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

AHRENSDORF, GERMANY — 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.

"It's a small town," she says. "People would talk."

She's a single mother with two sons who lives in a two-room flat. She drives a Ford. Ahrensdorf itself may have more millionaires now than unemployed.


The mayor says only two or three people in the town are out of work. Ahrensdorf residents commute to jobs in Berlin, which is only 15 miles or so to the north, or to west Germany, which can be a long haul indeed.

But the unemployment rate is 16.6 percent in the county of

Zossen, where Ahrensdorf is, and about 73,000 people live in the county.

Zossen's unemployment rate is typical of eastern Germany, where the official rate hovers around 15 percent, up from about 10 percent last year. Unemployment hidden by make-work and training programs is routinely believed to add another 15 percent. Some experts say only half the labor force in east Germany is productively employed.

After the "heat wave"

More and more western German firms are scaling back investment in east Germany. Krupp Steel, for example, last month backed out of a deal to privatize east Germany's biggest steelmaker.


The auto industry, which has been a major generator of west German prosperity, now seems stalled by its own problems. Despite a upward blip in September, German car manufacturers face falling demand in their own country.

The "heat wave" created by transfer payments to easterners -- car crazy after years of driving slow, gasping East German "Trabbis" -- is over. West European car sales are down 1.5 percent through September.

The car industry's problems parallel those of the rest of German industry. Traditional German workmanship has crashed into contemporary Japanese technology. "Made in Germany" no longer necessarily carries the day, or the sale.

German productivity growth, which enabled German manufacturers to pay the world's highest wages, now lags behind European competitors, let alone Japan.

German auto workers got a $27 dollar an hour pay package in 1991. It's been estimated that it costs $450 less to produce a car in England; $950 less in Japan.

Now labor costs will cost jobs, according to industry analysts, 200,000 out of 1.7 million in the next few years.


Mercedes says it shelved its plans for the Ahrensdorf plant because of "structural problems" in the European truck industry, declining demand in west Europe and reduced prospects for the development of markets in East Europe.

Mercedes, meanwhile, owns 245 hectares of land just beyond the tavern in Ahrensdorf. The company says it will put a regional supply depot and a used car center there.

Mayor Borgwardt says she's heard rumors that a truck port with a service center and a hotel will be built on the site.

"I'll believe it when I see it," she says.