Cartel scandals reveal the auto industry as its own worst enemy
Last month’s disclosure in Der Spiegel of a cartel between Volkswagen, BMW, Audi, Porsche and Mercedes bore striking similarities to the recently concluded truck case that lead to a fine of almost €3 billion. In that case, truckmaker MAN (also part of VW) blew the lid on the fixing of prices charged to customers for better emissions control systems needed to meet new regulations and how these costs were passed on to customers. Five companies were fined including the Mercedes truck division Daimler.
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Fixing the emissions controls on cars is one of the (many) claims made by Der Spiegel. Specifically the companies agreed in Europe (where emissions controls were laxer) to limit the size of the tanks used to store AdBlue to just 8 litres. AdBlue is injected into the exhaust to trap nitrogen oxides in Selective Catalytic Reduction (SCR) systems. Replenishing the AdBlue on most cars is awkward, so companies try to ensure the reservoir lasts a year (between services). However, the companies wanted to avoid “an arms race of tank sizes” and agreed on a tank size that was less than half of what was needed. Smaller tanks are cheaper, lighter (and thus have a smaller impact on fuel efficiency) and easier to fit in a vehicle. But as the AdBlue must then be used sparingly, NOx emissions are higher – to ensure the AdBlue does not run out (and the car does not restart). Manufacturers previously claimed that using defeat devices that switch down exhaust treatment systems was allowed through a loophole to protect the engine – but no such defence is possible for using an undersized AdBlue tank.
Mercedes declined to comment on the accusations but BMW responded furiously to the claims of collusion, stating: “Technology employed by the BMW Group is clearly differentiated from other systems in the market.” This is nonsense; other manufacturers also use combinations of different exhaust treatment systems as each works well under different operating conditions. BMW also claimed “very good real-life emissions performance,” however the real-world emissions of their new (Euro 6 standard) cars is significantly poorer than those of VW. These high-emitting BMWs include models that are five to six times the legal limit when driven on the road, such as the 116d, X5, 216d GT and 320xd. BMW has refused to voluntarily recall its Euro 6 diesels to reduce their emissions – unlike Mercedes and VW. But the evidence suggests there are many BMW Euro 6 models that should be upgraded and its claims that it is better than others betrays the company’s unjustified arrogance. BMW’s other claim that discussions were in the context of standardisation is also doubtful – such discussions should occur in open meetings of the UNECE (which helps Europe develop emissions requirements) and not in the 1,000-plus private meetings between five companies. If guilty, BMW faces a fine of up to €10 billion.
The charitable explanation for why VW blew the lid on the scandal is that the new management is trying to clean up the company and restore its reputation. But recent raids by prosecutors on implicated company offices and disclosures by US whistleblowers may have persuaded the company that disclosure was imminent and that it would be fiscally prudent to try to avoid a fine of up €22 billion.
In total there have been eight recent cartel cases affecting the automotive sector with cumulative fines of €4.5 billion; together with the Dieselgate scandal they demonstrate an industry that views itself above the law as a result of its unhealthy relationships with governments which are afraid of its muscle, especially in Germany. The German authorities have still not fined VW for defeat devices in 8.5 million cars; and the UK has refused to take action against Skoda (although it approved its cars for sale). Rather than seeking to create a level playing field on which companies compete, the industry systematically seeks to circumvent regulations.
The number of EU citizens that die every year as a result of breathing toxic air – of which vehicles are a dominant source – is approaching half a million. Just as the banking sector before it, this industrial giant is too big to fail and abuses its privileged position. The European Commission has now appointed Vice President Jyrki Katainen to oversee efforts to clean up the automotive sector. He needs to impose a culture change in the industry, including tobacco-style lobbying restrictions, until the sector cleans up its act. He should also take steps to ensure fines are used to mitigate the crime, as in the US, where VW was required to install electric recharging points as part of its penalty. As member states meet with the Commission and European Parliament to finally agree how to approve cars post-Dieselgate, the role of independent bodies on the forum overseeing enforcement is essential – along with transparent access to information the industry protects under the misnomer of “commercial confidentiality”. The automotive industry was one of the jewels in Europe’s industrial crown, but its global reputation is now deeply tarnished. It has become its own worst enemy and needs the Commission to act with strength and decisiveness to clean it up.