A Leopard 2 tank gear transmission in a production hall at the Renk AG plant in Augsburg, Germany, on Monday, May 8, 2023.
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Tank parts maker Renk is eyeing up talent from the auto sector as it races to scale up and fuel growth in the wake of rising geopolitical tensions and soaring military spending.
Earlier this year Germany passed a historic fiscal package that enabled a steep increase in the defense spending capabilities of Europe’s largest economy. The 27-member state bloc is scaling up its defense efforts amid the war in Ukraine and the increasingly strained transatlantic security partnership.
Renk, a global leader in creating gear boxes for tanks, is among the defense firms that has seen its stock rally on the back of increased military spending. Its share price rose over 300% so far this year and its order book jumped 164% to 549 million euros ($622.3 million) in the first quarter.
To keep pace with the soaring demand, defense companies like Renk, Hensoldt, Rheinmetall are increasingly collaborating with the automotive industry. It’s a sector which historically has been one of Germany’s most important economic pillars, but has been facing major difficulties due to the country’s sluggish economy, increased competition from China and U.S. tariffs.
For Renk, this cross-industry collaboration has mainly consisted of hiring workers from the automotive industry, capitalizing on CEO Alexander Sagel and Chief Operating Officer Emmerich Schiller’s previous experience working in this sector.
Sagel has previously held positions at Rheinmetall and Daimler, which has since been renamed to Mercedes-Benz Group AG, while Schiller has worked in various management roles at Mercedes-AMG GmbH.
In an exclusive interview from Renk’s headquarters in Augsburg, Germany, CEO Sagel told CNBC’s Annette Weisbach that the tank-parts supplier has seen a range of applicants from the automotive industry and is “of course” benefitting from incorporating such experts.
Schiller confirmed the trend, adding, “We are looking really for engineers who have that education, who can adapt to our industry and bring in the methods which we have in automotive like continuous improvement, like lineback principles to increase efficiency — to increase quality, this is what we are really looking for.”
Opportunity to ‘kill two birds with one stone’
A branch of Germany’s largest trade union, IG Metall Lower Saxony, told CNBC it has seen cases of defense firms targeting skilled workers and collaborative opportunities with German carmakers and manufacturers.
“These developments are taking place against the backdrop of two parallel dynamics: The automotive industry is undergoing a profound transformation process – key words [are]: electrification, digitalization, new mobility concepts – while at the same time the defense-related sector is expanding due to political decisions and increased defense budgets,” a spokesperson from IG Metall Lower Saxony said, in emailed comments translated by CNBC.
While there are technological connections between the two industries and job creation is welcome, IG Metall warns of a “one-sided industrial policy focus towards rearmament,” which may provide employment in the short term but is based on an unstable security environment. “Our goal has to be a lasting peace, not continuous rearmament,” the spokesperson said.
In a Deutsche Bank note from March, analysts led by Adrian Cox explained that overcapacity is an issue across Europe’s auto industry, particularly in Germany, where they estimate 100,000 jobs are now be at risk. Auto factories are lying idle while the defense sector remains “subscale,” the analysts said, adding that experienced auto workers can benefit the defense industry as it “moves to serial production and greater profitability.”
There is “a historic opportunity to kill two birds with one stone by turning some of [Germany’s] automaking prowess to military production,” the analysts commented.
“The German automotive industry is now increasingly talking to adjacent sectors,” a spokesperson from the German Association of the Automotive Industry (VDA) told CNBC.
“In contrast to industry, Germany is no longer internationally competitive as a business location,” they said, adding that they “welcome anything that upgrades Germany as a production location in order to maintain and create growth, prosperity and jobs in Germany.”
When asked about the shifts from automotives to defense, Monika Schnitzer, the chair of the German Council of Economic Experts, told CNBC’s Squawk Box Europe on Tuesday that it’s a chance “we should seize.”
Given the guarantee that auto industry layoffs will happen, these workers “will be needed somewhere else” and therefore it’ll be key “to ease this transition by actually bringing people from one company to another company where they are needed” and also foster reskilling, she added.
