Germany’s diesel scandal: big 5 could face billions in penalties
Working with your direct competitor may seem counterproductive, but that’s the accusation being levelled at some of Germany’s finest car manufacturers.
The big ‘five’ – Audi, BMW, Daimler, Porsche and Volkswagen – went all in, so to speak, on the diesel engine trend that took hold in the late 1990s to early 2000s.
It was German magazine Der Spiegel which spilled the beans, suggesting that the aforementioned car manufacturers were colluding for decades in regards to emission tests. The news reinforces the loss of consumer trust in German car manufacturers since the infamous 2015 Volkswagen scandal.
Investors were quick to react to the fresh controversy surrounding the German car industry, as share prices sunk across the board for the companies concerned.
The past performance of this product is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.
The ‘cartel’ allegation implies that the companies collaborated for decades on their diesel engines, rigging the size of their tanks designed for AdBlue liquid.
The liquid is injected into the exhaust chamber and burnt at high temperatures, with the intent of breaking down harmful nitrogen oxides. It’s believed that BMW, Daimler and Volkswagen rigged their AdBlue tanks to be too small to effectively work, thereby ‘masking’ the extent of the engines’ emissions and cheating tests.
The claims, if true, are akin to a cover-up, as recent reports indicate that diesel cars can emit up to 10 times more toxic pollution than trucks and buses, with prolonged exposure linked to bladder and lung cancer.
If found guilty, the companies could be whacked with a multi-billion euro fine and be liable to a plethora of fresh lawsuits from shareholders and consumers.
The European Commission has moved quickly, appointing Commission Vice President Jyrki Katainen to oversee the investigation into the allegations.
Germany’s Association of the Automotive Industry (VDA),which represents the manufacturers concerned, has called for calm and reiterated that the standardisation techniques used were not ‘illegal’.
“With its technical innovations and its economic success, the automotive industry is an important part of the image of Germany all over the world,” VDA President Matthias Wissmann said.
“It is our duty and responsibility to protect this reputation.”
News comes on the back of Audi recall
With speculation already rife that German manufacturers have been displaying anti-competitive behaviour, the news could not have come at a worse time.
Audi – which is owned by Volkswagen – recalled more than 800,000 vehicles in Britain last month after conceding it had published misleading emission numbers.
To add more dirty fuel to the fire, Daimler – which owns Mercedes-Benz – issued a call-back on over three million cars after confirming it had also lied to consumers about its emission figures.
Public pressure is mounting on the German government to outlaw diesel engines as the future of the country’s car industry is looking decidedly shaky. In a possible sign of things to come, a Stuttgart court ruled in favour of banning diesel cars last month.
“From 2010 until today, authorities have failed to meet their duty on lowering emission levels,” Judge Wolfgang Kern said.
“Driving restrictions are legally enforceable and in the court’s view a proportionate measure because protection of health outweighs the right to property and freedom to act for vehicle owners.”
The ruling was particularly sobering for Mercedes-Benz and Porsche, who happen to share Stuttgart as their home city.
Daimler voiced their displeasure with the ruling, claiming that software patches would alleviate current issues.
“Driving bans are fundamentally not a solution. There are other measures that could quickly reduce fine dust particles and nitrogen oxide from diesel exhausts,” Daimler communications boss Joerg Howe said.
Future looking fraught for diesel-powered cars
Considering that all petrol and diesel cars will be banned from 2040 in the UK, Howe’s words could fall on deaf ears. A similar move in Germany seems inevitable, and as Tesla continues to gain traction in the electric vehicle market, the onus is on German manufacturers to reconsider their business models for a changing future.
Audi has recognised this, announcing that it will cut $14 billion from its gas and diesel research to fund the development of a mass market electric car. The manufacturer aims to begin its all-electric program by 2022, and is launching its first electric car, the ‘e-tron’ SUV, in 2018.
Volkswagen is also developing an electric vehicle program and BMW recently released the i3, its first all-electric car.
While the latest blemish on German carmakers is only in its infancy, the future of diesel seems set in stone. Whether the ‘big five’ can regain lost trust, as well as lost ground in the race towards electric vehicles, is the real question.
This article is General Information and contains only some information about some elements of one or more financial products. It may contain; (1) broker projections and price targets that are only estimates and may not be met, (2) historical data in terms of earnings performance and/or share trading patterns that should not be used as the basis for an investment as they may or may not be replicated. Those considering engaging with any financial product mentioned in this article should always seek independent financial advice from a licensed financial advisor before making any financial decisions.
When the experts at Next Investors have a stock pick, it may pay to listen.
The Next Investors have been investing in ASX small cap stocks for years, with their best small cap picks yielding returns of 1,200%, 1,120%, 900% and 678%.
They have just revealed their hand-picked, FY2021 stock portfolio of high conviction long-term investments.
Click the link below to see what they are currently investing in.
S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.
Conflict of Interest Notice
S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.
The information contained in this article is current at the finalised date. The information contained in this article is based on sources reasonably considered to be reliable by S3 Consortium Pty Ltd, and available in the public domain. No “insider information” is ever sourced, disclosed or used by S3 Consortium.