display
Keeping an overview of the situation in the most important German corporate divisions is not exactly easy in times of Corona.
For Walter Sinn, this is exactly the day-to-day business.
For almost seven years, Sinn has been the head of the management consultancy Bain & Company in Germany and has deep insights into the automotive, mechanical engineering, retail, aviation, banking and financial investor sectors.
Now is the time for agile action and quick decisions, is his credo, in order to get out of the crisis again.
WORLD:
Mr. Sinn, we want to know from you how badly top German industries are suffering from the corona pandemic and how they can get out of the crisis again.
Walter Sinn:
The first thing that applies to all industries is that the crisis acts as a fire accelerator for a fundamentally necessary transformation of companies.
But let's go into detail and start with the automotive industry.
The automotive sector has been hit by a perfect storm.
Companies are now feeling an enormous need for action.
display
According to our calculations, global automakers will have to cope with a drop in sales of 20 percent and a drop in profits of even 60 percent this year.
It looks even worse with suppliers, where it will be an average of 25 percent in sales and 80 percent in profit.
It is precisely among these companies that bankruptcies will occur.
I am counting on a three-digit number for Germany alone.
WORLD:
Which way out there?
Sinn:
There are four megatrends in the automotive industry: They relate to electromobility, vehicle networking, autonomous driving and new mobility services.
In addition, manufacturers have to focus much more on the customer and have direct access to them.
Companies have a massive need for transformation, and everything has to go much faster now.
display
WORLD:
How is the situation in the country's former model industry, mechanical engineering?
Sinn:
Mechanical engineering has also been hit hard, but there are greater differences depending on the sector.
Machine builders in the chemical and textile industries as well as tool making are doing particularly badly.
Things are going better for manufacturers of computer hardware, machines for the construction industry or the pharmaceutical industry.
After three quarters, sales in mechanical engineering in Germany fell by 15 percent year-on-year.
For the year as a whole, we expect up to 20 percent.
The crisis will kill many small businesses.
WORLD:
There is a two-part picture of the situation in retail - between online and stationary, is that correct?
display
Sinn:
That is true.
Online trading had increased sales by 15 percent by the end of October.
In contrast, according to the association, the entire retail sector has lost eleven percent of sales.
The perceived reality is even worse when I look through the city centers.
The structural change will also change the cityscape.
Offices and shops are becoming fewer and more apartments will be built.
E-commerce continues to grow rapidly, and only those who offer real customer experiences will have a chance locally.
In addition, we will see an increasing polarization.
Purchasing will be dominated even more either by cheap sellers or by luxury.
WORLD:
It is said that the crisis hits the aviation industry hardest.
Sinn:
Aviation is actually the hardest hit of all industries.
The European airlines will lose between 60 and 80 percent of their sales this year.
At the airports it will be two thirds less.
From January to October the number of flights fell by 80 percent in Germany alone.
It will be a long time before the momentum comes back.
This can be seen from the fact that 30 percent of previous passengers say they will fly less in the future.
For business trips, this will happen straight away.
Many companies will hardly make a one-day visit to a meeting in New York.
WORLD:
Will private travel compensate for this?
Sinn:
That will only partially succeed.
There is an enormous pent-up desire to travel from private customers.
But that won't change the fact that the airlines have to adapt their structures and cut costs.
The airlines will look for new sources of income, even if this only concerns small things such as paid meals on board.
We do not expect the passenger numbers of 2019 to be reached again until 2024 or 2025.
WORLD:
Your office is right in Frankfurt's banking district.
How is the crisis changing Germany's financial institutions?
Sinn:
This time the banks are in a luxury situation because they are not the trigger for a crisis, but can help to solve problems.
The greatest sword of Damocles is the credit business for industry and companies.
The bankruptcies there will also lead to attacks at the banks.
The institutes have already increased their risk provisioning by a factor of two to four this year.
We do not expect any relaxation in the coming year.
display
WELT:
What does that mean for private customers, will the banks withdraw even further from the area?
Sinn:
I expect the branch network to be significantly reduced.
Deutsche Bank has almost halved its branches in recent years.
Commerzbank is now following suit.
The corona pandemic will significantly accelerate this development.
After all, in times of the branch closings caused by Corona, the banks have seen that business still works.
Customers have noticed what they can do online at their bank.
Many of them have found a taste for virtual investment advice themselves.
WORLD:
Times of crisis are also times for takeovers.
What will financial investors do in the coming months?
Sense:
Private equity has had six boom years if you look at the inflow of funds, investments or returns.
In April and May of this year this development practically came to a standstill.
However, the number of company analyzes for a possible transaction has been back to a record level since the summer.
Company valuations are currently at a multiple of eleven, which means that a company is valued at eleven times its pre-tax profit on an Ebitda basis.
After the 2008 banking crisis, that number was around nine.
Health, technology and digital services are currently in particularly high demand.
Corona is fueling the trend away from conglomerates and towards smaller units.
This is exactly a field for financial investors.
We can see that in the examples from Siemens and Thyssenkrupp.
WORLD:
When will all of this have an impact on the labor market?
Sinn:
At the moment, these consequences are still hidden by short-time work.
But companies will tackle the necessary transformation and use the time of crisis as an opportunity to cut costs.
This not only affects the personnel costs, but also.
I expect a strong wave of downsizing in 2021. In the automotive industry alone, up to 100,000 jobs will be lost in the next two to three years, according to our analysis.
It has been empirically proven that the one who cuts costs very quickly and very consistently and at the same time invests in growth is the best way to get out of the crisis.
WORLD:
And what if everything takes even longer?
Sinn:
I'm not afraid of that.
I think we'll be sort of a new normal after the first quarter of 2021.
In the current year, the German economy will collapse by between five and seven percent.
For the coming year, I expect a recovery of between three and five percent.
Aviation and tourism will take a longer time.
I see automotive and mechanical engineering somewhere in the middle.
However, the areas of health, technology, online trading and digital services will move forward with a lot of tailwind in 2021.
We have already seen the bottom of the crisis.
But there will be very different development paths on the way up, depending on the industry concerned.
Walter Sinn has known the consulting business for almost three decades. After studying in Mannheim, the business economist started at Deutsche Bank, switched to the consulting firm Boston Consulting and finally went to Bain & Company. The 55-year-old has been head of Germany there for almost seven years. Sinn lives in Frankfurt / Main and has two grown sons and a young daughter. The US company Bain & Company has offices in 37 countries and employs around 12,000 people, including around 900 in Germany.