But his ailments are minor when compared with the worries of Putzmeister, the company he founded 51 years ago in Aichtal, a town in Germany's southwestern Swabia region.

"It makes my heart ache," says Schlecht, as he stares out at an area devoid of human activity. There is no one to be seen on the factory grounds—no metal workers, no mechanics, no engineers. Most of the employees have been on short time since January, and the concrete pumps and mortar machines the company produces are beginning to accumulate throughout the plant—inventory for which there are no longer any buyers. In other words, dead capital.

Only last year, Arab and Asian buyers were clamoring for Schlecht's products. Putzmeister had erected a separate building for making large pieces of equipment designed to convey concrete and mortar hundreds of meters into the sky on high-rise building construction sites in Dubai, Beijing and Shanghai. "It was like a beehive," says Schlecht, referring to the amount of activity in the new building. But nothing is humming on those sites anymore.

Order volume has declined by more than half, and Putzmeister is already losing €5-10 million ($7-14 million) a month. Management consultants have analyzed the company's operations and recommended sharp cutbacks. "Well," says Schlecht, "we'll have to cut the company in half." And this at a time when others are already hoping for a turnaround in the economy?

Putzmeister, with its 3,600 employees, was until recently still being celebrated as one of those typical mid-sized, virtually unknown German companies that is a world leader in its niche market. Many of these companies are mechanical engineering companies and auto parts suppliers, produce first-class products, have exceptional expertise and export a large share of what they make. Putzmeister, for example, exports about 90 percent of its products.

The German economy is famous for such "hidden champions." These closet global market leaders have served as both an engine for growth and a job-creating machine for Germany.

Their concentration is particularly high in southwestern Germany, in small cities and towns along a corridor stretching from Pforzheim to Stuttgart to Ulm. Their benchmark was the world, and now their world is falling apart.

Orders have plunged by anywhere from 30 to 50 percent, in some cases even more. This, in turn, has created massive excess capacity. Temporary workers have long been let go, and fixed-term contracts have expired. Most of the remaining workers are now on state-supported short-time working schemes, where the government helps to make up their lost income.

A company that has lost half of its business needs to grow by about 10 percent a year for at least seven years to return to former levels. More realistically, management should consider itself lucky if there is any growth at all in the near future. The direct consequences include mass layoffs, plant closures and bankruptcies.

Is there any glimmer of hope? "I don't think so," says Peter Zimmermann, the CEO of Mink, a company based in the town of Göppingen near Stuttgart. A family business in its sixth generation, Mink is the world market leader in specialized industrial brushes. Zimmermann is incensed when he hears people say that the worst is over. "This isn't a crisis," he says. "It's a catastrophe."

Zimmermann estimates that the company has been set back by a decade. Orders have declined by 40 percent, and he is now forced to reduce staff, letting people go he would like to have kept on. The priority, says Zimmermann, is to make sure the company survives, "as horrible as it sounds."

Even the boldest of optimists are slowly realizing what a break with the past the global economic crisis represents for Germany, particularly for the southwestern state of Baden-Württemberg.