German carmakers running out of political cover on emissions scandal

Transport minister pulls permits for 22,000 new Porsche Cayennes with cheat software

Volkswagen cars inside a delivery tower in Wolfsburg. Multibillion-euro settlements over the emissions scandal will rob German car companies of R&D funds. Photograph:Michael Sohn/AP

Volkswagen cars inside a delivery tower in Wolfsburg. Multibillion-euro settlements over the emissions scandal will rob German car companies of R&D funds. Photograph:Michael Sohn/AP

 

A Berlin equivalent of Fianna Fáil’s notorious – and defunct – Galway races tent is the summer party of the VDA, the lobby group of Germany’s carmakers.

Last week the VDA defied Berlin’s most Irish summer in memory and, as usual, invited their guests – car executives, politicians and journalists – on to the organisation’s rooftop garden in the German capital.

With his eye on the rain clouds on the horizon, VDA president Matthias Wissmann, a former federal transport minister with owlish glasses and a Republican haircut, surprised guests with his stoical optimism. After two years grappling with the Dieselgate disaster, he said an August 2nd meeting between carmakers and politicians “should make it possible to push aside the clouds and find a sensible common solution”.

He spoke too soon. Days later the heavens opened and the motor of Europe’s largest economy was flooded again, this time with claims of anti-competitive behaviour. Car company share prices slumped, politicians panicked and next week’s meeting will cast a harsh light on Germany’s most symbiotic relationship: between its carmakers and politicians.

Too big to fail

Carmakers are to Germany what builders were to pre-crisis Ireland: the economic tail that wags the political dog. Germany’s automobile industry is, quite simply, too big to fail.

In hindsight, pre-crisis Ireland’s construction industry was viewed as unsustainable for contributing nearly a quarter of Ireland’s GDP. So what, in these turbulent times, to make of the car industry which contributes 23 per cent (€405 billion) of Germany’s annual economic output?

German chancellor Angela Merkel fended off EU demands that Germany abolish the so-called “VW law” that protects the company from a hostile takeover. Photograph: Christof Stache/AFP/Getty Images
German chancellor Angela Merkel fended off EU demands that Germany abolish the so-called “VW law” that protects the company from a hostile takeover. Photograph: Christof Stache/AFP/Getty Images

Asking such a question may seem silly in a week when euphoric German managers pushed Munich’s Ifo business confidence index into record territory. Even the crisis-hit VW and Daimler posted rising second-quarter revenues of €4.7 billion and €3.75 billion respectively. Surely all is well?

Hardly. A week ago Der Spiegel magazine revealed how, for 14 years, German car companies had held more than 1,000 secret meetings to discuss everything from car seats to motors. What the manufacturers call cost-efficient co-operation European Union investigators suspect was an illegal cartel, with carmakers colluding to hinder innovation and control costs of everything from braking and controls to seating systems and clutches.

Cartel members VW and Daimler spilled the beans to Brussels, in 2016 and 2014 respectively, hoping to reduce any future fines.

The result: things have shifted up a gear for Germany’s federal transport minister Alexander Dobrindt. For two years, the Bavarian politician has gone along with the car industry and its damage-limitation euphemisms, where a multibillion fraud is an “issue” to be solved with “voluntary” recalls.

Permits revoked

On Thursday, things changed. Dobrindt revoked permits for 22,000 new Porsche Cayennes fitted with the same manipulated software as in VWs and Audis.

His belated teeth-baring may have something to do with September’s general election and the fear that, if Germany’s car companies crash – and the economy with it – German voters will see their politicians in the passenger seat.

“It’s clear that the government here has started to look at this as something that could hurt them,” said Jack Ewing, a New York Times journalist and author of Faster, Higher, Farther, a book about the VW scandal.

Germany’s automotive-political complex, spinning out of control in the past two years, increasingly resembles Ernest Hemingway’s description of bankruptcy: “Gradually and then suddenly.”

And that poses the question whether German car giants’ crooked practices came in spite of – or because of – German politicians’ protective hand.

Three years after succeeding Gerhard Schröder, the self-described “auto chancellor”, Angela Merkel made clear in 2008 that she was a worthy successor.

Like her predecessors, she fended off EU demands that Germany abolish the so-called “VW law” that protects the company from a hostile takeover and intervened – in 2008 and 2013 – to water down EU emissions targets to benefit German luxury carmakers.

In September 2008, Merkel told 20,000 VW employees – her largest-ever live audience – that their company was a “great piece of Germany” and the protective law “in no way damaged VW’s competitiveness”.

That same month, executives from VW, its Audi subsidiary, Daimler and BMW secretly agreed tiny tanks for AdBlue, a urea mixture used to split nitric oxide into its harmless components of water and nitrogen.

This “clean diesel” promise was the German industry’s answer to the electric motor challenge from Toyota and others. But if emissions rules were to be adhered to, Der Spiegel estimates that the eight-litre AdBlue tanks they agreed contained enough urea mix for only 6,000km.

To cut costs and save on refills, millions of customers were sold cars with cheat software that made the cars appear cleaner than they were, while polluting the air with up to 30 times more noxious nitrogen oxide than legally permitted.

Since the VW fraud was exposed – spreading to Audi, Porsche, Daimler and others – Berlin has made clear where its priorities lie. In Brussels, Germany has fought EU efforts for emissions tests to be based on real-world conditions while insisting in Berlin, with a straight face, that German carmarkers meet existing emissions standards.

Collusion

In the skies over Berlin, the air stinks of diesel and collusion. Last year, the transport ministry commissioned its own car registration authority to conduct a test of 53 diesel cars’ emissions. The result: 30 exceeded their own claimed emissions by between 10 and 36 per cent.

Those results vanished into a drawer and the tests were re-run with 20 vehicles – and industry participation. According to results released last month, just two cars breached their own emissions claims.

On Thursday, Germany’s federal transport minister revoked permits for 22,000 new Porsche Cayennes fitted with the same manipulated software as in VWs and Audis. Photograph: Filip Singer/EPA
On Thursday, Germany’s federal transport minister revoked permits for 22,000 new Porsche Cayennes fitted with the same manipulated software as in VWs and Audis. Photograph: Filip Singer/EPA

German watchdog Lobbycontrol sees a clear link between results such as that and the close ties between industry and government: 100 industry-government meetings in an 18-month period and the head of Germany’s federal office for motor vehicles that signed off his emails with “industry-friendly greetings”.

Between 2009 and 2015, car companies, their owners, associations and supplier companies donated at least €13.6 million to German political parties.

But this mutually beneficial relationship has run out of road. Lawyers in Germany, Ireland and elsewhere are gathering clients for massive lawsuits against German car companies.

And yesterday a court in Stuttgart, home to Daimler, ruled that the city may ban older diesel vehicles on days where air quality standards are not met.

The dominos are falling, with dozens of other German cities poised to take similar action to avoid huge EU environmental fines. The costs are building: from consumer claims to shareholder compensation suits, or the EU case against German oversight of its car industry.

And further multibillion settlements – such as the €22 billion cheque written by VW in the United States – will rob German car companies of research-and-development funds for their next generation of engines.

Some German politicians here have woken up to the danger in which they find themselves, having been conned by the car executives they worked so hard to protect.

After visiting VW on Thursday, federal environment minister Barbara Hendricks spoke openly of “consumer fraud” and admitted that “often there was a lack of distance between the state and the auto industry” in Germany.

Diesel summit

Given such fighting talk, and this week’s Porsche Cayenne ban, the air is getting chilly between politicians and car companies ahead of next week’s “diesel summit”. Two days later, a senior VW manager arrested in the US in January will confess all over Dieselgate in a bid to avoid a 169-year jail sentence.

For Irish solicitor Evan O’Dwyer, representing VW customers in Ireland, the political dimensions over Dieselgate spread far beyond Germany.

Speaking at a “Knowledge Nomads” conference on Friday in Berlin, Mr O’Dwyer criticised the passive approach of the Irish Government, particularly given growing complaints that the VW emissions software “fixes” have led to erratic behaviour among updated cars.

“There are 110,000 cars in Ireland affected by this,” Mr O’Dwyer said. “But given the huge tax revenue streams, what justification would the Irish Government have in upsetting the apple cart?”

As the storm engulfing the car industry grows, some wonder if the “vorsprung durch technik” era of “ahead through engineering” has been overtaken by a new car industry slogan: “behind through fraud”.

Earlier this month Sweden’s Volvo, now owned by China, announced it would abandon traditional engines in just two years’ time. On Friday, Tesla founder Elon Musk presented his first mass-market electric car in California.

Though their car industry is global, the eye of the storm hangs stubbornly over Germany, and an industry that employs 800,000 people. In a stark editorial this week, the Suddeutsche Zeitung daily warned that, after decades of cosy cohabitation between politics and car companies, the game is up.

“This country’s elite,” it warned, “are standing before a pile of rubble that they apparently don’t want to see.”

Revolving door of German politics and car industry

Joachim Koschnicke: strategic communications manager for Merkel’s CDU (2011-2012), chief lobbyist at Opel (2013-2017), now CDU election manager.

Eckhart von Klaeden: Merkel chancellery junior minister (2009-2013), now Daimler chief lobbyist.

Michael Jansen: Merkel CDU office manager (2006-2009) now VW Berlin office head.

Thomas Steg: federal government spokesman (2002-2009) now VW chief lobbyist.

Matthias Wissmann: research and transport minister (1993-1998) turned car industry association (VDA) chief lobbyist (since 2007).

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