Two years ago -- the dieselgate scandal just started to unfold -- I recommended to dig deeper, and to dig elsewhere in the industry than just Volkswagen, because having worked in said industry, I knew that dieselgate is everywhere. Everybody in the industry knew it, but nobody talked. In America, dieselgate-cheaters are behind bars, while in Europe, emissions cheating is treated as a lesser offense than illegal parking: Not a single fine was handed out in Europe. Today, peccadillo suddenly morphed into a monstrous antitrust case, when it became known that dieselgate is the product of a secret cartel far beyond Volkswagen. “Audi, BMW, Daimler, Volkswagen, and Porsche colluded for years in more than 1000 meetings,” wrote Der Spiegel [German, paywall] today.
Germany's Handelsblatt has a similar report. EU antitrust regulators confirmed investigations, Reuters wrote.
The dieselgate scandal never was as simple as the common good prevailing over the villain Volkswagen. Today, we may begin to understand the true enormity of a scandal that involves a cabal of carmakers and politicians. I said begin, because the scandal is way too big to wrap our heads around it in one go.
For two decades, more than 200 managers and engineers of five large German automakers met in 60 different task forces to coordinate “the development of cars, costs, suppliers, and markets,” wrote der Spiegel. “They cooperated in secrecy, as closely as one would expect it from the divisions of one company, of a German Auto Inc – or a cartel.”
According to the report, the cartel colluded on everything from the soft-top of a convertible to the assessment of suppliers. The German Five also agreed on the size of the urea, or AdBlue tank.
The diesel engine was Europe's answer to CO2 curbs. Diesel also was an answer to a Japanese threat, says Der Spiegel. Toyota lowered consumption and CO2 with its hybrid engine. Diesel also is more efficient, and therefore produces less CO2. At the same time, the diesel engines makes something much nastier: Nitrogen Oxide (NOx) a gas that leads to the premature death of 72,000 people per year, as the European Environmental Agency said. NOx can be neutralized with AdBlue. The liquid needs a tank, and the bigger the tank, the more money it costs. If automakers would agree on a moderately sized AdBlue tank, they could save “up to 80 EUR [$93] per vehicle” the minutes of one of the secret meetings are quoted. When you make 10 million cars a year, those 80 Euros quickly turn into real money.
In 2006, the secret committees agreed to do something about the tanks and the expense, and in 2008, something was done. “After several meetings, telephone calls, and emails, Daimler, Audi, BMW, and VW agreed in September 2008 on an 8 liter tank for all vehicles.”
The trouble was: if the nasty NOx is properly neutralized, that 8 liter tank did last for not more than 3,700 miles. To last the usual 10,000 miles between oil changes, “a tank of at least 19 liters” would be needed, Der Spiegel quoted a document authored by Audi. The document noted that “Daimler, VW, and BMW concur.”
A few years later came stricter regulations both in Europe, and the U.S. , requiring more AdBlue. “Nobody had the obvious idea to mount bigger AdBlue tanks,” notes the report. Just the opposite happened: Audi warned against an “arms race of tank sizes, which we should continue to avoid.”
Bigger tanks were not needed, says the report, because automakers “had long started to dupe regulators and customers about the true emissions of the cars.” Once cars were out of the testing labs, exhaust treatment was mostly turned off, sparing customers the AdBlue hassle, and OEMs the expense for bigger tanks.
That Germany’s automaker association VDA organized sundry task forces was no secret in the industry. “It is possible that this spawned backroom deals between a smaller group with the intent to make the best out of the very porous laws,” said often quoted car professor Ferdinand Dudenhöffer in German television. “It is quite possible that those cartels exist.”
Interestingly, VDA members Ford and GM’s Opel were not invited into the back rooms. A former R&D chief of Ford Germany told me recently that his bean counters kept bugging him about the smaller and cheaper AdBlue tanks of the German competition. He had no answer.
The scandal became a matter of record when, on July 4 2017, Volkswagen made, says Der Spiegel, “some kind of a voluntary disclosure” to Germany’s Federal Cartel Office and the EU Commission, alleging “involvement in presumptive antitrust violations.” Daimler also reported itself to the authorities, the report says.
Volkswagen and Daimler did not come clean due to a sudden pang of conscience. Indications of a car cartel transpired when the cartel office tracked a steel cartel and raided six companies. The impounded documents led to the car conspiracy. Somehow, Volkswagen and Daimler received wind of the authorities being on their case, and they raced to get into the good graces of the investigators.
According to Der Spiegel, Volkswagen hopes to get away scot-free by cooperating with the government. So does Daimler, “and only the authorities know who was faster in the high art of self-incrimination.” In cases like these, who first rats out the other conspirators can get away with a lesser sentence, or none at all. There is no leniency for being second. Companies found guilty of breaching EU cartel rules face fines of as much as 10 percent of their global sales, wrote Reuters. On 2016 sales revenue of 217.3 billion, Volkswagen is looking at fines approaching 22 billion EUR ($25 billion). Daimler's group revenue was 153.3 billion EUR in 2016, BMW's 94.2 billion EUR.
The conspiring German Five did not sail blindly into an antitrust case. Documents and memos seen by Der Spiegel mention again and again that the meetings could collide with German and EU cartel law.
Germany's BILD Zeitung writes that prosecutors in Braunschweig (investigating Volkswagen) Munich (investigating Audi) and Stuttgart (investigating Daimler) "are very interested in the documents." So are prosecutors in the U.S. Germany's Rheinische Post wrote that Volkswagen CEO Matthias Müller is not worried about traveling to the U.S., and will do so in a few months. "There is no warrant out on me," Müller said. This could change. According to the report, the documents say that the slimmed-down AdBlue tank has been approved "at board level."
In Germany, the explosive case comes at a highly inopportune moment. Federal elections are looming in Germany, and dieselgate has turned into a political football ever since Germans started worrying that their beloved diesel cars could be locked out of inner cities.
For the two years since the dieselgate scandal became public, the German government has intently looked the other way. Government and auto industry “live in a common law relationship” in Germany, Jürgen Resch, head of the environmental lobby group DUH, once told the VDI Nachrichten, and it remains an often used quotation in Deutschland. The head of the VDA association, whose taskforces appeared to have spawned the secret backroom meetings, is Matthias Wissmann. He used to be Germany’s Minister of Transport.
“Intertwined politics and industry hurt Germany,” Dudenhöffer told me. “Ms. Merkel ringfenced the German auto industry, and it didn’t do it a favor. German laws and regulators are solely aimed at protecting the industry. This had to go wrong.”
The DUH activists, who were instrumental in getting the dieselgate football rolling way back in 2014, have long given up on trying to get German regulators end their inaction. The group has better luck in the courts, and diesel driving bans loom in 16 cities of Germany. Wrote Christiaan Hetzner in Automotive News:
“Almost 30 years ago, Volkswagen ads introduced the German term fahrvergnuegen to communicate driving enjoyment. But now, because of its cheating on diesel emissions tests, VW has unwittingly helped introduce a new, less flattering term: fahrverbote, or driving bans.”
“The diesel car sales share slipped to lowest level since start of diesel emissions scandal,” worried auto industry subscribers to the AID Newsletter could read in a recent issue. 52% of newly bought passenger cars were diesel powered in October of 2015. Last May, the diesel take rate was down to 45.1%, and there is no sign that it would end its “seemingly unwavering downhill slide,” as AID editor Matthias Schmidt put it.
Worried about a loss of power in Berlin, and a loss of sales in Wolfsburg, Stuttgart, Munich, and Ingolstadt, the common law partnership between government and auto industry recently switched from apathy to actionism. A month ago, headlines of a monster recall of 12 million diesel cars in Germany made the rounds, as “German lawmakers are flexing their muscles ahead of national elections on Sept. 24,” Reuters wrote. The threats worked: Last week, Daimler “voluntarily” recalled three million diesel cars in Germany, Audi “voluntarily” did the same with 850,000 cars. Daimler figures costs of around 70 EUR ($81) per car, which in a Daimler shop won’t buy much more than a pat on the head.
In two weeks, co-conspirators Volkswagen, Audi, Porsche, BMW and Daimler will confer with other automakers, unions, and politicians at a “diesel summit” in Berlin. Consumer or environmental groups are not invited. Under the cloud of “one of the biggest antitrust cases in the history of Germany’s industry,” as Der Spiegel calls the case of the car cartel, it should become an interesting meeting.
In rare three part harmony, BMW, Volkswagen, and Daimler did not want to "comment on speculations." Even that sounded pre-arranged.
