KHD Konzern

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KHD Konzern

Deutz-Mülheimer Strasse 111
Postfach 80 05 09
5000 Cologne 80
Federal Republic of Germany
(221) 8220
Fax: (221) 822 3525

Public Company
Incorporated: 1864 as N.A. Otto & Cie.
Employees: 16,425
Sales: DM4.06 billion (US$2.40 billion)
Stock Exchanges: Frankfurt Dusseldorf Brussels Antwerp Paris

Klöckner-Humboldt-Deutz AG (KHD) and KHD Konzern (known in English as the KHD group), of which KHD is the parent company, are active in three main areas of business: engine manufacturing, agricultural technology, and the building of industrial plants. In 1989, engine manufacturing and related technology came first in the KHD group’s activities, representing 62% of the group’s world turnover, followed by agricultural technology (27%) and industrial plant construction (11%). More than two-thirds of turnover was achieved abroad. KHD is the world leader in the production of air cooled diesel engines.

The company’s early history can be effectively retraced by following the letters of the firm’s initials in reverse order. The “D” stands for Deutz, a suburb of Cologne, on the right bank of the Rhine, the original location of what was to become the vast KHD group. The Cologne businessman Nikolaus August Otto had been working on engine construction since 1860. As he did not have the financial means to cover his research costs, he went into partnership with the Cologne entrepreneur Eugen Langen, leading to the founding of the firm N.A. Otto & Cie. on March 31, 1864, and of the first engine factory in the world. After the atmospheric-pressure gas engine developed by Otto won a gold medal at the 1867 Universal Exhibition in Paris, and after the first orders had been received and a further investor—the Hamburg businessman Ludwig August Roosen-Runge—found, the company was able to leave its cramped workshop in the center of Cologne and to build a factory between Deutz and Mülheim on the right bank of the Rhine. As early as 1869, 87 engines were built here by the 40 employees. After Roosen-Runge had retired from the company, the petrol engine manufacturing factory Deutz AG was founded on January 5, 1872. Known by the abbreviation GFD, it was to provide a model for the German engine-building industry for the next half century. The same year saw the arrival of two figures who would play a major part in the company: Gottlieb Daimler, who joined as technical director, and Wilhelm Mayback, director of the construction department.

1876, when Otto and his employees brought the four-stroke engine into production, was an historic year in engine construction. It was known as the Otto engine, and paved the way for the motorization of industry and transport. New engines were developed in the following years: in 1884 the petrol engine with electric ignition, in 1898 a non-crosshead diesel engine, and in 1912 an unsupercharged diesel engine. At the same time output grew steadily, as did the plant and the work force. By 1913 the company was making 90,000 engines, the factory had grown 15 times in size since 1869, and there were 4,100 employees.

The years immediately after World War I were marked by the founding of syndicates. The first, in 1921, was with the engine manufacturer Oberursel AG, which had grown rapidly during the war through the construction of aeroplane engines, but which found itself in difficulty after 1918. The establishment of the syndicate put an end to competition between the two companies and their manufacturing programs were merged. In line with these changes, the firm’s name was altered to the Motorenfabrik Deutz AG.

From 1906 the development of the company was closely influenced by Peter Klöckner, an entrepreneur from Duisburg who joined the GFD board in that year. In 1924, after acquiring a majority shareholding, he became chairman. Since 1915 he had been chairman of the engine manufacturers Humboldt AG, which had moved to Kalk, the neighboring suburb to Deutz. This company had sprung from the Maschinenfabrik für den Bergbau von Sievers & Co. (The Engine Plant for von Sievers & Co. Mining), which had become an Aktien-gesellschaft (public limited company) under the title of Maschinenbauanstalt Humboldt AG in 1871 and which had continued to operate under its new name from 1884, after going into liquidation and undergoing restructuring. At first, production had been geared towards the mining industry, but by the end of the 19th century steam turbines and locomotives were also important products for the company. Before World War I the company employed around 5,000 employees.

The end of the war led to a major crisis for the Maschinenbauanstalt Humboldt AG as well as for the Motorenfabrik Oberursel. In his efforts to find a solution for the work force and the management of the two companies, Klöckner, as chairman of both, formed a syndicate between the Motorenfabrik Deutz and the Maschinenbauanstalt Humboldt in 1924, which eventually led to the merging of the two in 1930 together with the Motorenfabrik Oberursel, under the company name of Humboldt-Deutzmotoren AG. The “H” of KHD’s initials stems from this event.

1936 saw the takeover of the heavy goods vehicle and bus manufacturer C.D. Magirus AG of Ulm, which had been severely affected by the Depression. This fusion with a manufacturer of commercial vehicles completed the company’s product range. Above all, the takeover gave Humboldt-Deutzmotoren AG an additional secure market for its high-speed diesel engines, the output of which had been increasing since the 1920s.

The “K” entered the company name in 1938. After Peter Klöckner had secured approximately 78% of the capital of Humboldt Deutzmotoren, together with his stake in Klöckner Werke AG, an agreement was drawn up binding the company still more firmly to the Klöckner empire as a subsidiary. The company’s present name, Klöckner-Humboldt-Deutz AG, was introduced with this agreement.

Humboldt-Deutzmotoren AG overcame relatively quickly the far-reaching repercussions of the Depression, which struck the company particularly hard due to the dependence of its product range on a buoyant economy. After the low of winter 1932 had passed—the company’s work force had almost halved between 1929 and January 1933 to stand at roughly 4,400—a boom followed in the German production goods industry, aided in no small part by the National Socialist policy of building up armaments, in which KHD participated. In addition, rationalization measures carried out earlier now brought results. Production, measured in horsepower, rose some 750% from 1932-1933 to 1937-1938 to over one million horsepower, while the time for manufacturing one horsepower was more than halved from over 24 hours to a little over 12 hours. In the business year 1938-1939, the last before World War II, KHD achieved a turnover of 234 million reichsmarks with 19,300 employees, and the Cologne works alone achieved a turnover of almost 140 million reichsmarks with over 12,000 employees. In the crisis of 1932-1933, the turnover, although not including the Ulm Magirus factory at that time, had been only around 32 million reichsmarks.

KHD was not at that time a major supplier to the German army and therefore was not purely an armaments firm. The boom in 1938-1939 was based primarily on growing demand from the civilian sector. However, from 1939-1940 at the latest, the company began taking genuine orders for armaments.

When sales of a newly-developed tank engine fell through, with KHD’s failure to break a competitor’s monopoly, and when the order for the development of an airplane motor turned out to be a very lengthy affair, KHD turned its attention to the construction of submarine engines in the period that followed. In the Cologne-Poll factory a tank repair plant was also established. From 1941 most orders for KHD products came from the armed forces, since orders from abroad and from the private sector dwindled steadily owing to political developments and economic restrictions under the Nazi regime. The company was officially recognized as an armaments company in 1942 and was, furthermore, awarded the Golden Flag as a National Socialist Model Company and as a Model War Company, after numerous unsuccessful attempts to gain these titles.

In the years that followed, the consequences of the war began to be felt more and more severely in all divisions of the KHD works. There was a final economic upturn in 1940-1941, but from then onwards production and turnover proceeded to decline steadily. This situation was partly due to the increasing number of Allied air attacks on Cologne, which destroyed large sections of the production installations. This Allied action escalated in the summer of 1943, forcing the transfer of the production works to districts outside Cologne. In late summer of 1944, production in Cologne came to a complete halt. By the end of the war, KHD production had been relocated to 120 different places.

The conscription of large sections of the work force also created problems, with 4,345 employees from the Cologne plant already called up for military service by August 1943. These losses had to be covered through the intensified recruitment of women, pensioners, and young people, and, from 1942 onwards, as was the case in practically all German manufacturing companies, increasingly through the use of foreign workers, forced labor, and prisoners of war. The number of civilian foreigners working in the Cologne KHD plant had reached almost 2,000 by mid-1943, and constituted 25% of all the employees involved in production. These were supplemented by further prisoners of war and by around 400 Italian military internees.

When the U.S. Army took the right bank of Cologne in the middle of April 1945, the KHD plants were at a standstill. Only an emergency service of 40 people had been retained. An initial survey estimated that 45% of the buildings had been totally destroyed and 31% partly destroyed. Only 25% were still considered usable. The company’s machines were in far better shape; 82% of the machinery was found to be ready for use once it had been brought out of storage. The first months after the war were spent clearing up and repairing the damage, but production resumed in some areas once a permit was issued by the U.S. military command on June 19, 1945 for the manufacturing of materials for the Allied forces. After a few setbacks caused by the economy measures of the British military command responsible for Cologne from July 1945, permission was granted on April 15, 1946, and June 1, 1946, for the production of the 11-horsepower farm tractor that had been extraordinarily successful before the war, and of small engines, respectively. This production allowed KHD to return to its traditional activities.

The German monetary reform of June 1948 marked a very important turning point for the company. Although production had resumed relatively early at KHD, production volume remained relatively low until this event. German monetary reform brought about a sharp increase in output and by the financial year 1950-1951 the company’s highest prewar results had been easily surpassed, with a turnover of DM292 million from 15,700 employees. One particular development alongside the production of tractors made a significant contribution to this success—the air-cooled diesel engine. It had been in production from 1936 and led to initial military successes in the war. These air-cooled, high-speed engines were mass-produced from 1948 and were installed in heavy duty vehicles and tractors. KHD became the world leader in the production of these engines.

The restructuring of the German economy brought about the break-up of the Klöckner group on July 1, 1953, and with it the dissolution of its agreement with the Klöckner Werke AG. Klöckner AG’s shareholding in KHD had to be dissolved with the result that the head company, Klöckner & Company, consolidated its shareholdings in KHD and became the main shareholder, represented primarily by the Henle family of Duisburg. In the same year KHD formed a syndicate with the Vereinigten Westdeutsche Waggonfabriken AG (VWW) whose two factories had been established in Mainz and in KHD’s immediate neighborhood in Cologne-Deutz. It was possible for the two to cooperate, since the production capacity of the carriage factories was not being put to full use even after German monetary reform, allowing KHD to pass on production orders to VWW. In 1959 VWW was finally taken over by KHD.

As KHD celebrated its centenary in 1964 the company was able to look back with pride on its development since the war. Turnover for the business year 1963-1964 stood at DM1.6 billion, with a third of this figure derived from exports. By this time the group had around 250 representative agencies worldwide. In the mid 1960s, however, the German economy reached a postwar high and KHD saw a halt in its growth, for the first time since the war. This brought home to the company the difficulty of operating in sectors that were particularly dependent on a strong economy, such as farming, construction, and shipbuilding.

Important steps were taken by KHD in the production of commercial vehicles. By the end of 1971 KHD had entered a joint venture with three other European companies, the DAF group in the Netherlands, Saviem in France, and the Volvo group in Sweden, to buy materials for the development and production of middle-weight commercial vehicles. At the beginning of 1975 the company entered into close partnership with the Fiat group. Both partners divided up their commercial vehicles divisions and created new companies in this sector in Germany, France, and Italy, whose subsidiaries were brought together under the holding company Industrial Vehicles Corporation B.V. (IVECO), with headquarters in Amsterdam. KHD’s share in this company, however, was only 20%.

Despite these measures, many observers criticized the company for its apparent lack of convincing entrepreuneurial direction, claiming that the company was developing along the wrong lines, and that its position in international markets was insignificant. The chairman was accused in particular of not concentrating the KHD group’s efforts.

At this time KHD had a change of chairman. Heinrich Jakopp, who had held the position for 32 years, was succeeded by Karl-Heinz Sonne, who had previously been chairman of the Bayerische-Motoren-Werke (BMW) in Munich. His aim was to restructure and reorganize KHD so that “the ship that had run aground should be made to float again” within six to eight years. In this reorganization, the company made cutbacks in certain areas of production that did not seem to have a promising future, namely railway carriage and locomotive construction, bridge building and steelworks, and building machinery. However, Sonne placed increased emphasis on the production of tractors and agricultural machinery as well as plant construction. In spring 1968 and at the end of 1969 respectively, KHD acquired majority shareholdings in the agricultural machinery companies Fahr AG in Gottmadingen and Ködel & Bönn GmbH in Lauingen. The plant construction division was extended in spring 1969 through the acquisition of a majority holding in Westfalia Dinnendahl Gröppel AG (Wedag) of Bochum, previously a competitor of Humboldt. Wedag and Humboldt finally merged to become KHD Industrieanlagen AG in 1972.

In the middle of 1975 Bodo Liebe took over as chairman of KHD. Without making any fundamental changes to Sonne’s strategy, he was initially successful in improving the company’s position. Although no dividends had been paid out to shareholders in 1973, KHD shares had increased 200% in value within five years. The complete withdrawal from the commercial vehicles business represented an important step for the company. On January 1, 1980, KHD made use of its right to withdraw from IVECO and to sell its 20% shareholding to Fiat. One motive for this move was to strengthen the company’s position as an independent engine supplier. The proceeds from this transaction, estimated at between DM600 million and DM1 billion were placed tax-free in a Dutch subsidiary, KHD Nederland, to finance future expansion schemes. Through this sale KHD’s former “grocery shop,” as Liebe called it, reduced its operations to three key areas: motors—engines and turbines—representing roughly 50% of activities; agricultural machinery—tractors and harvesters—representing more than 30% of business; and industrial plants, representing around 20% of total turnover.

Liebe’s success did not continue unabated. In his attempt to establish at least one of KHD’s three production areas as world leader in its field, costly misjudgments and bad investments were made. Liebe had not expected that a stagnation and even a drop in sales would result from his policy of concentrating on the company’s three basic requirements of energy, maintenance, and the acquiring of raw materials. He set much store by the maxim of survival through growth, growth which was to be financed by the money from the profits set aside from the IVECO share sell-off. The KHD board also considered it essential to establish a firmer footing in the North American market. This ambition, coupled with the unfavorable economic climate and Liebe’s characteristic optimism, led the KHD group into deep crisis.

KHD’s management saw the large increase in petrol prices towards the end of the 1970s as offering a good opportunity to break into the North American market with its air-cooled diesel engine. Its first step in this direction was the acquisition in autumn 1979 of a former engine plant in Richmond, Indiana, belonging to the American Motors Corporation, which was converted to adapt KHD engines for the U.S. market. The plant was originally intended to have the capacity to produce 20,000 engines a year. However, production fell well short of this target. In 1981 and 1982 it was only with difficulty that a mere 7,000 engines were produced and sold. In 1983 the plant was shut down. In autumn 1981 a large engine factory was projected for Canada, in Boucherville near Montreal, that was intended to produce 10,000 engines on its completion in 1983. Production would eventually be increased to between 30,000 and 70,000 units. Furthermore, a new engine was specifically designed for the U.S. market which, it was initially thought, could be built into U.S. Army jeeps. KHD lost out to U.S. competition, however, so that the Canadian factory had to be shelved even before production had begun or a single order taken. Up to this point the Canadian episode had cost KHD approximately DM80 million.

Yet KHD committed itself once again to the U.S. market. As Liebe’s strategy included the strengthening of the company’s range of end products, specifically tractors and agricultural machinery, to support the company’s all-important engine manufacturing division, KHD bought the greater part of the agricultural machinery company Allis-Chalmers Corporation of Milwaukee, Wisconsin, in May 1985 for US$107 million. Together with the production of combine harvesters, the existing stock of components, and the production rights for tractors, engines, and components, the takeover included Allis-Chalmers’s entire sales division, with a network of 1,100 agricultural machinery dealerships. However, instead of yielding the expected turnover of US$500 million for 1987, with KHD’s German factories operating at full capacity, the acquisition proved misjudged. It was not the bargain it had seemed, owing to miscalculations. Since 1979 the volume of trade in the U.S. agricultural machinery market had diminished by 75%, overcapacity and old stock were squeezing prices, and the fall of the dollar made the proposition of exporting from Germany more expensive than had been envisaged. What Liebe had seen as a step into a new era led KHD to the verge of financial collapse.

A further West German venture similarly failed to bring positive results. After its unsuccessful attempt to gain a foothold in North American with air-cooled diesel engines, KHD took over the Motoren-Werke Mannheim AG (MWM) at the end of 1984 for around DM80 million. MWM’s water-cooled diesel engines seemed a sensible addition to KHD’s product range. However, KHD’s management had clearly underestimated the need to restructure MWM. In the first two years of business under KHD, losses of around DM100 million were recorded.

The year 1987 was decisive for KHD. Operating losses and structural changes swallowed up around DM725 million in that year, drying up almost all of the “war provision” or “piggy-bank savings,” as the proceeds from the IVECO sale were described. At the same time, turnover for KHD AG and the KHD group had fallen from DM4.6 billion and DM5.7 billion, respectively, in 1984 to DM3.15 billion and DM4.43 billion.

By this time the in-house maxim “Könner halten durch” (Experts cope through thick and thin) no longer rang true. At the height of the crisis in January 1988 Bodo Liebe was succeeded as chairman by Karl-Josef Neukirchen who, in view of the problems he had to face and the policies to which he adhered, was soon seen as Germany’s equivalent to Lee lacocca, the man who saved Chrysler.

Neukirchen tackled the radical restructuring of the KHD group that involved a large reduction in the work force. From 1987 to 1989 the number of employees was reduced by 32% to 16,425. Worldwide, 6,300 KHD employees lost their jobs. The savings achieved amounted to an annual figure of around DM300 million and were, in Neukirchen’s opinion, absolutely essential for the group’s survival. The cuts affected many areas of the work force, giving rise to a new interpretation of the company’s abbreviation KHD — “Keiner hilft dir” (No one will help you). Management was also pared down in Neukirchen’s structuring measures. Together with Liebe, three other board members had to step down in January 1988.

In addition the group’s structure was tightened considerably. After KHD had got rid of 15 subsidiaries in 1988 that together represented losses of DM200 million, the Deutz-Fahr-Werk in Gottmandingen was also sold. The group finally managed to dispose of its “black hole” in the United States, Deutz-Allis, in December 1989, at a further or onetime loss of DM282 million. The restructuring of the company begun in 1987 was completed with the sale of the KHD Luftfahrttechnik GmbH of Oberursel in May 1990. In 1989 the group was able to show a profit for the first time since 1985.

In addition to these measures, the KHD group was split into strategic business units that were made fully responsible for their business performance, while KHD AG was to operate as the managing holding company.

The KHD group’s aims for the future are clearly defined: concentration on its key businesses and considerable commitment to research-and-development spending. Particular emphasis has been laid on the production division with which the company started in 1864. Neukirchen wishes to extend the high-speed diesel engine division to make it competitive in world markets. The second part of KHD’s redevelopment is also due to begin. Following the three-year program to save the group by divestments and cut-backs, the company then intended to return to the offensive. A completely new production program for air-cooled diesel engines and plans for two new engine factories in Cologne and Mannheim were in preparation. The agricultural machinery division would concentrate increasingly on the European and North African markets and would follow the trend for more powerful engines. Finally, the company aimed to pay more attention to the environmental aspects of new industrial development projects. Furthermore, KHD was hoping for a recovery of business in all its divisions through the liberalization of Eastern European markets.

Principal Subsidiaries

Motoren-Werke Mannheim AG; MWM Diesel und Gastechnik GmbH; INDUMONT Industrie-Montage GmbH; HUMBOLDT-LOTZ Elektrotechnik GmbH; Ad. Strüver KG (GmbH & Co.); W. Schmidt-Bretten GmbH; Deutz MAG S.A. (France); DEUTZ DITER S.A. (Spain).