By William Boston
LEIPZIG, Germany--In a gleaming factory here, BMW AG's sleek i8
electric sports car glides down a robotic assembly line to stake
the company's--and this city's--place in the auto industry's
future.
Twenty-five years after the Berlin Wall fell, Leipzig is verging
on hip and has caught the eye of investors looking for the next
Berlin. It isn't just the cheap rent and funky student bars driving
change. Auto-industry jobs are reviving midsize engineering
companies and underpinning an urban revival in this once moribund
eastern city, creating employment and fueling a new prosperity.
It isn't just cars. Logistics company DHL International GmbH, a
unit of Deutsche Post AG, and online retailer Amazon.com Inc. built
their European distribution hubs in Leipzig. In Dresden, the
capital of Saxony, computer chip makers Infineon Technologies AG
and Advanced Micro Devices Inc. set up shop. Germany's eastern
region today has been transformed, though it still lags behind the
West in output, productivity and employment.
Under communism, Leipzig and its region, Saxony, were East
Germany's industrial heartland. State-owned companies built heavy
machinery for export around the Warsaw Pact.
It was also in Leipzig that the first mass demonstrations
against the government began in the summer of 1989. After the
Berlin Wall fell on Nov. 9 of that year and East Germans swapped
their worthless currency for West Germany's deutsche mark, Eastern
industrial products became too expensive. Manufacturing
collapsed.
Within a year, Leipzig lost 200,000 industry jobs and
unemployment in the manufacturing sector soared to a peak of 87%,
city officials say. The city's population fell from 530,010
residents in 1989 to a low of 437,101 people in 1998.
"No one was prepared for what happened," says Leipzig Deputy
Mayor Uwe Albrecht. "Whole neighborhoods were like ghost towns
where no lights burned."
Leipzig's fate changed in 1999 when sports car maker Porsche AG
chose it over 16 other cities to produce its first sports-utility
vehicle, the Cayenne. Volkswagen AG and Adam Opel, the German unit
of General Motors Co., had already bought state-owned East German
car makers, but Porsche's investment sparked a renaissance.
"It was Porsche that woke Leipzig's industry with a kiss," Mr.
Albrecht says. "Without Porsche, we wouldn't have gotten BMW to
come here."
Today, Porsche produces three SUVs in Leipzig--the Cayenne, the
Panamera and the new Macan--and employs 1,500 people. Last year,
two-thirds of all Porsches were produced in Leipzig.
"Saxony is car country," says Siegfried Bülow, head of Porsche's
Leipzig plant, who had been a senior executive at East Germany's
Barkas van maker. Volkswagen acquired two east German auto makers
shortly after the unification in 1990, Sachsenring and Barkas. At
Volkswagen, Mr. Bülow rose through the ranks and was working in
Wolfsburg in 1999 when a headhunter poached him to build Porsche's
factory in Leipzig.
BMW followed in 2002, picking Leipzig from more than 125 cities
for a plant that today employs about 6,000 company staff, suppliers
and service providers. BMW has invested around EUR2 billion ($2.5
billion) in the plant to produce a wide range of models, including
the i8.
The number of auto-related jobs across eastern Germany plunged
dramatically after the wall fell. In 1989, according to official
East German data, there were 127,386 people employed in the
industry, producing the Trabant, the smelly two-stroke sedan, the
east's upmarket Wartburg, and Barkas vans and small transport
vehicles. By 1995, there were just 23,230 auto workers in the
east.
By the end of 2013, the number had nearly tripled to 60,432,
compared with a 7% increase in the West to 712,305. Production in
eastern Germany has grown to more than 650,000 cars a year.
"These people are born engineers. It's in their DNA," says Carl
Hahn, 88, who was Volkswagen's chief executive when the wall
fell.
"Their only problem was being in the wrong economic system,"
says Mr. Hahn, who grew up in eastern Germany but left before the
wall was built. "I knew what they were capable of because I was one
of them."
Economics, not patriotism, drove investment decisions. Land and
labor in Leipzig costs a fraction of levels in Munich or Stuttgart,
allowing West German car makers to expand at home rather than
abroad.
An average auto worker in a BMW plant in Munich works a 35-hour
week and earns a gross salary of about EUR3,180 a month--not
including bonuses. A worker at BMW's Leipzig plant works a 38-hour
week and receives EUR2,800 a month.
"That gives us an advantage," says Dirk Wottgen, head of human
resources at BMW's Leipzig plant.
The car industry resurgence is boosting Saxony. Leipzig's
population last year surpassed preunification levels for the first
time. In July, unemployment in Leipzig fell below 10% for the first
time since 1990.
"The automotive industry is the biggest economic factor," says
Nadia Arndt, head of the local Employment Agency.
Corrections & Amplifications
Within a year after the Berlin Wall fell, unemployment in
Leipzig's manufacturing sector soared to a peak of 87%, city
officials say. An earlier version of this article incorrectly
suggested the city's overall unemployment rose to 87%. (Nov. 7,
2014)
Write to William Boston at william.boston@wsj.com