German McKinsey chief says drastic productivity improvement is necessary

Duesseldorf, Germany. Germany's auto industry needs to drastically increase its productivity to remain competitive, according to international business consultants McKinsey & Company.

"Extra work is an absolute must," said Germany boss Juergen Kluge. "It will result in increased productivity and therefore in economic growth."

Kluge went on to say, "The reintroduction of Saturday as a regular working day alone would already increase productivity 20 percent. A further 15 percent could be achieved by improving work processes."

However, he also thinks the industry needs to consider staff reductions. This can currently be "experienced live" at Opel, he said.

The consultant feels that transferring some product development and production abroad is unavoidable. "To ignore this option would be an inexcusable neglect that wouldn't help anyone," he said. Production locations in eastern Europe and Asia nowadays are much better than those in Germany, he added.

An extensive McKinsey analysis of production locations for different products in 130 countries showed, for example, that high-quality components for car transmissions ideally are manufactured in the Czech Republic and assembled in Mexico and China. To keep the production of transmissions in Germany, "wages would need to drop by no less than 80 percent. Nobody wants that and it would not be possible anyway," Kluge said.

He also said that more flexible work is necessary and can be realized. "There should not be any taboos."

The McKinsey Germany chief said the German auto industry and the country's politics are "in need of rehabilitation."

Kluge says it is essential that, next to higher productivity, Germany retains its ability to innovate. Only then, will the country in 20 years have an automotive industry worth mentioning, he says.

However, he isn't optimistic. The shortcomings of the German education system will mean that the country's power to innovate is being lost.

His forecast for 2005 is grim. Poor economic growth in Germany will not be sufficient to noticeably reduce unemployment.

Car manufacturers and importers were similarly reserved when taking part in an Automobilwoche poll on expected 2005 new-car sales. They agreed that the main problem continues to be Germans' reluctance to spend. Automotive associations expect only a marginal increase in unit sales next year.

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