Dostech, a small supplier of sealant technology in Germany’s industry-rich Baden-Württemberg region, shifted focus in 2018 when a surge in automotive enquiries prompted it to embark on a major electric transport project.
The move initially paid off, fuelling rapid growth and enabling the company to buy the building that now houses its headquarters in Moessingen, south of Stuttgart. But it also exposed them to Germany’s carmakers, which are now mired in crisis.
“This area is shaky,” director and co-founder Steffen Braun told Reuters. “It is no longer as stable, and it’s hard to make investments.” The firm has had to cut staff, and auto-related revenues have fallen.
Such pressures are mirrored across Baden-Württemberg, which holds an election on March 8 and where the economy has become the top concern of voters.
The state is home to Mercedes and Porsche, car brands that were for decades synonymous with German manufacturing excellence. But intense competition – particularly from China – an uneven shift to EVs and rising costs have rocked the sector.
Falling demand in the auto supply chain is squeezing hundreds of smaller manufacturers and threatening job security and municipal services.
Although Chancellor Friedrich Merz’s conservative party is still likely to win the election, the economic worries and a sense of lost regional pride are providing fertile ground for the far-right AfD’s narratives.
Tough Exports
Once a leader, Baden-Württemberg is more exposed than most to the structural change sweeping through German industry.
The state is Germany’s top exporting region, accounting for 15.5% of national exports, and manufacturing accounts for 38.1% of the state’s gross value added, compared with 28.5% nationwide.
Baden-Württemberg’s economy shrank by 0.4% in 2024, more than the 0.2% decline in Germany as a whole and while the country returned to modest growth last year, the state is expected to have contracted again.
Adding to the difficulties, U.S. tariffs, which have upended world trade, have hit hardest in export-oriented states with a large automotive footprint, said Ifo economist Robert Lehmann.
“Baden-Württemberg is a classic example,” he said.
Trouble In Labour Market
Signs of distress are building.
Insolvency proceedings in Baden-Württemberg rose for a second year to 2,445 in 2024, up 30% and the highest since 2010, according to the state statistics office. A third consecutive rise is likely.
Cornelius Pleser, managing director of Pleser KG, a valuation and asset-disposition firm, said demand for his services has jumped in Baden-Württemberg, his home state.
“Ten years ago, there was significantly more capital in the market, and in insolvency proceedings, investors or successors were often found,” he said, adding that the number of companies with no viable succession is now “alarmingly high.”
A wave of restructuring has spread through Baden-Württemberg’s industrial belt.
“There is a domino effect,” said Matthias Bianchi, public affairs lead of the DMB, which represents Germany’s bedrock small- and medium-sized firms. “This crisis in the lead industries slowly trickles down.”
Unemployment in Baden-Württemberg remains below the national average, but the rate climbed to 4.8% in January 2026 from 3.9% in January 2023.
Economists say the state’s unemployment has not risen more because of labour hoarding, where companies hold on to staff even as demand weakens for fear of future shortages.
“The employees I’ve trained here are irreplaceable. If they leave tomorrow, I can’t replace them the day after—impossible,” Braun from Dostech said.
But for him, staffing still brings headaches. Once he decides to move a person into a new role, the process can become what he called an “odyssey” of paperwork, shifting contacts at the authorities and long waits for approval.
Although the rise in unemployment is so far modest, Hanno Kempermann, economist and managing director of IW Consult, said other indicators point to a weakening labour market. Job openings in Baden-Württemberg have fallen by 30% compared with 2022, he said, and companies plan to cut 14,000 automotive jobs by 2030.
“The situation is very tense,” said Barbara Resch, head of the IG Metall trade union in Baden-Württemberg. “Suppliers invested a lot in electromobility and now demand isn’t coming, and at some point they simply run out of air financially.”
The main union at companies such as Mercedes MBGn.DE and Volkswagen, IG Metall, is working to protect jobs by securing agreements for shorter working hours.
“Right now it’s hitting everyone: apprenticeship positions are being reduced, and highly qualified people are also at serious risk,” Resch said.
Asymmetric Economic Landscape
While the automotive sector is in a deep structural crisis and export-dependent industrial companies are struggling, other parts of the economy are growing strongly, said Bianca Schmitz, founding director of the Hidden Champions Institute at ESMT Berlin.
“It’s an asymmetry you find here,” she said, pointing to fast-growing companies in automation and robotics, medtech, and software and IT.
The state accounts for more than a quarter of Germany’s total research-and-development spending, underscoring how heavily the southwest’s economic model leans on innovation-intensive industry and applied research. R&D investment is about 5.7% of state GDP – almost twice the national average.
(with inputs from Reuters)
