Föhrenbergkreis Finanzwirtschaft

Unkonventionelle Lösungen für eine zukunftsfähige Gesellschaft

Car Industry’s Diesel Woes Just Won’t Die

Posted by hkarner - 25. Juli 2017

Date: 24-07-2017
Source: The Wall Street Journal

Allegations of collusion on emissions technology give investors another reason to avoid the automotive sector

This was supposed to be the year Volkswagen drew a line under its diesel-emissions scandal. Instead the scandal seems to be spreading to the other German car giants.

The latest allegation is that Volkswagen, Porsche and Audi  —all owned by the Volkswagen Group—together with Mercedes-maker Daimler and BMW have engaged in collusive practices since the 1990s, including on emissions-reducing technology linked to the VW fraud revealed by the U.S. Environmental Protection Agency in 2015. The European Union’s top antitrust regulator has confirmed that it is investigating the industry following a tipoff from VW last year. More than €11 billion ($12.8 billion) has been wiped off the combined market value of the three listed groups since the weekly magazine Der Spiegel published details of what it labeled “the cartel” on Friday.

The Der Spiegel report describes how teams from each of the big five German car makers met to coordinate answers to questions posed by new technology or regulations. Notably, a crucial component for the reduction of noxious nitrogen-oxide emissions from diesel engines was allegedly downscaled for commercial reasons. This eventually led VW and Audi to pass tougher U.S. tests by cheating.

Antitrust penalties can theoretically be as much as 10% of sales, which for the German car makers would be €46 billion. In reality any charge is likely to be far lower. The $2.7 billion fine announced last month against Google for skewing internet searches to favor its own comparison-shopping service works out at 2.9% of parent company Alphabet’s sales.

The largest cartel fine yet issued by the EU was to the truck industry: Four manufacturers, including Daimler, were forced to cough up about $3.3 billion last year following a five-year investigation into price-fixing. The car industry is larger, but the practices unearthed by Der Spiegel imply fixing technical standards rather than the more serious business of fixing prices.

The other worry is that the diesel scandal just won’t die. Early last week Daimler issued a commitment to recall and update over 3 million diesel cars in Europe at a cost of €220 million, even as it admitted no guilt. On Sunday, BMW denied accusations of collusion or underpowered emissions technology, but it also committed to update its older diesel cars.

German car makers are in a bind. To meet tightening European regulations they need to rehabilitate diesel’s image with customers and regulators. But doing so increases the cost of engines—and with it the relative appeal of Tesla-style battery-driven cars. It is hard not to see the latest stock-market selloff as an overreaction, particularly since car company valuations are already at rock-bottom. Given the challenge of technology transition, however, any opportunity is one for traders, not long-term investors.

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