Thursday, 3 August 2017

Auto chiefs win again in Berlin. But beware Hendricks revenge

Germany's powerful carmakers got what they wanted from yesterday's diesel summit. But everything may change after the election.

At the press conference following yesterday's crisis summit in Berlin to deal with the unfolding Dieselgate scandal, you would have been forgiven for losing track of who was who.

With only five lecterns and around 20 participants, they had to play a round-robin of auto executives, each taking the stand to say how very, very sorry he was over revelations of cheating and collusion that have come out. Each middle-aged white German man was more indistinguishable than the next. 

But all the while there was one woman standing to their left, looking very out of place. It was the summit's co-host, the center-left German environment minister Barbara Hendricks. And as the German auto chiefs detailed the agreement reached inside, an agreement in which she had been politically defeated, you would see on her face that she was already plotting her revenge. 

Aside from being indicative of Germany's embarrassing lack of gender diversity in company management (all of Germany's auto chiefs are men, as if the case with most German companies), the juxtaposition should have served as a reminder to the auto companies that they are not out of the woods yet. Because their ally on that stage, the other co-host center-right transport minister Alexander Dobrint, may no longer be there to defend them in two months time.

Political theater

As Tyson and I discussed on this week's Brussels2Berlin podcast, the main purpose of this summit was political.

Ahead of the general election in September, German politicians on both the left and right, who currently govern in a coalition with one another, needed to reassure the public that they are taking action to resolve the dieselgate crisis of confidence. 

That crisis was on display outside the transport ministry, where Greenpeace activists had scaled the wall to unfurl a huge banner reading "Welcome to Fort NOx" (the symbol for the type of air pollution the companies have been cheating on). The activists stayed there hanging off the building all day, for 14 hours.

So the government needed to look like they were getting tough. At the same time, the government needed to demonstrate to the public that they will not punish the auto sector to the extent that it would harm the German economy. The sector represents 20% of total German industry revenue, and is held in reverence as the bedrock of industry. 

Germans have a deep love for the car. But they also don't like feeling that they have been cheated. And a survey conducted by German newspaper Die Welt this week found that 73% of Germans think that the government is over-protective of the automakers.

And so, both the government and the automakers had an interest in making it look like they were doing something when in fact they were not doing much of anything. 

BMW, Daimler, Opel and Volkswagen agreed at the summit to refit five million vehicles with new software that they say will reduce emissions from the German fleet by an average of 25 to 30 percent. It may sound like an impressive figure, but what they did not mention is that Volkswagen has already committed to recall 2.5 million vehicles for software updates as a response to the 2015 revelations that it falsified emissions information for those cars.

The software updates are expected to cost the automakers around €500 million. This may seem like a lot, but perhaps not when compared to the €5 billion profit posted by Volkswagen alone last year. 

The auto chiefs also said they would set up buy-back schemes to give consumers financial incentives to trade in polluting vehicles older than ten years for newer, cleaner models. But they offered no specifics, and analysts have pointed out that these schemes either already exist or were already being planned anyway.

They also agreed to set up a fund to deal with air pollution in cities, but offered no detail on the amount or objectives. All of this, they hope, will be enough to avert the impending bans on polluting diesel vehicles that have been ordered by judges in Munich and Stuttgart.

The Hendricks strikes back

The outcome represented a victory not only for the automakers, but also for Dobrindt. He has advocated for leniency on the German automakers. The outcome was a defeat for Hendricks, who wants the government to take a tougher approach.

Ahead of the summit, environment and consumer groups called on the government to push the automakers to not only make software updates, but also much more expensive hardware updates to the engines themselves. Though Hendricks has indicated receptiveness to that idea, no such push was made during the summit.

But the victory for automakers may be short-lived. The delicate balance between contrition and fortitude shown yesterday will probably neutralize the issue for the election campaign. After all, both of the main centrist parties are vulnerable to accusations of too-close relations with the auto industry, and neither is eager to beat the drums. But speaking to reporters after the summit, Hendricks signaled that this isn't over yet. There could be more hell to pay in October once the election is over.

"There is still a possible gap, which must be closed," she said adding that the software updates are "not enough" to rectify the situation. "Measurement procedures before and after the update have to take place – in real traffic" she added, signaling possible strict testing requirements to come. Environmental and consumer groups have called on third-party vehicle tests to be imposed on automakers.

Hendricks is likely to have the last laugh, because the actions agreed to in Berlin are unlikely to satisfy the air pollution cleanup requirements demanded by the judges. In the Stuttgart ruling last month, the judge specifically said that recalls and retrofits are not the most effective way to reduce pollution, since other measures would be faster and more effective. The proposed retrofitting would only take effect by 2020.

When German judges reject these new actions as inadequate, the automakers will have to come back to Berlin. That is when Hendricks, or a new environment minister, may have her day. And by that point she may be backed by a newly emboldened Angela Merkel, fresh from an electoral victory.

Dobrindt himself is unlikely to be there for the next diesel summit. According to reports, he hopes to leave the Parliament to become the leader of the CSU party in Bavaria. The auto chiefs might not find such a receptive audience in Berlin next time around.

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