Graveyard of the Giants

A string of major business failures is filling up Germany’s corporate graveyard with some of the country's giants.

Among the biggest casualties of late are the Kirch media empire, Holzmann the construction heavyweight, regional aircraft manufacturer Fairchild Dornier, and Herlitz the office products maker.

But burial has been postponed in all these cases, as surviving competitors begin their ritual fight for the remains. Corporate death is an ugly business.

German voters in this election year are reckoning with the fact that under the centre-left government of Chancellor Gerhard Schröder, in power since 1998, the incidence of insolvency among major companies has increased.

Blame game

Yet who to blame, or what, is not clear. This string of failures in traditional industry follows a painful spate of tech busts in the partly-discredited "new economy" and comes at a time of global economic slowdown.

The trends aren’t unique to Germany, but such failures are especially painful here. Post-unification economic promises have been a disappointment, with the East posting disappointing results, and much of the West bitter about the economic burdens it bears for the whole.

At a time like this, one would hope the durable giants of Germany’s post-war "miracle" could keep powering the economy, and many do. Auto-manufacturing and chemicals are among the industries that still look strong.

But the recent failures signal a weakness in corners of the country’s corporate environment – a tendency to overextend and invest – that merits some distress and reflection.

Common mistakes

This would all be more pleasant if Germans could tell themselves the insolvency cases were caused by singularly reckless managers. But they weren’t. The losers here are managers who, as might be expected, bought into the popular optimism of the day, dared to invest in it and got burned.

Leo Kirch, whose half century of good fortune officially ended Friday when his credit lines expired, fell prey to the faulty assumption that Germans’ consumer lust for entertainment media would flourish in an expanding economy. Instead, Kirch’s foray into pay-television proved a loser during the late 1990’s slow growth and infant years of the new millenium.

Holzmann, a 153-year-old colossus of the construction industry, invested heavily during the 1990s in building construction and management in the former East, preparing to ride a regional economic boom and predicting huge growth. The boom proved a bust.

Herlitz, similarly, became a casualty of crashing expectations in reunified Berlin. The office supplies manufacturer survived in various forms for nearly a century, adapting through Germany’s most turbulent times. But having overextended itself and feasted on state subsidies offered in the early 1990s, Herlitz started faltering in 1994. After a struggle, the company has now filed for bankruptcy, as some 2,600 other Berlin-based companies did last year.

Fairchild Dornier’s downfall alone is symptomatic of an exceptional event. The September 11 terrorist attacks against the United States badly injured the aviation industry and probably played a major role in the company’s failure to find strategic investment for projects that would have kept it afloat.

Don’t blame Germans for feeling a bit gloomy now, as they wonder about the consequences for banks who extended billions of dollars in credit to these companies. It’s their taxes that will cover state guarantees, should any of the banks find the growing burden too great.