Thyssen Krupp AG
Thyssen Krupp AG
Sales :DM 70 billion (US$39 billion) (1999 est.)
Stock Exchanges :Frankfurt Düsseldorf London Swiss
NAIC :23332 Commercial & Institutional Building Construction; 23331 Manufacturing & Industrial Building Construction; 331111 Iron & Steel Mills; 331221 Rolled Steel Shape Manufacturing; 331513 Steel Foundries; 33637 Motor Vehicle Metal Stamping; 333921 Elevator & Moving Stairway Manufacturing; 333922 Conveyor & Conveying Equipment Manufacturing; 333512 Machine Tool Manufacturing; 333319 Other Commercial & Service Industry Machinery; 336211 Motor Vehicle Body Manufacturing; 336399 All Other Motor Vehicle Parts Manufacturing; 336611 Ship Building & Repairing; 54133 Engineering Services; 56121 Facilities Support Services
Thyssen Krupp AG was created in March 1999 from the merger of two of Germany’s oldest industrial giants, Thyssen AG and Fried. Krupp AG Hoesch-Krupp. The fifth largest company in Germany, Thyssen Krupp has five main divisions. Thyssen Krupp Steel is the fifth largest steelmaker in the world and specializes in carbon steel and stainless steel. Thyssen Krupp Automotive is one of the world’s top ten auto suppliers, producing parts, components, assemblies, and systems for chassis, body, powertrain, and steering applications. Thyssen Krupp Industries produces elevators, escalators, and conveyors; metalcutting machine tools; plastics machinery; and industrial bearings, rings, and other components. This division is also involved in shipbuilding and civil engineering. Thyssen Krupp Engineering plans and constructs chemical, cement, and other plants, and creates surface mining systems. Thyssen Krupp Materials & Services is involved in trading, industrial and building services, and project management.
Thyssen’s Early History
Thyssen traces its origins to a steel plant in Bruckhausen near Hamborn on the Rhine, which started operations in December 1891 and later formed the core of the Thyssen empire. The plant was built by August Thyssen, a 50-year-old entrepreneur who had already built up a steel and engineering business called Thyssen & Co. August had worked in his father’s banking business in Eschweiler and later as a manager-partner of a steel mill, called Thyssen, Fossoul & Co. In 1871, the year of Germany’s first unification, he set up his own business at Mulheim in the Ruhr area with 35,000 talers and a paternal grant of the same sum. August Thyssen’s business expansion in the 1880s included the purchase of large coal mines. He gradually bought into the Gewerkschaft Deutscher Kaiser coal pits and took the mining company over entirely in 1891. Thyssen & Co.’s Mulheim factories soon became unsuitable for August’s expansion plans as the site was too small and lay too far away from a river, which he needed for transport. In 1889 he decided to build the steel plant at Bruckhausen, installing six furnaces using the modern Siemens-Martin technique, and a rolling mill with five trains for the first step. August also wanted to control his own crude steel supplies, building a plant in 1895 in Bruckhausen, which started operations two years later.
August’s companies expanded quickly in the years leading up to World War I, securing their own coal and iron ore supplies. His drive for self-sufficiency made him buy into raw materials suppliers in France, North Africa, and Russia. By 1904, August’s rolled steel production had hit 700,000 tons a year, putting him ahead of other producers in Germany. The demands made by Germany’s military authorities during World War I buoyed Thyssen’s business in the same way as other German industries, but Germany’s defeat had catastrophic consequences for the company. Its foreign property was confiscated, its plants in the Ruhr Valley were put temporarily under French control, and earnings were battered by the postwar hyperinflation.
August’s shrunken business empire only became profitable again in late 1924. The octogenarian August concentrated on mechanizing production to cut costs, and initially resisted overtures from other German steel producers to form a cartel. However, Thyssen gave up its independence soon after August’s death in 1926, joining four other coal and steel enterprises to form Vereinigten Stahlwerke AG (Vst). Thyssen made up more than a quarter of Vst’s paid-up capital of 800 million reichsmarks and Fritz Thyssen became chairman of the supervisory board. Vst was decentralized in 1934; five steel mills in the western part of the Ruhr district were grouped into the August Thyssen-Hütte AG based in Duisburg.
Fritz Thyssen, the elder son of August, is remembered more for his association with Adolf Hitler than for his business skills. Frustrated by his father’s long tenure at the head of the company, Fritz channeled his energies into right-wing politics aiming to subvert the Weimar Republic. He became an early supporter of the Nazi party. Fritz later fell out with the Nazis and recanted in a ghostwritten autobiography titled I Paid Hitler. He fled Germany in 1939, was captured in Vichy, France, and incarcerated from 1941 to November 1943 in a mental asylum and then until the end of the war in concentration camps. After World War II, Fritz’s break with the Nazis was largely accepted by a denazification court, which fined him 15 percent of his German properties. At the end of 1948 he immigrated to Latin America.
Vst and Thyssen’s main works, now ATH AG, fared just as badly under the Nazis. The Four Year plan of 1936, devised by Hitler to prepare Germany for war, restricted raw material supplies and made cost-effective production almost impossible. During the war years, ATH, like other German companies, became a supplier to war production, although in 1942 Nazi hard-liners accused the company of defeatism. In autumn 1944, Allied bombing raids destroyed many of ATH’s factories, with production in its huge plants ceasing altogether.
Emerged Postwar As August Thyssen-Hütte
Worse was to follow. The victorious Allies allowed limited repairs at ATH’s factories, and the first steel mills at Thyssen-Hütte, the main works of ATH, began operating again in October 1945 but only temporarily. In April 1946 the Allies agreed to stop reconstruction while they decided what to do with German industry, which they blamed for arming Hitler. In February 1948 the Allies decided to dismantle Thyssen-Hütte as part of their war reparations from Germany. Factories were detonated or stripped of machinery. The destruction of the Thyssen-Hütte and other works of Vst was only halted in November 1949 with the Petersberg Treaty, an agreement signed between the Allies and the new government of the Federal Republic of Germany. At the same time the Allies broke up the Vst group into 16 successor companies. They also separated the steel companies from their mining firms. All that remained of August Thyssen-Hütte AG was the core business of the former Thyssen-Hütte at Hamborn. Nevertheless it restarted its first blast furnace in 1951. Business improved once the Allies lifted steel production limits one year later.
In May 1953 August Thyssen-Hütte AG was relaunched as a public company with the successors of Fritz Thyssen as minority shareholders. Eventually, a consortium company belonging to the Fritz Thyssen family and the Commerzbank AG and Allianz AG insurance group was created and held a stake in Thyssen of more than 25 percent.
Thyssen’s postwar history was dominated by two management board chairmen, Hans-Günther Sohl, who ran the company from 1953 to 1973, and his successor, Dieter Spethmann, who retired in 1991. Sohl rebuilt ATH as Germany’s biggest steelmaker and Spethmann presided over its often difficult diversification into new product areas.
ATH flourished in the 1950s on booming steel demand, building new facilities to make flat rolled steel. The company invested some DM 700 million up to 1958 and spent DM 800 million alone on a new Beeckerwerth plant. Thyssen also expanded by buying up companies, taking over four major producers by 1968: Niederrheinische Hütte AG, Deutsche Edelstahlwerke AG, Phoenix-Rheinrohr AG, and Hüttenwerk Oberhausen AG. It also expanded into trading and services by buying into Handelsunion AG from 1960 onward. The future core of the Thyssen Handelsunion AG subsidiary, Handelsunion traded in steel, scrap metal and raw materials, and also offered transport services. Thyssen also forged alliances with other large German steel producers to make production more cost-effective, signing an agreement with Mannesmann in 1970 on steel pipe and rolled steel manufacturing.
Expanding steel output was still the ATH strategy at the beginning of the 1970s, when cheaper imports from newly emerging steel producing companies began to undercut European producers. Thyssen’s steel production peaked at 17 million tons in 1974, the same year that the first major steel crisis hit world manufacturers. Like other German producers, Thyssen suffered from 1969 and 1973 revaluations of the deutsche mark, high wage costs, and the imposition of environmental controls. The oil price rise of 1973 delivered another blow to the industry as costs soared and demand shrank.
Thyssen Diversified in the 1970s and 1980s
Thyssen decided to scrap all plans to expand steelmaking capacity and to withdraw from sectors where competitors were undercutting the company’s prices. Instead, Thyssen invested in streamlining production and in diversifying away from steel. In 1973-74, Thyssen took over Rheinstahl AG, the group’s high technology engineering group which in 1976 was renamed Thyssen Industrie AG. In 1978 Thyssen bought a U.S. car components maker, The Budd Company.
However, these acquisitions initially caused problems. Rheinstahl had a number of steel mills, which increased Thyssen’s capacity to 21 million tons a year. The company was forced to close nearly 30 plants in the Thyssen group between 1974 and 1980. The number working in Thyssen’s West German steel plants decreased to fewer than 75,000 in 1979 from 85,000 five years earlier. Budd made money for Thyssen in the first two years after the takeover. The second oil crisis in 1979 pitched the U.S. economy into recession and caused heavy losses at Budd; the company only saw a turnaround in 1982. One of the biggest loss makers was Budd’s railway equipment division; it had signed four large contracts in 1981 at fixed prices that never covered production costs. The division’s workforce was cut to 700 from 2,500. Budd then concentrated on its core auto-components market, cutting its workforce from 21,500 in 1978 to fewer than 12,000 in 1986.
Thyssen’s diversifications were continually dogged by the decline of the steel industry. Spethmann was determined to restructure Thyssen using the company’s own financial resources. He opposed acceptance of subsidies such as those propping up rival state-owned steelmakers in Belgium, the United Kingdom, and France, but the near-collapse of steel prices forced Thyssen to accept European Community production quotas and subsidies in 1980. The steel crisis continued, however, forcing the creation of Thyssen Stahl AG in 1982 as an independent steel group, in a bid to find partners to help reduce costs. Spethmann made the first of many overtures to archrival Fried. Krupp GmbH for merging production but was rebuffed. Thyssen therefore imposed a tough program of cuts, with a reduction to the 1991 level of 11 million tons capacity from 16 million tons. Losses at Budd and at Thyssen Stahl forced the group to suspend dividend payments for two years in 1982. An improvement in the world economy prompted Thyssen to restart dividend payments at five marks a share, though losses at Thyssen Stahl continued until 1987.
In the 1980s, Thyssen linked its name to high-technology projects in the transport sector. It lead-managed a consortium developing the Transrapid train, capable of speeds of up to 500 kilometers an hour. The Transrapid was sold as a revolutionary form of transport running on a magnetic field rather than on wheels. The train had no engine on board and relied on electromagnetic motors in the track. Thyssen wanted to lay a Transrapid track from the northern port city of Hamburg to Munich in the south, but received government backing only for a smaller pilot track in North Rhine Westfalia state. The government was not entirely convinced that all of Transrapid’s technical problems had been solved, and was worried about funding a white elephant project. A bitter row broke out before the government gave approval. Thyssen accused Bonn officials of trying to sabotage the project, which the company wanted to sell abroad.
Thyssen’s image suffered in the 1980s when a book was published accusing Thyssen Stahl of malpractices in its treatment of Turkish guest workers. Thyssen successfully contested the book in court, however, and author Günter Wallraff had to delete passages from his bestseller, titled At the Very Bottom.
Declining Fortunes for Thyssen in the Early 1990s Led to Restructuring
Taking over Spethmann’s chief executive post in 1991 was Heinz Kriwet, who presided over some of the company’s darkest days. In the aftermath of the reunification of Germany, Thyssen reacted cautiously, shying away from buying into East Germany’s decrepit steel industry. Instead, it concentrated on setting up 27 smaller ventures in the engineering and services sector, involving investments of some DM 500 million. It also signed another 40 cooperation deals with state-owned companies in the former communist country. The early years of the 1990s also saw Thyssen diversify again, through an entrance into the telecommunications industry, including the formation of an alliance with U.S. telecom firm BellSouth, with the partners hoping to grab a piece of an industry that was in the process of being deregulated in Germany.
Declining steel demand in the early 1990s had a major impact on Thyssen, leading to several years of declining profits before the company posted a net loss of DM 994 million for the 1992-93 fiscal year. During that year the company shed more than 7,000 jobs from its workforce as part of a rationalization program. Thyssen also began aggressively pursuing alliances with other companies in a near desperate attempt to cut costs and reduce losses. The most important of these was a linkup with Fried. Krupp AG Hoesch-Krupp, the new name for Fried. Krupp GmbH after it acquired ailing Rhineland steelmaker Hoesch AG through a hostile takeover. In 1995 Thyssen and Krupp merged their stainless steel operations in a joint venture called Krupp-Thyssen Nirosta, which was 60 percent owned by Krupp and 40 percent owned by Thyssen. Nirosta instantly became the largest stainless-steelmaker in the world, with annual capacity of 1.2 million metric tons and annual revenues of DM 4.5 billion (US$3.2 billion). In September 1995, meanwhile, two great-grandsons of Thyssen’s founder, August Thyssen, sold their remaining stakes in the company, thereby severing the final ties between the Thyssen family and the company.
In March 1996 Kriwet took over as chairman of Thyssen, while Dieter Vogel, who had headed up the group’s trading and services division, stepped into the chief executive slot. In August 1996 Vogel was arrested—along with nine other Thyssen executives—as part of an investigation into whether Thyssen executives had mishandled DM 73 million (US$49 million) in funds connected to the privatization of a former East German metals trading company. In late 1997 he was formally charged in connection with this investigation. For the year ending in September 1996, Thyssen reported a 36 percent decline in pretax profits. In response to these struggles, the company announced a major restructuring in late 1996 aiming for the withdrawal from or scaling back of activities in noncore areas, including long steel products, defense equipment, and coal and oil trading. Further, after failing in the summer of 1996 to forge a link in the telecommunications sector with Deutsche Bahn, the German national railway, Thyssen scaled back its involvement in that sector. In late 1997 Thyssen sold its stake in a German cellular-phone operator to Veba AG and RWE AG for DM 2.26 billion (US$1.26 billion). Also in 1997 Thyssen merged its shipbuilding operations with those of Preussag AG to form the largest shipbuilding concern in Germany, with annual sales of DM 3.5 billion (US$1.83 billion).
In March 1997 Krupp initiated a hostile takeover of Thyssen, which failed, but led to the late 1997 creation of Thyssen Krupp Stahl, a flat steel joint venture; additional negotiations then resulted in the March 1999 merger of the two companies to form Thyssen Krupp (these events are described in more detail below). Meantime, Thyssen finally appeared to have turned around its financial difficulties—sales were on the rise and net income was a very strong DM 2.19 billion by the 1997-98 fiscal year. The company’s renewed focus was evident in its pursuit and completion of several significant acquisitions. In 1997 Thyssen acquired U.S.-based Copper and Brass Sales Inc., a leading trading and service center for nonferrous metals in North America. That same year, Thyssen paid US$675 million to acquire another U.S. firm, Giddings & Lewis Inc., the largest machine-tool maker in the United States. Giddings fit in well with Thyssen’s already considerable auto-related operations, since the Fond du Lac, Wisconsin-based firm derived about 40 percent of its revenue from that industrial sector. In early January 1999 Thyssen, through its Thyssen Industries unit, purchased the North American elevator operations of Dover Corporation, including the Dover Elevator brand, for US$1.1 billion. Thyssen was already one of the top elevator firms worldwide, and with the addition of Dover Elevator became one of the top three or four companies in that area.
Krupp’s Napoleonic Era Roots
The company that would eventually be known as Fried. Krupp GmbH, and then Fried. Krupp AG Hoesch-Krupp, was established on November 20, 1811, by Friedrich Krupp, member of a family of merchants whose roots in Essen can be traced back to 1587, and his two partners, brothers Georg Carl Gottfried von Kechel and Wilhelm Georg Ludwig von Kechel. They set up a factory for making English cast steel and products manufactured from it. There was a ready market for these products due to Napoleon’s Continental Blockade, which prevented imports of cast steel from England. The two partners contributed the metallurgical knowledge, while Friedrich Krupp handled the commercial side and provided the necessary capital. When the steelmaking experiments of the two partners—and later of a third, Friedrich Nicolai—proved unsuccessful, Friedrich Krupp ran the factory on his own from 1816 onwards and developed a process for making high-quality cast steel on a factory scale. His products included cast steel bars, tanner’s tools, coining dies, and unfinished rolls. In the years that followed, however, Friedrich Krupp failed to operate the factory at a profit. Competition was severe—particularly from Britain— and while Krupp’s prices were too low, his production costs were too high. In addition, product quality varied because, owing to a lack of funds, Krupp occasionally had to use inferior raw materials. Only the family’s considerable assets, which in the end were totally consumed, prevented the firm from going bankrupt. When Friedrich Krupp died in 1826, production had almost come to a standstill.
Therese Krupp, his widow, kept the firm going, supported by her relatives and her 14-year-old eldest son, Alfred. With only a few workers at first, the manufacture of cast steel continued. When in 1830 Alfred Krupp started to manufacture finished products, he was able to endorse these with his personal guarantee of quality. Output, however, remained at a low level.
Only after 1834 did the firm experience vigorous expansion. The lifting of customs barriers by the German Customs Union—an agreement between the German states, before their unification, to remove trade barriers between them and create a single economic entity—in 1834 boosted sales, and the purchase of a steam engine, financed by a new partner, helped to make production more cost efficient. Alfred Krupp endeavored above all to perfect the manufacture of high-precision rolls, which he later supplied additionally in rolling machines and rolling mills. Together with his two brothers he developed in the early 1840s a mill for stamping, rolling, and embossing spoons and forks in one operation. Krupp took numerous journeys to find customers abroad, particularly in France, Austria, and Russia. A long sojourn in England enabled him to widen his knowledge of steelmaking and factory organization.
The firm’s expansion did not follow a steady course, mainly because the market for rolls and rolling mills was limited. Further, there was no replacement market, since Krupp’s rolls were virtually indestructible. The attempt to establish cutlery factories succeeded only in Austria, where in 1843 Krupp— together with Alexander Schoeller—founded the works at Berndorf near Vienna, which from 1849 onwards was managed by his brother Hermann. The search for new applications for his high-quality but expensive cast steel was unsuccessful at first. The general economic malaise which set in around 1846-47 hit the cast steel works badly. In April 1848 Alfred Krupp, now sole owner, could only save it from ruin by selling off personal assets and then by winning a major order from Russia for cutlery machinery.
Krupp Expanded into Railway Equipment and Cannon-Making in the 1850s
Around 1850 business started to pick up again. The burgeoning of the railways opened up a virtually unlimited market for Krupp’s hard-wearing cast steel. Along with axles and springs, the firm’s most important product in this field was the forged and rolled seamless railway tire. Invented by Alfred Krupp in 1852-53, this proved able to withstand the increasing track speeds without fracturing. In 1859 the breakthrough into cannon-making was achieved with an order from Prussia for 300 cast-steel cannon-barrel ingots.
To secure sales, Alfred Krupp sought new markets on other continents. He journeyed abroad, established agencies, and participated in international exhibitions. At the Crystal Palace Exhibition held in London in 1851, Krupp displayed a cast-steel cannon barrel which attracted great interest; for a cast-steel ingot weighing approximately 40 hundredweight he received the highest accolade, the Council Medal.
At an early stage Krupp introduced new, economic steelmaking processes, for instance the Bessemer process in 1862 as well as the open-hearth process in 1869. For products that had to be particularly tough, crucible steel remained his most important starting material. It was around this time that Krupp adopted a policy of acquiring ore deposits, coal mines, and iron works to secure the company’s rapidly growing requirement of raw materials. With the swift expansion of the company—in 1865 the workforce totaled 8,248 and sales 15.7 million marks—it became necessary to delegate managerial tasks. In 1862 Alfred Krupp established a corporate body of management bearing joint responsibility for the affairs of the firm. His general directive of 1872 laid down the principles to be applied in running his enterprise as well as the social welfare policy to be pursued.
From the outset Alfred Krupp strove to create and maintain a loyal set of highly skilled employees. Only thus could he guarantee the high quality of his products. To alleviate the social problems caused by industrialization he introduced employee welfare schemes, at the same time enjoining his workers not to become involved in trade-union or social-democratic activity. As early as 1836 he set up a voluntary sickness and burial fund, which became a compulsory sickness and death benefit insurance scheme in 1853. In 1855 Alfred Krupp established a pension scheme and in 1858 a company-owned bakery that evolved into the employees’ retail store. In 1856 the first hostels were built offering board and lodging to bachelor workers. The year 1861 saw the construction of the first company dwellings for foremen. Worker’s housing estates, incorporating schools and branches of a retail store, followed in 1863, and from the early 1870s grew apace. In 1870 a company hospital was established.
In the years up to 1873 the firm continued to expand strongly. However, in the economic slump of 1874 it almost suffered financial collapse because Krupp had raised large bank loans without arranging adequate security. Thereafter the company entered a phase of steady development. The gunnery division was engaged in efforts to develop better field, siege, and naval guns. The divisions producing machinery components, shipbuilding material, and railway equipment were expanded. When Alfred Krupp died in 1887, the firm’s employees numbered 20,200 and sales for 1887-88 amounted to 47.5 million marks.
Even during his lifetime Alfred Krupp was known as the Cannon King, mainly because during the Franco-Prussian War of 1870-71 Krupp’s cast-steel guns had proved superior to the French bronze cannon. The way the firm presented itself to the public reflected the spirit of the times and for decades the manufacture of guns was given a prominence beyond its actual share of production. In fact, up to 1905 armaments generally accounted for less—and in some cases considerably less—than 50 percent of output; in the years leading up to World War I the proportion was between 50 and 60 percent.
Krupp Acquired Gruson Works and Germania Shipyard in the 1890s
Alfred’s only son and heir, Friedrich Alfred Krupp, continued the expansion of the enterprise into a horizontally and vertically integrated concern. Entry into the production of armor plate at the behest of the Imperial Navy led in 1892-93 to the acquisition of the strongest competitor in this field, the Gruson works in Magdeburg. Production of armor plate was then concentrated in Essen while work in Magdeburg focused on the design and construction of plant and machinery.
At the urgings of his directors, as well as of Emperor Wilhelm II and the Imperial Navy, Krupp decided in 1896 to take over the Germania shipyard in Kiel. The plant was leased that year, and acquired in 1902. At this time Admiral Tirpitz, secretary of state for the Imperial Navy, introduced the program for the expansion of the German fleet under the Fleet Acts. The resultant boost to the German shipbuilding industry also benefited the Germania yard where, in addition to merchant vessels, warships clad in Krupp armor plating were now built. The year 1902 saw the building of the experimental submarine Forelle, forerunner of the U-boat. At the same time the company began producing diesel engines at the Germania yard, following the development of the first working diesel engine in 1897 by Rudolf Diesel in collaboration with Krupp and Maschinenfabrik Augsburg.
The construction in 1897 of a large integrated iron and steel works at Rheinhausen strengthened the company’s solid footing in iron and steel. A few years later the Thomas process was adopted there for the mass production of steel. Further ore and coal mines were acquired to cover the increasing raw materials requirements. Friedrich Alfred Krupp was particularly interested in the technology of steelmaking. He introduced scientific research into steel at Krupp and thus created the springboard for the successful development of special-steel production.
Friedrich Alfred Krupp expanded the employee welfare and benefit schemes, not only at Essen but also at the outlying works. He widened the scope of the health funds, built new housing estates, and created the Altenhof estate for retired and disabled workmen. He established educational and leisure amenities for his employees, in particular a lending library with numerous branches and an educational society.
During his lifetime Friedrich Alfred Krupp was caught in the crossfire of public debate. While to many he was a successful industrialist with a sense of national responsibility, his critics saw him as a capitalist entrepreneur who, through his links with the Imperial House and his support of the German Navy League, a nongovernment association formed to promote the strengthening of the German fleet, exerted influence on the country’s naval policy in order to gain lucrative contracts for his company. The spectacular acquisitions of the Gruson works and the Germania yard readily lent themselves to such an interpretation.
In later literature too, Friedrich Alfred Krupp has been presented in controversial terms. New research has proven, however, that it was not he who initiated the program of naval expansion started in 1897–98. The main impetus came from Admiral Tirpitz and the circle of people close to Emperor Wilhelm II. Friedrich Alfred Krupp only acted in response to this policy.
When Friedrich Alfred Krupp died suddenly at the age of 48 in 1902, Bertha Krupp, the elder of his two daughters, inherited the company, which—as recommended in the will of the later owner—was converted into a stock corporation in 1903, when it became known as Fried. Krupp AG. Almost all the shares remained in the ownership of Bertha Krupp. When in 1906 she married Gustav von Bohlen und Halbach, counsellor to the Royal Prussian Legation at the Vatican, Wilhelm II as king of Prussia accorded Gustav the right to bear the name Krupp von Bohlen und Halbach and to pass on this name to his successors as owners of the company. After the wedding Gustav Krupp von Bohlen und Halbach was appointed to the supervisory board of Fried. Krupp AG, which he chaired from 1909 until the end of 1943.
In the years leading up to World War I, order books were healthy and the company continued to expand. By 1903 the workforce had increased to 42,000 and by 1913 to 77,000, with sales rising from 91.4 million marks in 1902-03 to 430.7 million marks in 1912-13. The increase in productivity mainly reflected the expansion of the Rheinhausen iron and steel works and the resultant fundamental reorganization of production in Essen.
In 1908 electric steelmaking was introduced at the Essen works. After a few years the company was making electric steels of such quality that they were able to partly replace high-grade crucible steel. Intensive research into alloying came to fruition in 1912 with the development of stainless chromium-nickel steels which, besides being resistant to corrosion, were also able to withstand the effects of acid and heat and were thus suitable for a wide range of applications.
The continuation and expansion of employee benefits and welfare remained key elements of corporate policy. Margarethe Krupp, the widow of Friedrich Alfred Krupp, established a domestic nursing service and provided the financial base for the Margarethenhöhe garden suburb. The company continued to build housing estates for its workers, these efforts being increasingly supplemented by independent housing associations closely linked to Krupp. Convalescent homes and a dental clinic were built, and the Arnoldhaus lying-in hospital was founded.
Krupp Increased Munitions Production During World War I
World War I brought an increase in armaments production and a further expansion of the company. In order to fulfill government contracts, munitions output was doubled in the first year of the war and by the third year it had reached more than five times its pre-1914 level. This output was achieved, particularly after 1916, by building huge new factories and increasing the workforce substantially. In November 1918 Krupp’s employees totaled 168,000. Well-known products in these years were the 16.5-inch Big Bertha gun, 27 of which went into action in 1914; the merchant submarines Deutschland and Bremen, built at the Germania yard in 1915-16; and the long-barreled “Paris gun” with a range of 85 miles, of which seven were built.
Both at the time and in some of the subsequent literature the firm and the Krupp family were accused of having been the main beneficiaries of the war. More recent researchers have demonstrated how inaccurate a picture this was: compared with other companies only a relatively small portion of the profits initially earned were distributed to the shareholders, whereas the main part was invested in the new factory buildings which later were of little use. High personnel and welfare costs during but especially immediately after the war and the cost of converting to peacetime manufacture exhausted the company’s substantial reserves. With the ending of hostilities the demand for armaments ceased. Under the Treaty of Versailles the company was prohibited from making ammunition, and cannon manufacture was allowed only to a limited extent. Krupp changed its production and embarked on the manufacture of locomotives, motor trucks, agricultural machinery, and excavators. The cost of reorganization, the wages for workers actually no longer needed, and the losses incurred through dismantling, inflation, and the dispute over the Ruhr River, when the government implemented a strategy of passive resistance to the occupation of the region by French and Belgian troops, plunged the company into a crisis in 1924-25 that threatened its very existence. Gustav Krupp von Bohlen und Halbach had no choice but to implement drastic cutbacks. Having initially refused for social reasons, he reduced the workforce within two years from 71,000 to 46,000. Unviable operations were closed down, production was streamlined, and newly launched but unprofitable mechanical engineering activities were discontinued. Even then the company would not have overcome the crisis had it not been for the financial support it received from a combination of government agencies and banks.
Gustav Krupp von Bohlen und Halbach rejected the proposal of his directors that the Krupp works be closed down or incorporated in Vereinigte Stahlwerke, a combination of German steel companies, which was about to be established. He did, however, finally accept the suggestion made by Krupp director Otto Wiedfeld, who from 1922 until early 1925 was German ambassador to the United States, that the company be rehabilitated by selling a 50 percent shareholding to the British government. This plan had to be quickly abandoned, however, because the German government felt its policy of rapprochement with France might be jeopardized.
In the years that followed, the company gained a more stable footing, mainly by streamlining the fabricating operations and expanding the production of special steels. Between 1927 and 1929 a blast-furnace plant was added to the melting shops and rolling mills in the Borbeck district of Essen to form an integrated iron and steel works. One of the most modern in Europe, it enabled the production of special steel to be increased further. In 1926 Krupp introduced Widia sintered carbide, a product which, by virtue of exceptional hardness and wear resistance, brought a major breakthrough in tool engineering.
Close Alliance with Nazis: Early 1930s
The Great Depression, which first hit the world economy in 1929, brought this revival to an abrupt halt. The workforce, which by 1928 had risen to 92,300, fell back to 46,100 by 1932. Sales dropped from 577.5 million reichsmarks in 1928-29 to 240 million in 1931-32. After 1933 Germany experienced an economic upturn during which corporate policy at Krupp became closely entwined with the economic policy of the National Socialists. Governmental efforts to achieve self-sufficiency included the development of the country’s iron ore deposits. The Renn process introduced by Krupp in 1929 permitted these inferior ores to be reduced economically. A coal conversion plant was built for producing petrol from coal. Increasing demand for rolled-steel products, especially for building the new autobahns, spawned the expansion of Krupp’s structural engineering shops in Rheinhausen. Under the Four-Year Plan the state took increasing control of industry and at Krupp the production of locomotives, motor trucks, and ships was stepped up against the will of the company’s directors. They wanted to give priority to the successful production of special steels and their fabrication for use in chemical process plant and other applications. In 1938, following the death of proprietor Arthur Krupp, son of Hermann Krupp, the Berndorf works near Vienna was incorporated in the concern. Krupp also expanded its shipbuilding activities by acquiring a majority shareholding in Deutsche Schiff-und Maschinenbau Aktiengesellschaft “Deschimag” in 1940-41. Sales rose from 809.6 million reichsmarks in 1937-38 to 1.1 billion in 1942-43; in the same period the number of employees rose from 123,400 to 235,000.
In the 1920s Krupp had, at the behest and later with the financial support of the German Reichswehr Office, undertaken design work of a military nature going beyond the tight restrictions imposed by the Treaty of Versailles. The resultant vehicles and equipment were manufactured in collaboration with other firms. In the 1930s work on the design and manufacture of armaments was stepped up, and during the war these activities were greatly intensified, controlled as they were by the state’s grip on the economy. Weapons made up a much smaller proportion of total output than during World War I, however, because the manufacture of motor trucks, locomotives, bridges, ships, and especially submarines, continued at a high level.
Research has shown that in spite of claims to the contrary, Gustav Krupp von Bohlen und Halbach, president of the federation of German industry from 1931 to 1934, did not support Hitler or the Nazi party before they came to power. In keeping with his sense of national loyalty, however, he expressed his support for the state after Hitler’s appointment as Reichskanzler.
At the end of 1943 the firm was reconverted into a sole proprietorship and transferred to Gustav’s eldest son Alfried. The armaments authorities and semiofficial control committees were intervening more and more in industrial activity. Out of loyalty to his war-torn country Alfried endeavored to meet the demands imposed, though the lack of skilled workers, air raids, and the relocation of operations made this increasingly difficult. Like most of the armament factories in Germany during the war, Krupp used forced labor, as most of its workers had been called up for military service.
At the end of the war large areas of the works lay in ruins and much of what remained, like the iron and steel works in Essen-Borbeck, was compulsorily dismantled. The Gruson works and Berndorfer Metallwarenfabrik were expropriated by order of the Allies, and the Germania shipyard, also severely damaged by bombing, was dismantled and liquidated.
Gustav Krupp von Bohlen und Halbach was indicted for war crimes by the International Military Tribunal in Nuremberg but was found to be physically and mentally unable to stand trial. The suggestion made by the American, Russian, and French prosecuting counsels that his son Alfried be indicted in his place was rejected by the British prosecutor on the grounds that they were not conducting a game in which one player could be replaced by another. Nevertheless, Alfried Krupp von Bohlen und Halbach was put under arrest by the American occupying troops in Essen on April 11, 1945. His property was confiscated, and he was kept in prison until he was accused before a U.S. military court in 1947 together with members of the firm’s senior staff. This was one of three trials against industrialists. Alfried Krupp von Bohlen und Halbach and his leading staff were accused of having planned and participated in a war of aggression, but were declared not guilty of these charges. Of the other charges of the indictment, criminal spoliation in occupied countries and promotion of slave labor, they were found guilty on July 31, 1948. In 1951 their prison terms were cut short and they were released. Two years later Alfried Krupp von Bohlen und Halbach resumed the management of his firm, which since 1945 had been under the control of the British military government.
Postwar Rebuilding of Krupp
The company’s situation was perilous. On top of the losses already mentioned came the Allied divestment order under which Krupp was compelled to sever and sell its mining and steelmaking operations. The firm thus faced the loss of its raw materials base, in particular its vital steel interests. In 1951 Alfried Krupp von Bohlen und Halbach had declared that he would never again produce weapons. The object, therefore, was to shape a newly structured concern from the remaining manufacturing and engineering activities, comprising the locomotive and motor truck works, the Widia hard-metal plant, the forging and foundry shops, and the structural engineering operation in Rheinhausen. This restructuring was achieved in the years that followed. New markets were opened up in the developing countries for the engineering and construction of industrial plants. Together with Berthold Beitz, whom he had appointed as his chief executive at the end of 1953, Krupp contributed personally to this effort by making numerous order-winning trips abroad. The range of manufacturing and engineering activities was made as varied as possible in order to assure continuity of employment in the face of changing markets. In 1958 sales, including the coal and steel operations still subject to the divestment order, amounted to DM 3.3 billion, generated by a workforce of 105,200. Krupp had become the highest-revenue German company.
The Allied divestment order could only be complied with to a minor extent for lack of purchase offers. In 1960 Krupp therefore combined its remaining coal and steel operations and strengthened this base in 1965 through a merger with Bochumer Verein für Gusstahlfabrikation, a steel company in Bochum in which a majority shareholding had been acquired at the end of the 1950s. Krupp thus regained a position in the production of special steels, which it had lost with the dismantling of the Borbeck steel plant. In 1961 the company opened a plant in Brazil to make drop forgings for internal combustion engines and vehicles. In 1964 Krupp acquired a majority shareholding in Atlas-Werke AG, Bremen, including MaK Maschinenbau GmbH, Kiel.
In line with the general economic situation, the company followed a positive course into the mid-1960s, apart from a brief downturn in 1962-63. Nevertheless, until withdrawn in 1968, the divestment order prevented the company from developing a comprehensive long-term policy of corporate restructuring and investment. The financial crisis into which the company plunged in 1967 was largely triggered by the high level of supplier credits that had to be granted in the strongly expanding export business. As security for the banks, the federal and state governments provided guarantees, which, however, did not need to be taken up. The guarantees were subject to the condition that the sóle proprietorship Fried. Krupp be converted into a stock corporation. This requirement dovetailed with the decision already taken by the owner to adapt the enterprise to the requirements of modern business and secure its future by changing its legal structure. In the terms of his will, Alfried Krupp von Bohlen und Halbach provided for the establishment of a nonprofit foundation. Since his son Arndt had renounced his inheritance before his father’s death, leaving the way clear for the firm to be converted into a corporation, ownership of the late owner’s private assets and the corporate property combined in the firm of Fried. Krupp was vested in the foundation. Alfried Krupp thus continued in modern form the idea formulated by his great-grandfather that ownership incurs social responsibility: the company would be run as a private-sector enterprise but its earnings used to serve the community at large.
Became Fried. Krupp GmbH in 1968
Alfried Krupp von Bohlen und Halbach died in July 1967. In 1968 the firm was entered in the Commercial Register as a limited-liability company, Fried. Krupp GmbH, with a capital stock of DM 500 million. Managerial responsibility was assigned to an executive board having the same powers as the management board of a stock corporation under German law. All shares in Fried. Krupp GmbH were placed in the ownership of the Alfried Krupp von Bohlen und Halbach Foundation, whose object was to preserve the company’s coherence and to serve the public benefit. Berthold Beitz was chairman of the foundation’s board of trustees. From 1970 to 1989 he was chairman of the supervisory board of Fried. Krupp GmbH. The foundation funded projects in Germany and abroad in the fields of science and research, education and training, public health, sports, literature, and the fine arts. Between 1968 and 1990 the foundation awarded grants totaling around DM 360 million.
In 1969 the coal mining assets were severed from the group and transferred to Ruhrkohle AG. Over the subsequent years activities in the engineering and construction of industrial plant were expanded, especially with the acquisition of Polysius AG and Heinrich Koppers GmbH. The steelmaking arm further strengthened its special-steel operations by acquiring Stahlwerke Südwestfalen AG.
In 1974 the state of Iran acquired a 25.04 percent interest in the stock capital of the steel subsidiary Fried. Krupp Hüttenwerke AG, strengthening the equity base. In 1976 Iran also acquired a 25.01 percent stake in Fried. Krupp GmbH, whose capital stock was increased to DM 700 million by the summer of 1978. Following the Iranian Revolution of 1979, these ownership interests were held by the Islamic Republic of Iran.
The 1980s saw the implementation of various restructuring schemes. Krupp sold off its interests in shipbuilding, an area of heavy losses. The steelmaking sector reduced its output of tonnage steel and in 1987-88 the plan to close the iron and steel works in Rheinhausen was met by a campaign of protest from the workforce. The works were kept in operation to a limited extent. At the same time Krupp further strengthened its activities in special steel—for example, by acquiring VDM Nickel-Technologie AG in 1989—as well as in mechanical engineering and electronics. In 1989 Gerhard Cromme became chairman and chief executive of Krupp. By 1990 the company, having successfully completed the restructuring, was back in the black and paid its first dividend in 16 years.
Completed Hostile Takeover of Hoesch in 1992
In 1991 Krupp secretly paid DM 500 million (US$294 million) to take a 24.9 percent stake in Hoesch AG, a neighboring and struggling steelmaker headquartered in Dortmund with a history dating back to the 1820s. Hoesch was having difficulty competing with its much larger rivals as the early 1990s were marked by overcapacity in steel throughout Europe. German steelmakers were particularly vulnerable because steel prices in that country were the highest in Europe. Krupp saw a takeover of Hoesch as a great opportunity to rationalize the two companies’ operations and cut costs. In December 1991 Krupp increased its stake in Hoesch to nearly 51 percent. Hoesch continued to resist being taking over, but by mid-1992 Krupp had won the battle and a merger of the two firms was backdated to January 1 of that year, creating Germany’s second largest steel producer (trailing Thyssen).
The newly and cumbersomely named Fried. Krupp AG Hoesch Krupp—still headed by Cromme—had steelmaking capacity of around eight million metric tons and sales of about DM 28 billion (US$18.9 billion). The new Krupp had six divisions: steel, engineering, plant construction, automotive supplies, trade, and services. In January 1993 Krupp became a publicly traded company for the first time in its long history, though as late as the 1997-98 fiscal year the Alfried Krupp von Bohlen und Halbach Foundation still held a 50.47 percent stake while the Iranian government held 22.92 percent. The restructuring that followed the takeover of Hoesch including the shedding of more than 20,000 jobs and the closure of one of the combined company’s two main integrated steel plants. Two years of heavy losses followed before Krupp posted a modest net profit of DM 40 million (US$29.2 million) for 1994.
The Long Road to the Thyssen-Krupp Merger
Following Krupp’s 1994 takeover of Accial Speciali Terni, an Italian stainless steelmaker, the company in 1995 merged its enlarged stainless steel operations with those of Thyssen in the Krupp-Thyssen Nirosta joint venture, 60 percent owned by Krupp and 40 percent owned by Thyssen. In March 1997 Krupp launched a DM 13.6 billion (US$8 billion) hostile takeover bid of the larger Thyssen. This move led to fierce protests from workers fearful of another round of massive industrial layoffs, as had occurred after the Krupp takeover of Hoesch. When Cromme, dubbed the “job killer” because of those same layoffs, met with protesting workers he was pelted with eggs and tomatoes. With Thyssen’s leadership resisting the attempted takeover, Krupp soon abandoned its hostile bid.
Nevertheless, Thyssen agreed to discuss with Krupp a merger of the two firm’s flat steel operations, with the negotiations leading to the establishment in September 1997 of Thyssen Krupp Stahl AG, which was 60 percent owned by Thyssen and 40 percent owned by Krupp. Ekkehard Schulz, who had headed Thyssen Stahl, was named chief executive of the joint venture. The companies immediately announced that 25 percent of their flat steel workforce, or about 6,300 people, would lose their jobs as part of a restructuring.
Krupp and Thyssen were not finished with their dealmaking, however, and surprised many analysts in November 1997 with an announcement of a full merger of their entire companies. A key factor driving the merger was the increasing globalization of the world economy. The two industrial giants needed to be even larger in order to effectively compete on a global scale. After overcoming numerous hurdles, the companies consummated their union in March 1999 with the formation of Thyssen Krupp AG. Vogel, Thyssen’s chief executive, still had the criminal charges hanging over him, and lost a battle to run the new company. Cromme and Schulz were named co-chief executives of the new company, which organized itself into six main divisions: Thyssen Krupp Steel, Thyssen Krupp Automotive, Thyssen Krupp Industries, Thyssen Krupp Engineering, and Thyssen Krupp Materials & Services. The company expected to slash annual costs by DM 1 billion (US$557 million) through the merger and intended to cut 2,000 of its 173,000 jobs. Revenues were estimated at DM 70 billion (US$39 billion). One other consequence of the merger was that the large stakes held by the main shareholders of Krupp were significantly diluted; the Alfried Krupp von Bohlen und Halbach Foundation held an initial 16.82 percent interest in Thyssen Krupp while the Iranian government held 7.64 percent. When combined—and these two parties sometimes had joined to block certain board initiatives at Krupp—they held about 24.5 percent of Thyssen Krupp, which was just less the 25 percent needed for a formal “blocking minority” per German law.
Thyssen Krupp Steel AG; Thyssen Krupp Automotive AG; Thyssen Krupp Industries AG; Thyssen Krupp Engineering AG; Thyssen Krupp Materials & Services AG.
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—Dieter Müller and Renate Köhne-Lindenlaub
—updated by David E. Salamie