MUCH HAS happened to the House of Krupp since this book was first written in 1966. For one, the year turned out disastrously for the firm. Not only did sales dip for the first time since its postwar reconstruction, but losses for the year amounted to $12.5 million and debts rose to more than $1.3 billion—enormous figures for those days. The latter was due mostly to over-ambitious expansion outside Germany, especially in Spain and Russia, where business had been obtained by offering easy credit terms. In some cases borrowers were offered fifteen years at which to pay and at interest rates lower than the rates that Krupp borrowed at in Germany.
“Krupp Comes a Cropper” was the indelicately eager headline in London’s Daily Telegraph, a right-wing newspaper. “Krupp Kaput?” asked the New Statesman, a left-inclined weekly that went on to claim, somewhat prematurely, that “the end is in sight for the greatest industrial anachronism of the 20th century.” It turned out that Krupp had become far too dependent on exports. Many of its managers had worried about Berth-old Beitz’s overzealousness in seeking out eastern European customers at whatever the cost, but had been afraid to speak out. “Why go to Indonesia or Bolivia when eastern Europe is on our doorstep?” Beitz had maintained on many occasions. But whereas the West German government in Bonn handed the financing for ten years of exports to relatively undeveloped countries like Indonesia and Bolivia, and even guaranteed eighty percent of such payments, it did nothing for exports to Eastern Europe. Quite the reverse, it discouraged business behind the Iron Curtain. Now that particularly foolish chicken was coming home to roost for Krupp. In addition, within Germany nearly $100 million had just been spent on a new wide-strip hot rolling mill in Bochum at a time when the steel market was already oversaturated with such capacity.
Like many an old-style entrepreneur, Alfried had hitherto been inclined to base his business decisions on intuition rather than on painstaking, detailed assessment. But whereas intuition had once been a source of strength for such entrepreneurs, in an increasingly complicated world it was more often than not proving to be their weakness and sometimes their undoing. That was certainly the case for Alfried, who in addition let Beitz handle most of his day-to-day affairs. However, the factor that perhaps contributed most to his downfall was his having clung stubbornly to private proprietorship instead of widening the share-ownership. Four-fifths of Krupp’s working capital was borrowed money, and such a high ratio was bound to spell trouble when the boom turned to slump business (as happened in Germany in the mid-1960s).
Alfried now found himself in the classic bankruptcy situation of having lent long while having borrowed short. In other words, he had a cash flow problem. At least half of his debts were short-term loans that the banks had allowed him to roll over continually. But now those banks were reluctant to bail him out further—indeed he was said to be already in hock to 263 financial institutions, some of whom were threatening to foreclose. It was these insupportable debts that caused the firm’s collapse.
While any other business would not have been spared, the House of Krupp was still a special case in German eyes. The federal government in Bonn persuaded the banks to extend their existing loans until at least the end of 1968 and chipped in itself with $75 million worth of temporary credits that were matched with half as much from the local North Rhine-Westphalian state government that runs the Ruhr. These credits were eventually extended both in time and amount, the latter by $100 million. However, rival German industrialists were incensed that the government was bailing out a competitor through their taxes.
But aid from the public coffers came at a price. Alfried Krupp and Berthold Beitz turned over the day-to-day running of their tottering empire to a committee of bankers and official appointees, thus allowing, as an insider put it, “strangers to meddle in affairs that had hitherto been thought strictly domestic.” Alfried also had to agree to surrender his single ownership of the House of Krupp by making it a public corporation before the end of 1968, and issuing shares in it for sale. The Financial Times of London said, “The Krupp concern, last great German stronghold of the individual industrialist who runs his business like a piece of personal property, surrendered today to the temper of the times.” Another commentator said, “Where the Allies failed to control Krupp, the bankers have succeeded.”
The German press criticized the flamboyant, gregarious Beitz far more than the reticent and reclusive Alfried. He blamed the débâcle on Beitz having relished too much his self-appointed role as West Germany’s “unofficial ambassador to the Soviets,” which distracted him from the realities of the Ruhr. In the midst of the crisis Alfried had become increasingly remote, shunning people and living an almost solitary life. Among his chief pleasures were hunting, shooting, and cruising in his ocean-going yacht, Germania. In a surprising outburst the highly conservative Frankfurter Allgemeine derided Krupp’s business policies as appropriate to a small corner-shop or general store.
In preparation for the changeover, Alfried’s heir, Arndt, who had hitherto shown little interest in the family business (preferring the life of a jet-setting playboy), duly renounced his heritage in early 1967 and settled for an annual $250,000 allowance to be doubled on his father’s death. This paved the way for the whole of Alfried’s holdings to pass into the hands of a foundation, the profits from which would be devoted to furthering scientific research (as under German law Arndt would have been entitled to fifty percent of his father’s fortune). But in a Wagnerian twist, Alfried was spared the humiliation of witnessing the end of his family’s personal rule over the 156-year old concern. He died of lung cancer in July 1967, just two weeks before his sixtieth birthday. Said the Financial Times, “West Germany has lost the last of its great paternalists.” Eleven weeks later, Alfried’s second wife Vera died of diabetes in Los Angeles, California.
With their deaths the Krupp family name died out, for Alfried’s two surviving brothers, as well as his son, bore the name of von Bohlen and Halbach. Hitler’s Lex Krupp (which circumvented the laws of inheritance that then prevailed, in keeping the firm as a family property) had not encompassed them. Indeed, Arndt’s renunciation of his inheritance before Alfried’s death had spared the West German government the embarrassment of having to decide whether or not to invoke the Lex Krupp. Arndt had declared then, “All my forefathers have experienced much unhappiness from personally owning this enterprise, and I want to break away from it. I am not like my father, who sacrifices his whole life for something without even knowing whether or not it is worth it.”
West German President Heinrich Lubke wrote to him when Alfried died, “Your father’s life and work were most intimately bound up with the fate of the Fatherland.” Six years earlier, on the occasion of Krupp’s 150th anniversary, Lubke had written to Alfried, “The history of your firm mirrors the triumphs and disasters of our people.” He could have said, without any exaggeration, that the Krupp saga was so saturated in melodrama that the latest act was merely in keeping with what had gone before.
The irony was that if Alfried had sold his coal and steel interests, as the Allies ordained after the war, and moved into more profitable industries as his competitors did, he would almost certainly have avoided the liquidity problems, as it was the slump in coal and steel during the mid-1960s that fatally weakened the House of Krupp. Indeed, coal and steel accounted for more than half of Krupp’s $12.5 million losses in the fateful year of 1966. Cheaper American imports steadily undercut demand for European coal, while oil was rapidly replacing coal in power production. German steel also faced strong competition from abroad.
But it was a source of irrational pride of possession on Alfried’s part not to sell his coal and steel interests and that stubbornness proved his undoing. His father’s contemporary, Friedrich Flick, another convicted war criminal, had faced a similar demand and had chosen to obey. He invested the proceeds profitably in products such as paper, chemicals, and, in particular, automobiles, eventually owning Mercedes maker Daimler-Benz. A year after Alfried’s death, the three Allied governments formally annulled the 1953 obligation on Krupp to dispose of its coal and steel interests.
The new managers of Krupp successfully slimmed it down by closing or by selling many of its loss-making subsidiaries, such as truck making, as well as by paring its payroll ruthlessly. They also spun off its coal mines together with those of other companies, into a separate concern that the state was persuaded to finance. Krupp was back in profit by 1970 and the bankers relaxed their grip.
Inevitably, Beitz had been the executor of Alfried’s will and had headed the charitable foundation that effectively owned the company. As the bankers took less interest in day-to-day affairs, his influence once again increased and the business pages of the world’s press filled with stories of disputes between him and the new managers (few of whom stayed long).
Elsewhere in those same newspapers, the gossip columnists occasionally wrote of how Arndt, having devoted himself to a life of pleasure and having married Princess Henriette von Auersperg (four years his elder and daughter of one of Austria’s oldest aristocratic families) was allegedly finding it difficult to make ends meet. His 37,000-acre estate at Bluehnbach, near Salzburg, with its seventy-two-room castle and seventy servants, was said to cost almost $70,000 a year to run. His palatial villa in Marrakesh required $20,000 a year to run. His bachelor flat in Munich, once the residence of the late Pope Pius XII in his Papal Nuncio days, cost $8,000 a year, and his yacht, with its four-man crew, nearly $100,000 a year. Arndt was also paying annual allowances of $50,000 to his mother, and $40,000 to his wife. In 1973 the Austrian government eased his financial worries by buying the Bluehnbach estate for $8 million, allowing him to continue living there. He, and his uncles and aunts had been irritated by their family’s unfavorable portrayal, albeit lightly disguised, in Luchino Visconti’s recently released film The Damned, a dark view of the rise of Nazism. But Arndt outlived his father by less than twenty years, dying on May 12, 1986.
Krupp’s profitable spell did not last long and by the mid-1970s it was again in the red. The fault this time, it was claimed, was that, like other West German steel-makers, they could not compete readily against producers elsewhere in Europe whose governments were blatantly subsidizing them, something that the West German government had refused to do. On this occasion the Shah of Iran bailed out Krupp. He bought twenty-five percent of the steel-making subsidiary for $100 million in 1974 and then, two years later, twenty-five percent of the whole concern for $200 million. It was the first time in its 165-year history that an outsider had acquired an interest in Krupp. It was also the Middle East’s first major long-term investment in Western Europe, mounting so-called “petro dollars.” At that time, apart from Iran’s share, only five percent of Krupp was in private hands—so much for the hullabaloo in 1967 over having to go public.
In 1981 the West German government belatedly came to the conclusion that some steel subsidies were virtuous. The managers at Krupp, now merely Germany’s third largest steel maker, were not slow in elbowing their way to the public trough. The authorities wanted the steel makers to modernize, as well as to rationalize, and were prepared to pay ten percent of the costs of doing so. Krupp Stahl was at that time losing $20 million every month. A merger with Hoesch, then the second largest steelmaker (Thyssen was the biggest), was mooted. The government in Bonn was courted to subsidize the costs of the takeover, but nothing came of it.
Krupp now shifted much of its manufacture abroad to cut costs and to improve access to its markets, fulfilling only about half of its export orders at home. Its sales to East Germany averaged nearly $40 million a year, paid mainly by East German deliveries of steel casings, rolled steel, solid and liquid fuels, and machine tools. However, its liquidity troubles returned when the Russians, among others, postponed their debt payments.
A commission appointed by the West German steel industry to look into the industry’s future recommended that the country’s five biggest steel makers be merged into two groups protected by tariffs from what was claimed to be “the massive falsification of competition” by other European nations. Imports now accounted for half of German steel consumption, compared previously to a third at most. The steel makers were again arguing that they had to compete unfairly with cheap subsidized steel. Krupp and Thyssen were to form one group, and Hoesch, Kloeckner-Werke and Peine-Salzgitter the other. But after lengthy negotiations Thyssen decided against the merger, because it considered Krupp to be in such a mess that a minimum subsidy of almost $500 million would be needed, which the West German government was not prepared to pay.
Thwarted by Hoesch and Thyssen, Krupp then looked to a merger with Kloeckner-Werk that would hopefully reduce costs by $100 million a year. Australian mining giant CRA was prepared to back the merger to the tune of $175 million, for which it expected a thirty-five percent stake in the new company. But determined hostility from union bosses and local politicians, as well as opposition from the European Economic Commission in Brussels, stymied that merger, too.
By the mid-1980s, Krupp was profitable, having further diversified so that steel, which had accounted for only a third of its sales, dropped merely a fifth by the end of the decade. But as the Deutschmark grew ever stronger, West German steel was again squeezed out of world markets and Krupp’s profits dipped again. An event occurred in January 1988 that would have sent Alfred Krupp spinning in his grave; Krupp steelworkers burst in on a supervisory board meeting at the Villa Hügel to complain of job losses at the Rheinhausen plant. The Krupp payroll had decreased by forty percent since the early 1970s, and for some this was the last straw.
Once West Germany’s biggest company (in terms of sales), Krupp now languished in nineteenth place. Daimler-Benz was now number one. Previously associated around the world with German industrial might, Krupp tended these days to be identified with boardroom squabbles, worker protest, and sagging profits. Even Iran, now under the Ayatollahs, wanted out, having pumped more than $500 million into Krupp since 1974 and having received only puny dividends in return—less than $20 million since 1980. Neutral observers argued that Krupp’s problems included unclear lines of command and too little cooperation between divisional fiefs. In addition, Berthold Beitz, although he had stepped down as head of the supervisory board, remained head of the Krupp Foundation, the largest shareholder, and continued to interfere in the day-to-day decision making.
In 1991 Krupp bought nearly twenty-five percent of Hoesch for almost $300 million with a view to a complete takeover, which Hoesch’s management and its union bosses opposed bitterly. It was almost a year before the merger was pushed through. In March 1997 Krupp took the much more controversial step of launching a hostile $8 billion bid to take over Thyssen, its bigger rival. Hostile takeovers were unprecedented in staid German industrial circles. Indeed, Krupp was accused of adopting “Wild West tactics.” Although Thyssen management initially resented the move, within the month an amicable—though much less ambitious merger—had been brokered by what The Economist dubbed “elderly notables.” It was a merger of the two companies’ carbon-steel interests, with Krupp bearing most of the costs as it stood to gain more. Because two-thirds of their businesses overlapped, substantial savings were expected. Indeed, without compulsory redundancies, a figure of $260 million was mentioned. The Economist described the outcome as “a failed courtship, followed by an attempted rape—and now an engagement.”
Thyssen was by far the larger of the two, with a market capitalization of $6.25 billion compared with Krupp’s $3.4 billion, and with sales in 1996 of $22.4 billion against Krupp’s $16.2 billion. The joint venture was to be owned sixty percent by Thyssen and forty percent by Krupp. Thyssen would essentially run the company. Both companies’ profits had dropped dramatically that year and most financial analysts at the time thought that the deal marked a victory for Krupp. However, because the new name was ThyssenKrupp rather than the other way around, the popular press suggested that this was the House of Krupp’s ultimate humiliation. The rump of Krupp, the firm of Alfried Krupp, AG Hoesch-Krupp, does remain an important manufacturer of factories and industrial machinery. Bizarrely, Alfried’s remaining relatives, about fifty in all, chose this moment, thirty years after his death, to contest his will. They wanted representation on the Krupp Foundation board, but Beitz refused, maintaining that Alfried did not want his family to be connected in any way. (They had, of course, received generous payments in Alfried’s will as recompense for his having locked them out of the family business.)
This time, the European Commission in Brussels readily approved the merger. It had been restricted mainly to steel-making because the bankers had gotten cold feet when faced with determined political and, in particular, trade-union opposition. (Union bosses had claimed 30,000 jobs were at risk and had threatened to encourage their members to boycott the banks involved if a full merger went through.) Even so, the new company is Germany’s biggest engineering group by far and at the moment Europe’s largest steel maker, numbering sixth in the world (although pending mergers may render this pre-eminence short-lived). Currently employing 193,000 people on five continents, it has a turnover of nearly $42 billion, rivaling ABB, the Swiss-Swedish venture, and even America’s General Electric.
The merger has also meant that Krupp will never again be “a special case” within Germany, which can only be welcome. With the family no longer at its helm, the firm has become, in the words of one commentator, “as impersonal and as bland as a General Motors or a Ford,” which its executives clearly seem to prefer to the patriarchal leadership of yore. One of the world’s greatest politico-business dynasties is no more.
Thus, nemesis would seem to have caught up at long last with the House of Krupp. Indeed what the passing of the last thirty-five years has proved is the certainty that it will never again arouse terror beyond Germany’s borders, never again be the personification of German military might. Soon the younger generations might wonder how the Krupp name could have become such a bogy word. No longer synonymous with war and with the ruthlessly cold pursuit of cash and power, some might say that the House of Krupp has ended with a whimper rather than with a bang. While to many an ugly, sordid, and in many respects immoral story, the House of Krupp is still one with an epic quality, worth telling and reading, encompassing the highs and lows of our history during the past four centuries.
PETER BATTY
February 2001
Kingston, England