You thought Dieselgate was over? It’s not.September 18, 2018
It’s been an electrifying month for the German auto industry. Mercedes-Benz presented its first all-electric SUV. BMW offered a glimpse of its upcoming EV strategy by unveiling a concept car. And Audi is going electric, as well. On Monday, the company celebrated the premiere of its first completely battery-powered car, the E-tron. Audi’s release party in San Francisco was especially unlikely when you consider what happened just three years ago.
As a part of Volkswagen Group, Audi played a central role in developing and installing illegal software in 11 million diesel cars in order to trick emissions tests. On September 18th, 2015, the US Environmental Protection Agency informed the public about VW’s and Audi’s violation of the Clean Air Act, causing government agencies around the world to launch investigations. Dieselgate became the biggest scandal to rock the car industry in decades, and within three years, Volkswagen Group was forced to pay around $30 billion to settle the case. The sum is likely to rise by several billion dollars.
While they are busy emphasizing their commitment to electric vehicles, German carmakers are still scrambling to contain the fallout of Dieselgate: executives are held in prison; investors are suing for billions; the EU Commission is investigating VW, Daimler, and BMW for collusion; and the once cozy relationship with Angela Merkel’s government has cracked severely.
Guess, who didn’t attend Audi’s release event on Monday? It was Rupert Stadler, the CEO of Audi. Hours before the party started, Volkswagen’s board met in Wolfsburg, Germany to discuss Stadler’s future within the company. He’s expected to be removed from his position next week. After all, he’s been held in custody in a Bavarian prison for three months and can’t very well run a car company from there. Not only is he suspected of having made false statements to authorities, prosecutors think that he also tried to manipulate important witnesses.
Stadler is the sixth Volkswagen Group executive to be imprisoned for Dieselgate-related alleged crimes. The list of suspects from VW, Audi, and Porsche has grown to as many as 70 names, which translates into a lot of work for Volkswagen’s lawyers. But they’re facing another problem.
On September 10th, investors filed a $10 billion lawsuit in Braunschweig, Germany against the company, seeking compensation for the up to 37 percent hit to Volkswagen’s share price following the revelations by the EPA. They argue that VW failed to meet its duty to warn shareholders about the scandal’s financial impact. “I expect the lawsuit to be successful,” Ferdinand Dudenhöffer, professor of Automotive Economics at the University of Duisburg-Essen, told The Verge. “Including this case and all other pending lawsuits, I assume that Volkswagen will have to pay another $15 billion in fines.”
Volkswagen isn’t the only automaker in chaos. Daimler is having some serious diesel-related trouble, too. In Europe, the company recently had to recall 700,000 Mercedes-Benz diesel cars over irregularities with their emissions control software. While the German government threatened the company with a $4 billion fine, it is still unclear if Daimler will actually have to pay.
By comparison, BMW has little to worry about. Although dozens of prosecutors and police officers raided the company’s headquarters in Munich this spring (something that happened to Daimler and VW much earlier), they didn’t find evidence of any major crimes. According to a recent report by daily Süddeutsche Zeitung that cited numbers of Germany’s Ministry of Transport, about 8,000 BMW diesel cars were equipped with inadmissible systems to shut down emission controls. The company says this was caused by “human error.” In the end, BMW might only have to pay a $12 million fine.
In addition to these individual cases, there is a broader set of problems that encompasses the entire German auto industry. Just in time for Dieselgate’s third anniversary, the European Commission announced that it is intensifying its investigation into whether VW, Audi, Daimler, BMW, and Porsche colluded on diesel emissions starting as far back as in the early 1990s. They are accused of having formed an illegal “cartel” which laid the foundation for Dieselgate. The Commission carried out inspections at the premises of BMW, Daimler, VW, and Audi in October 2017. “If proven, this collusion may have denied consumers the opportunity to buy less polluting cars, despite the technology being available to the manufacturers,” said Margrethe Vestager, the European Commissioner for Competition.
Dieselgate has led to an upheaval in Germany’s politics as well. For decades, car executives cultivated friendly relationships with German lawmakers. Things were downright cozy. Before Dieselgate, Germany’s most powerful car lobbyist started his letters to the chancellor with “Dear Angela.” If other EU member states, the EU Commission, or the European Parliament were pushing for stricter regulations, car manufacturers could always rely on German officials to water down new European rules. Experts conclude that politicians are partly to blame for Dieselgate. “German politicians always thought they were helping the car industry by being soft on regulations and keeping their eyes shut”, Dudenhöffer told The Verge.
Now, politicians and manufacturers will pay the price for their close relationship. Most German voters now think the government was too lenient on Volkswagen, Daimler, and BMW. Thanks to industry lobbying and German interventions, European rules for the emission of nitrogen oxides (NOx) are full of so many loopholes that virtually all diesel cars emit more pollutants into the environment while on the street than they do at testing facilities. While not illegal, these super-polluting vehicles have made the air in many German cities much dirtier than allowed under EU standards.
“For years, the German government has been reprimanded by the EU Commission,” Dudenhöffer said, “but it has never done anything about it.” To improve air quality, courts have banned older diesel cars from several German cities or parts of them. Hamburg, Frankfurt, and Stuttgart were the first to announce these restrictions. “In the end, we will probably get diesel bans in 20 German cities,” Dudenhöffer said.
Needless to say that this won’t go down well with many German voters as millions of them own diesel cars. To prevent driving bans, the government is finally thinking about obligatory hardware updates at the manufacturers’ expense to reduce NOx emissions in older diesel cars. Environmentalists have been calling for this for months, but the government didn’t want to impose it on the car industry. It only demanded software updates that are less effective, but much cheaper.
The threat of driving bans is already causing the market share of diesel vehicles to collapse. In the first half of 2017, over 41 percent of new cars in Germany were diesel. This year the number went down to 32 percent, according to new research by the University of Duisburg-Essen.
The era of diesel cars, which are particularly important for German manufacturers, is coming to an end much faster than Volkswagen, Daimler, and BMW probably wished for. However, as consumers in China and the United States have quickly forgotten the affair, German automakers are still making more money than ever. The move into electric vehicles, then, is both image rehab and financial necessity — because it turns out Germans have fallen out of love with diesel cars.