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The news about new bankruptcies continues. There is no end in sight. Financial expert Philipp Ganzmüller issues a serious warning.
Munich – Almost no institution has as deep an insight into the financial situation of companies as Creditreform: As a debt collection service, the company collects outstanding payments from defaulting debtors and at the same time works as a credit agency for commercial customers. A good eight out of ten inquiries about the solvency of companies in Germany are said to go through Creditreform; the service provider is a kind of Schufa for the economy.
Company closures and bankruptcies will be seen more often in the future, says Creditreform expert Philipp Ganzmüller. Since the beginning of the year there have been more than 2,900 bankruptcies in Bavaria alone. © IMAGO / Bihlmayerfotografie
But what about Bavaria’s companies? Is there a risk of a wave of bankruptcies? We asked Philipp Ganzmüller, who is responsible for the greater Munich area and other Bavarian cities at Creditreform.
“The mood is bad” – credit expert issues clear warning
Mr. Ganzmüller, as a credit agency and debt collection service provider, you know exactly how Bavaria’s companies are doing. Is the talk of a crisis exaggerated or are companies really in trouble?
The mood is actually bad, as bad as in the dot-com crisis. And the location isn’t much better either. We regularly ask companies about their situation and their business prospects, and the picture has become increasingly cloudy over the last two years. One can speak of a real depression. The situation is particularly precarious in mechanical engineering, industry and car manufacturing, but also in construction, real estate and retail. A lot of problems come together. It’s like a poison cocktail.
Is this reflected in bankruptcies and is Germany threatened with a wave of bankruptcies?
Although there is no major wave of bankruptcies in sight, the number of bankruptcies has increased significantly and will continue to rise. However, this follows years in which there were hardly any bankruptcies.
Weshalb?
Firstly, because the German economy boomed for a long time in China’s slipstream. Secondly, because the federal government did a really good job during the corona pandemic and at the beginning of the war in Ukraine and prevented many acute imbalances with its help. With Corona we expected an insolvency tsunami – and we were wrong. And thirdly, because interest rates were very low for a long time.
And now the number of bankruptcies is rising again?
By the end of September there had already been 19,193 bankruptcies in Germany. If things continue like this, it will happen this year 20 to 30 percent more company bankruptcies as 2023. That’s not as much as at the turn of the millennium – back then we had around 40,000 bankruptcies per year – but significantly more than in the last ten years. You will feel that. There are also what we call silent bankruptcies. So the restaurant, the butcher or the hairdresser who closes their shop because it is no longer worthwhile. This is happening on a massive scale at the moment.
“Spectacular” cases of insolvencies – this is what’s coming to Germany
Which sectors are particularly affected?
By September, we counted around 3,150 bankruptcies in construction, 2,650 in wholesale and retail, 1,630 in the catering industry and around 2,000 in real estate. There are also over 130 in mechanical engineering and dozens in vehicle construction and automotive suppliers. There are also spectacular cases. There are more large companies that are either insolvent or have problems and are dragging others down with them. Think of the automotive supplier Leoni, the battery manufacturer Varta or the agricultural group Baywa.
How does Bavaria compare?
When it comes to bankruptcies, Bavaria is doing better than Germany as a whole. By September there had been around 2,900 company bankruptcies in the Free State, while in North Rhine-Westphalia there were almost 4,400 and even in the city-state of Berlin there were over 1,500. The companies in the south have earned extremely well over the past 20 years, which is why they now have more equity and are more resistant to crises . Nevertheless, things don’t look good here either. There are tough years ahead for Bavaria.
Weshalb?
Because two important areas for Bavaria are tipping: real estate and industry.
Impact from China – economic problems are affecting Germany’s economy
At least there is still an industrial base.
But the industrial base is eroding. A lot of things are coming together: the transformation to electromobility and the disappearance of cheap Russian gas, which people have relied on for a long time. The economic problems in China also have a very negative impact on the auto industry.
If the auto industry coughs slightly, other industries have a real cold.
But that only affects a few large car manufacturers, right?
Car manufacturing is a key industry in the south. The dangerous thing is: If the auto industry coughs slightly, other industries have a real cold. Suppliers in particular are in a really difficult situation at the moment. So far, the capital base of many of them is still so thick that it is not a question of mere survival. But austerity measures and job cuts there have an impact on the entire economy in Bavaria.
Also in trade, construction and real estate?
Indirectly, sure, but there are other factors that weigh on it. In retail, the financial cushion is small, the margins are very low and stationary retail has been dying a slow death for years. And when it comes to real estate, the increased interest rates coincide with the high price level München and Upper Bavaria. The real estate bubble was released very quickly. Existences are now shaky, especially among commercial landlords and project developers.
Crisis in the construction industry – “Projects were planned in a different time”
Even in Munich, where vacancy was a foreign concept for a long time?
If you want to move as a company, you are bombarded with offers in Munich today. Many brokers have completely withdrawn from the market. This shows how desperate the situation is. Today, property developers and real estate developers are also viewed very critically by banks – if they can even get a loan at all.
Have the companies also made mistakes?
Many projects were simply planned in a different time: Before Corona, prices kept rising, home office was a foreign concept, the economy was going well and inflation and interest rates were not yet an issue back then. All that has changed and that is causing problems for many property developers. We also know this from our work in the debt collection sector, where there are many cases in the construction industry and the amount of outstanding debts is often very high.
Real estate developers and construction workers are at risk of even more bankruptcies.
How is the industry reacting to the problems?
She tries to raise the rents as much as possible – the jug goes to the well until it breaks. But given the vacancies, this is difficult to maintain. There is therefore a risk of even more bankruptcies among real estate developers and in the construction sector.
Government entry as a rescue – “Sometimes a market shakeout is needed”
You said that there were more big bankruptcies again. Does this mean that the state could act as a savior more often again?
I can well imagine that. In conversations with banks and companies, I also notice that state entry seems to be becoming socially acceptable again.
What do you think of it?
Sometimes there is a need for a market shakeout and from a regulatory perspective, government rescues may be seen as wrong. What if a Baywa bankruptcy caused a conflagration in agriculture and ruined many farmers? This would not only affect farmers and banks, but also consumers if apples or other products were suddenly missing in the supermarket. And what if other large auto suppliers get into trouble and, like Leoni, the Chinese immediately come in and buy up the German know-how? You have to take this into account when you talk about state aid. But I would prefer if companies mastered their crisis on their own. I’m also optimistic about Baywa.
