The Aftermath

Losing Their Religion

Veiled Infiniti cars are pictured during the media day at the Frankfurt Motor Show (IAA) in Frankfurt
Guess how many bad apples are hidden here? Source: Reuters

Ahead of “2017 IAA Cars” – the trade fair once known as the Frankfurt Motor Show – Volkswagen has underlined its desire to escape the shadow of Dieselgate. In an internal letter to staff, the company said the diesel crisis had shaken confidence in more than just Volkswagen. The company had taken responsibility and would “thoroughly” work through the emissions data scandal, it said. In Frankfurt, VW would to set an example for the whole industry, “with sustainable motors and future-proof mobility concepts.”

It was at the IAA two years ago that Dieselgate revelations plunged Volkswagen into crisis, going on to impact the entire German car industry. First thought to be the work of a “few bad apples” in VW, today much of the German automotive sector is suspected of massive deception of its customers and the authorities. The repercussions of the scandal ran wide and deep, prompting lasting changes in the industry. At the IAA, the sector will try to bridge the gap between the industry as it is and a clean-energy future. But the distrust of customers, investors and politicians has yet to be overcome.

Chancellor Angela Merkel, in a recent campaign speech, spoke about that loss of faith in the car industry. “I’ll be quite open about this: After what’s happened, it is difficult for us politicians to believe what we are told,” she said. Like all politicians, Ms. Merkel is worried about voter anger if restrictions are placed on diesel-engine cars, which would also see resale values plummet.

Last month, diesels represented just 38 percent of new car sales in Germany, the lowest level in 15 years

Stuttgart, the home to Mercedes, Porsche and Bosch, has been the center of recent arguments about diesel; high levels of pollution make partial diesel bans a distinct possibility. Looking to head off the bans, at their “diesel summit” last month German automakers promised software updates for five million cars, which they say will limit nitrogen-oxide emissions. But Environment Minister Barbara Hendricks criticized the quick software fix, demanding the installation of physical filters. Carmakers rejected this as too expensive.

The debate about diesel emissions is driving away customers. Last month, diesels represented just 38 percent of new car sales in Germany, their lowest level in 15 years. The car firms have made substantial environmental improvements: Even green groups acknowledge that new diesels now pass pollution tests (genuinely). But for customers, it seems any progress is outweighed by the spectre of diesel bans in cities like Stuttgart and Munich.

The financial markets also seem to have lost faith in the industry. Despite record revenues, the stock prices of carmakers have fallen sharply. Stock in Daimler, the parent company of Mercedes-Benz, has lost 12.5 percent in value since the start of the year; rival BMW is down 12 percent. Volkswagen stock has dipped only 7 percent, but mainly because the price tumbled in the immediate aftermath of Dieselgate.

As their own stocks nosedived, the big German firms surely regard with displeasure the meteoric rise of Fiat-Chrysler stock, up almost 70 percent this year on speculation the US-Italian giant will be broken up. Tesla, the California-based electric car manufacturer, has also seen its stock price soar in spite of ongoing losses. With the industry now planning for an electric-driven future, this summer Tesla was valued higher than BMW.

For Arndt Ellinghorst, an analyst with London-based financial consultants Evercore ISI, “the financial markets have already buried the German carmakers.” He said international investors have been shaken by the diesel debate, fearing that German automakers simply have no viable plan for the future. German auto executives should stop defending diesel and the past, Ellinghorst added, and start thinking about the future.

Volkswagen claims it is doing precisely that, not only with electro-mobility solutions, but also through a transformation of its corporate culture. Speaking to Handelsblatt, the company’s head of integrity and law, Hiltrud Werner, said Dieselgate’s lessons were being implemented in the form of a global code of conduct, as well as stringent new testing procedures in the production process. The number of compliance staff had been doubled in this year alone, she said.

“The financial markets have already buried the German carmakers.”

Arndt Ellinghorst, analyst, Evercore ISI

Other key players in the car industry also have their eyes on an electric future. In a joint interview with German newspaper Bild am Sonntag last weekend, the head of the French PSA Group, Carlos Tavares, and Opel CEO Michael Lohscheller said they would be happy to see the German carmaker become a purely electric brand. “As long as it is profitable,” added Mr. Tavares.

PSA bought Opel from General Motors earlier this year and is preparing severe cost-cutting measures. Guarantees given to Opel’s 38,000-strong workforce run out in 2018, and will not be renewed. “The status quo is not an option. The best way to protect our company and its workforce is to become profitable. Everyone has to understand that,” said Mr. Tavares.

The theme of this year’s IAA will be the road from diesel to electric motors, and the upheavals in the industry as it tries to win back the confidence of customers and investors. Appropriately enough, the trade fair’s 2017 motto is “Future Now.” For VW’s Ms. Werner, however, the future is not only the industry’s responsibility. “Infrastructure has to be there, demand has to be encouraged, public transport has to be clean and modern,” she said. “It is a matter for all of society.”

11 p16 Fiat-Chrysler Fighting the Trend-01

Stefan Menzel writes about the auto industry, focusing on Volkswagen. Markus Fasse specializes in aviation and automobile industry news and works from Handelsblatt’s Munich office. Brian Hanrahan adapted this article for Handelsblatt Global. To contact the authors: menzel@handelsblatt.com, fasse@handelsblatt.com

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