BMW Finds Rough Road in the East

THE old border between East and West Germany is no more, but its remnants remain.

From the new BMW plant here in Eisenach, guard towers and the border station are plainly visible. The barracks where East German guards once slept has been converted into a restaurant. BMW plant manager Eberhard Schrempf even talks about this piece of former East Germany as if it were a foreign country.

"As people from the West, we must be very careful that we do not do things as in the colonial period," he says.

Mr. Schrempf takes care not to drive the top BMW model. He does not take all his vacation. Here "the workers are not paid as in the West. And you have to make sure that you don't create a problem in the whole society."

From a headquarters point of view, BMW's new Eisenach plant is a success. But it is a sobering one.

Sanguine hopes of a quick transition from communism to capitalism have faded. Many other plants in eastern Germany are closing down. A recent report from the Union Bank of Switzerland says the region is being "deindustrialized." BMW's roots

For BMW, Eisenach represents something of a homecoming. This is where the German manufacturer bought its first car plant in the late '20s and jumped into what would become its primary business.

The company lost the plant after World War II when the Russians reoccupied the region. The old plant eventually became Automobilwerk Eisenach (AWE) churning out the aptly named Wartburg - a 2- and 4-cylinder vehicle that looks as outdated as communist ideology.

"If you drive this car, it's crazy!" Schrempf says, gazing out the window at a bright red Wartburg in the parking lot. On good days, it might be able to reach 70 miles an hour, he says, but "it's dangerous to drive it because there's practically no brake."

AWE went bankrupt shortly after reunification. The German government, which owns the plant, leases space to a handful of small companies and hopes, eventually, to sell off the property. BMW opened its new plant in Eisenach 16 months ago. The factory makes car parts not only for BMW, but other manufacturers as well. General Motors's Opel division has also set up shop in Eisenach. Steps of progress

The BMW experiment so far has been good. Since the plant opened, productivity is up; absenteeism is down. In May, the company got a big order to produce parts for a new series of Porsche. With the latest machinery and a young work force, Schrempf expects plant productivity will soon outstrip similar factories in western Germany.

To go from making Wartburgs to BMW parts is at once a small step and a giant leap.

"It's difficult to describe," says Karl Ruge, a former Wartburg worker who is now a maintenance specialist at the BMW plant. "There's two things: more opportunities, but a more difficult life."

The technology here is ultramodern. Mr. Ruge has stuffed a cellular telephone into the front of his dirty BMW overalls. He works on machinery that represents the cutting edge of Western technology. Even the few pieces of Eastern European machinery have been outfitted with Western computer controls. Robots do most of the work.

That's a sharp contrast from the AWE plant, where some of the machines dated to prewar times when BMW owned the plant.

The precision of the new plant is 10 times greater than it was a few years ago, Schrempf says. But it appears much easier to move from precisions of 1/10th to 1/100th of a millimeter than to make the mental leap from East to West.

"AWE was a company of 10,000 people and here we have a company with 200 people," Ruge adds, "so here we are responsible for more parts of the company."

While he does not want to go back to the old system, Ruge says he would prefer a system that would have brought over more social benefits from the old regime. "The social security was higher than it is nowadays," he says.

Other workers are less impressed with the changes.

"There are not so many differences in the actual work between the old and the new system," says Jurgen Schwanz, a BMW toolmaker and former AWE worker. "There are quality standards here and there were quality standards there and both had to be fulfilled."

The new factory has made these workers more productive. But now there are not enough jobs in East Germany.

Unemployment here has soared far above the levels when communists were in power. Barely three quarters of the work force is regularly employed, according to the Union Bank of Switzerland.

Manufacturing as a share of the region's total economy has fallen from 28 percent in mid-1990 to less than 15 percent in 1992 - levels closer to Tunisia and Sri Lanka than western Europe, the bank points out. Investors still wary

Investors, certainly many car companies, have been hesitant to move factories in the area. Perhaps right-wing violence has been a factor. Certainly, the economics are discouraging.

Labor costs in eastern Germany are fast catching up with the West. In 1991, according to Morgan Stanley International, wages already totaled $14.56 an hour - higher than Britain or Japan though not up to the stratospheric levels of western Germany ($22.49 an hour).

This year the region's wages will average just over 70 percent of western Germany's while productivity still lags at 40 percent, estimates Deutsche Bank Research.

That makes the costs of eastern workers higher than their western counterparts - nearly 80 percent higher, the bank says. Earlier this year, Audi-Volkswagen decided to locate an engine plant in Hungary instead of eastern Germany.

Even if costs were the same, west German car producers already have more than enough capacity to satisfy the current needs of a united Germany. And that situation may not change for some time because the eastern German market has not taken off as expected.

In 1992, for example, Mercedes-Benz bought an existing plant in the former East German town of Ludwigsfelde and began producing commercial trucks. But it has shelved plans to expand production by building a new plant in nearby Ahrensdorf.

"We thought the commercial vehicle would just take off" in Eastern Europe, says company spokesman Jurgen Hodel. It has not.

The situation is similar in automobiles.

Of the 239,000 new Mercedes-Benz cars registered in Germany last year, only 4 percent (10,100 cars) came from eastern Germany.

"It will take 20 years probably to come to the same level" as western Germany, says Josef Gorgels, director in charge of European marketing for Mercedes-Benz AG.

"Our production capacity is quite sufficient for the rest of this century," he says. All of the company's 11 passenger-car factories are in the western part of the country.

Back at the BMW plant in Eisenach, Schrempf walks outside under a dripping sky. He considers himself an optimist. He turned down a job at BMW's new US plant to take on this assignment.

"I think it will take 10 years at least" for eastern Germany to catch up, he says. "The biggest steps will be made in the next five or six years' time."