Dieselgate Debate

Carmakers’ diesel fix sparks dealer rebellion

  • Why it matters

    Why it matters

    German carmakers embroiled in a widespread engine-rigging scandal could be forced to spend billions of euros to ensure that their older diesel cars meet European emissions standards.

  • Facts

    Facts

    In early August, VW, BMW and Daimler agreed to outfit some 5.3 million diesel cars with new software that would reduce their nitrogen oxide emissions by up to 30 percent.

    Critics of the manufacturers’ plan say there is no guarantee that new software will convince German cities to drop their consideration of driving bans for older diesel models.

    While the software update would cost carmakers about €400 million ($470 million), another option preferred by dealers – repairing the vehicles’ hardware to meet air quality standards – could run them as much as €10 billion.

  • Audio

    Audio

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107976803 dpa VW software update
Software update is ready to install – but is it enough? Source: dpa

When the leaders of Germany’s three largest carmakers gathered for their diesel summit in Berlin earlier this month, they took a clear line on the best way to repair their problem cars: with software, not hardware. Volkswagen’s CEO Matthias Müller argued that the industry’s engineers should focus on the future – and questioned the effectiveness of a more labor-intensive approach.

The other reason that Germany’s automotive giants prefer a software update of around five million diesel cars in need of modifications: It would cost those companies about €70 ($82) per car, compared to as much as €2,000 for hardware repairs. For the managers in Wolfsburg, Stuttgart and Munich, the more than €9 billion in combined savings made the decision a no-brainer – but for car dealers, it was a no-go.

The German Federation for Motor Trades and Repairs, or ZDF, represents some 38,000 dealers and garages in Germany – and the group’s president, Jürgen Karpinski, argued that hardware fixes would yield better results. “If the manufacturers want to honor their responsibility for causing the diesel crisis, they should look to develop more effective retrofit solutions as quickly as possible,” he said.

Mr. Karpinski pointed to tests that showed a roughly 90-percent cut in nitrogen oxide emissions for Euro 5 standard engines that were outfitted with Adblue, as diesel exhaust fluid is dubbed in Germany. That kind of reduction, he argued, would be enough to appease city courts, which have threatened to bar certain diesel models from the road.

At their summit in Berlin, carmakers promised that their software update would drive down those emissions by 25 to 30 percent – what the head of the German auto industry association, an umbrella organization representing suppliers and carmakers, described as a “very big step toward improving air quality in Germany.” VDA president Matthias Wissmann estimated that nitrogen oxide levels could fall by as much as 14 percent in two years as a result.

Critics say that’s not enough to convince many cities to rule out driving bans, however. Stefan Bratzel, a professor at the Center of Automotive Management, said the industry is basing its calculations on the assumption that a majority of car owners will take advantage of the software update, which is voluntary.

“Customers’ fundamental trust can only be won back with a technical repair.”

Dirk Weddigen von Knapp, Car dealer advocate

Even if consumers go with the program, there are no guarantees: “Drivers that have their diesel cars’ software updated can in no way be sure that they won’t ultimately be affected by a driving ban, said Mr. Karpinski, head of ZDF.

For Volkswagen dealers left reeling by the Wolfsburg-based carmaker’s Dieselgate scandal, there are other considerations. “Customers’ fundamental trust can only be won back with a technical repair,” said Dirk Weddigen von Knapp, head of an organization that advocates for those businesses.

He urged carmakers to take another look at the hardware route, even though it would be more expensive up front. If customers start buying more gas-powered vehicles, which emit higher levels carbon dioxide, the companies would have to pay the price in the form of fines for allowing air pollution to exceed legal limits.

However, for VW, BMW and Daimler, there are additional hurdles. Germany’s Federal Motor Transport Authority, known as the KBA, has to approve any repair plans, but the agency lacks facilities for inspections. For that, it’s forced to rely on already overburdened German inspection firms such as Dekra, meaning that ultimately there would be no way of knowing how long it would take to make hardware fixes to all the diesel models that need them.

Amid the turmoil, sales of new diesel cars are already on the downswing: In the first half of this year, carmakers sold 3.8 million diesel vehicles in Europe – the lowest number since 2009, which was at the height of the financial crisis. This has dealers increasingly worried about the resale value of used diesel vehicles. Market research firm DAT found that three-year-old diesel models are selling for less than 55 percent of their original price, compared to 56 percent at the start of 2017.

It’s a trend that could also spell trouble for carmakers, who add cars to their own books via their financial and leasing operations. Arndt Ellinghorst of the investment banking advisory firm Evercore ISI estimated that about a quarter of cars sold by German manufacturers end up in leasing. If resale values fall 5 percent in Europe, he said, German carmakers alone could face additional write-downs of more than €1.1 billion.

It comes as little surprise then that VW – which has paid a heavy price for installing cheating software on pollution control devices in its diesel cars – is keeping a close watch on resale prices. Its fellow carmakers, meanwhile, are following suit.

 

Stefan Menzel writes about the auto industry focusing on Volkswagen. Markus Fasse is a correspondent for Handelsblatt in Munich. To contact the authors: menzel@handelsblatt.com, fasse@handelsblatt.com.

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