The financial stability of major DAX corporations is increasingly shaky. Rising debts and economic hurdles are taking their toll. In times of historically low interest rates, numerous DAX corporations raised capital in large sums – but now, as interest rates rise, significant additional costs loom. After the first half of 2024, the liabilities of DAX companies have accumulated to a worrying 261 billion euros, almost four times the level of 2017 when debts had fallen to just 69 billion euros due to the economic upswing.
Volkswagen has now accumulated an immense debt mountain of around 200 billion euros. But Bayer is also under considerable pressure as the bonds of the chemical and pharmaceutical company are due soon. The situation at Vonovia is particularly tense: the real estate giant has more than doubled its net debt since 2017.
A key driver of this alarming indebtedness was the economic optimism of recent years. Driven by the hope of steady expansion and innovation, many companies invested excessively and financed this through taking on gigantic debts. The euphoria was boundless, but the consequences were severe.
A prominent example is Bayer, which continues to suffer from the effects of the 63 billion euro acquisition of the controversial seed and pesticide manufacturer Monsanto. The acquisition significantly weakened the company’s equity. By the end of next year, at least 5.6 billion euros of the associated debts must be refinanced.
To cope with the consequences of these challenges, the company plans annual savings of around two billion euros from 2026 onwards. Part of these measures involves cutting several thousand positions, especially in middle management. Bayer currently employs about 22,200 people in Germany, but the exact number of positions affected by the cuts is not yet known.
In addition, Bayer is facing a multitude of lawsuits, particularly concerning legal disputes surrounding glyphosate, the main ingredient in the weed killer „Roundup“ developed by Monsanto. This herbicide is widely used in agriculture but highly controversial due to its suspected link to cancer. Bayer is also facing a number of lawsuits related to polychlorinated biphenyls (PCBs), synthetic chemicals produced by Monsanto for industrial applications until 1977, primarily as coolants and insulators. These legal issues are not only a financial burden on Bayer but also significantly damage the company’s image.
It is clear that the acquisition of Monsanto has proven to be a significant misinvestment. Investments in electrification, as part of the „green transformation,“ have led to immense debts for some DAX corporations. Volkswagen, in particular, has maneuvered itself deep into the red with its aggressive „Future Strategy.“ The company now carries a debt burden of over 200 billion euros, mainly caused by the costly research and development of new drive technology.
However, the debt pile continues to grow. Despite the dramatic drop in demand for electric cars, the company plans to invest a further 180 billion euros in electromobility by 2028 – a decision that could prove to be a fatal mistake in the future.
Instead of investing vast sums in the development of an inefficient and unsafe technology, it would have been much wiser for Volkswagen and the entire European automotive industry to focus on the proven internal combustion engine – a technology that is not only firmly established in the market but has also consistently high sales figures for decades.
The funds that have been poured into electromobility could have been used strategically to further optimize the internal combustion engine. Investments in emission reduction and more efficient fuel consumption could have brought significant progress in an already mature technology. This would have avoided the enormous risks of a large-scale reorientation of the business field.
However, VW prefers to reinvent the wheel with the switch to electromobility – a step that has already plunged the company into a debt pile in the hundreds of billions and is likely to drive it even deeper into the red.
The real estate company Vonovia is also facing particularly challenging circumstances. In recent years, Vonovia has pursued an aggressive expansion strategy, particularly through the acquisition of competitors such as the real estate company Deutsche Wohnen. The purchase in 2021 for around 17 billion euros marked a significant step in Vonovia’s growth plan but ultimately led to a dramatic increase in net debt.
Before this acquisition, the average debt per apartment was 16,000 euros, but after the acquisition, this value rose to an exorbitant 29,000 euros. Currently, the total debt of the company amounts to around 42 billion euros, while the estimated value of the real estate portfolio is approximately 85 billion euros. Particularly concerning is the fact that almost a quarter (24.3%) of outstanding bonds are due by the end of 2026. By that time alone, approximately four billion euros will need to be refinanced or repaid.
To reduce the debt burden, Vonovia has launched a comprehensive sales offensive. In 2023, properties worth over 3.7 billion euros were already sold, and further sales of three billion euros are planned for 2024. Additionally, the company has decided not to start any new construction projects for the time being until economic conditions improve. Although plans exist for the construction of 60,000 apartments, this step proves to be unprofitable due to the high construction costs.
Construction costs have risen significantly in recent years. In February 2024 alone, prices for the construction of conventionally built residential buildings increased by 2.8% compared to the previous year, while the increase in May 2024 was 2.7%. Since 2010, the construction price index has increased by an impressive 64%.
Germany’s economic situation is more than alarming; it resembles a dark shadow looming over the once flourishing industrial location. The financial condition of most DAX companies reveals the alarming reality in which the nation finds itself.
It is becoming increasingly clear that Germany is in a dangerous downward trend that could lead to an endless downward spiral. The question of a swift recovery proves to be naive, while a deep recession already looms on the horizon.