The worst is yet to come for the German production systems industry

• Incoming orders, export business and production volumes are shrinking
• Experts fear that up to 60,000 jobs could be lost
• Heavy industry particularly badly hit
• Companies need to identify and minimize risks now

The financial and economic crisis has the German production systems industry firmly in its grip. Incoming orders, export business and product volumes are all showing double-digit decline. Experts are predicting that up to 60,000 jobs may be lost as a result of the crisis. But the worst is yet to come: The repercussions of the crisis in the automotive industry will soon kick in. The strong volatility of the segment means that the expected slump in the production systems industry will be worse than that seen in the automotive sector. These are the findings of the a new study by Roland Berger Strategy Consultants entitled "Downturn in production systems."

"Despite all signs of economic recovery, incoming orders in July were still down, way below expectations at -43%. That's now the tenth time in a row the figure has shown a double-digit gap to last year's numbers," says Dr. Martin Eisenhut, Head of the Engineered Products/High Tech Competence Center at Roland Berger Strategy Consultants. Initial recovery in industrial production will probably be slow in reaching this sector. "The economic crisis has the German production systems industry firmly in its grip," says Eisenhut. Experts fear that up to 60,000 jobs may be lost. But the worst is yet to come: The repercussions of the crisis in the automotive industry will soon kick in. The strong volatility of the segment means that the expected slump in the production systems industry will be worse than that seen in the automotive sector.

Heavy industry particularly badly hit

The crisis is hitting different segments with varying degrees of force. General engineered products such as machine tools and printing and paper technology will experience a massive slump, with recovery in the medium term. Heavy industry – rolling mill technology and mining machinery for instance – faces a long-term structural collapse. In the case of machinery for everyday use, such as food processing machinery, the authors expect only a slight decline followed by recovery in the short term. Manufacturers of components such as powertrain technology and precision tools will experience significant decline. Here again the experts at Roland Berger expect recovery in the short to medium term. Dr. Martin Eisenhut: "To date, two-thirds of companies that have gone to the wall have been in the general engineered products sector. But other sectors are also coming under increasing pressure as time goes by."

Wanted: Services, not machinery

The risk profiles of production systems companies vary according to a number of factors. For example, it is important for companies to spread their risk by having several different areas of activity with regard to technology and applications. In times of crisis there is strong demand for services rather than new machines. Manufacturers with a wide range of interests will generally be less affected by the crisis than specialist providers. Another key success factor is having a strong market presence combined with a high level of competence in target markets. A fast speed of innovation and engineering efficiency mean better results. Product design also needs close examination – 30% of European manufacturers use less than 70% of a machine's full range of functions.

Act now!

To survive in times of crisis, companies need to make an accurate assessment of medium- and long-term demand and adjust capacity accordingly. Manfred Hader, Partner at Roland Berger's Operations Strategy Competence Center: "Companies that want to come out of the crisis stronger than before should adjust their breakeven point now in line with declining demand." The experts at Roland Berger recommend first examining the entire customer portfolio to determine the risk situation. Next, companies should restructure their activities from a financial, strategic and operational perspective. Right from the outset, this restructuring should focus on actions that will bring about quick improvements in profits and liquidity. Manfred Hader again: "In light of the global crisis, companies in the production systems industry must start thinking now about how to position themselves so as to survive in this challenging market."