German car-makers face existential crisis after betting on diesel future

On the slide? Germany's talismanic car industry faces existential crisis after the emissions scandal and now a cartels investigation

The allegations of collusion among German carmakers have plunged an industry already tarnished by the Volkswagen diesel scandal into a fresh crisis. The news magazine Der Spiegel reported on Friday that German automakers — VW, BMW, Daimler, Audi and Porsche — had been engaging in cartel-like behaviour since the 1990s, in particular colluding with each other on the technical details of diesel exhaust treatment systems. The EU competition authorities have opened an investigation, and Germany’s economics minister says the credibility of the whole German car industry is at stake. FT reporters consider the main points.

What are the German carmakers accused of?

BMW, Daimler and the Volkswagen Group are accused of holding secret meetings since the 1990s to collude on technology, components and suppliers. The most significant allegation is that they agreed to use only small tanks for AdBlue, a urea solution critical for neutralising emissions from diesel engines. But so far there is no evidence they colluded on prices of end products.

How have the carmakers responded to the allegations?

VW and Daimler have refused to comment, while BMW adamantly denies that it colluded with its rivals. However, BMW said on Friday there was nothing unusual in working with other carmakers on certain components if they “do not contribute to differentiation of the two brands and are therefore not relevant to competition”.

The EU has confirmed it is investigating the allegations — but how likely is it that they will really crack down on German industry?

Germany exercises huge power in the EU and can easily influence the European Commission agenda. But the competition directorate has a reputation for fierce independence — one that under its current boss, Margrethe Vestager, has only grown. She has taken on a phalanx of corporate titans, ranging from Apple and Google, to Gazprom, Amazon and McDonald’s, and is expected to be just as tough in her approach to the German carmakers. “Knowing her, I bet she would have the guts [to go after them],” says Philippe Lamberts, a Green MEP. It would also be an opportunity for her to show “she is not just after big US companies, but also European champions [that break the rules].”

Are there precedents for EU action against German companies?

Yes. Sven Giegold, a German Green MEP, notes how tough the EU competition authorities were when it came to restructuring the four German Landesbanken — public sector banks with a regional focus — that got into trouble during the financial crisis. The directorate also acted against German utility Eon in the late 2000s over concerns it was abusing its dominant market position: in a settlement with Brussels, it was forced to sell its long-distance grid and a big chunk of its domestic generating capacity. And so much more is riding on the carmaker cartel issue. “This is a test case for the rule of law,” Mr Giegold says.

What kind of fines could the carmakers face?

EU cartel fines are determined by (i) the annual revenue of the product in question; (ii) the duration of the infringement; and (iii) the gravity of the offence. There is a maximum cap of 10 per cent of global revenues — equivalent to €8bn for BMW, €14bn for Daimler and €19bn for Volkswagen, according to analysts at Exane BNP Paribas. Leniency is a big factor. Some companies have escaped a fine by self-reporting. A similar approach could reduce any fines for the German carmakers. Spiegel reported that VW and Daimler had self-reported themselves in this case. This has been confirmed by VW, while Daimler has declined to comment.

What do auto industry experts say about the claims?

Details are scant, so analysts are having a hard time quantifying the risks. Stuart Pearson, at BNP Exane Paribas, said it was “difficult to separate what is normal industry co-operation and co-development, and what went beyond this normal practice and crossed the grey line into the realms of anti-competitive behaviour”.

Why do scandals in the auto industry always seem to revolve around diesel?

Diesel engines, invented in the 19th century, became widespread in the late 1990s in Europe as a way for carmakers to meet increasingly strict emissions standards. The appeal of diesel vehicles is that they produce less carbon dioxide than petrol cars, and because regulators make rules for entire fleets of cars, not individuals units, it was easier to meet CO2 requirements by having more diesels in the mix.

Diesel cars are typically more expensive to make, but are more energy-efficient and in years past the fuel was cheaper, making them attractive for consumers even with their higher price tag. The chief downside is that they spew out far more nitrogen oxide (NOx) emissions than petrol cars, contributing to respiratory problems.

What does this mean for the use of diesel engines?

The allegations come at “the worst possible time for the carmakers,” says Stefan Bratzel of the Center of Automotive Management. Already, diesel technology is in trouble: there were the revelations that VW had installed software in its diesel cars to cheat emissions tests, and then came the announcements by some European cities such as Paris and Madrid that they were considering banning diesel cars, because of their NOx emissions: London is also to impose an extra congestion charge on diesel vehicles from this autumn. This is affecting sales: overall, diesel accounted for 47.2 per cent of sales in Europe’s biggest countries last quarter, down from 51.6 per cent a year ago.