Summoned to Berlin

Diesel recall puts Daimler boss Zetsche in the hot seat

Daimler – Zetsche
Zetsche shrinks at the thought of a major recall. Source: DPA

A new broom at Germany’s transport ministry spells trouble for the makers of Mercedes-Benz cars and trucks. Since taking over the ministry in March, Andreas Scheuer, a tough protégé of Chancellor Angela Merkel, has vowed to up the pressure on Germany’s powerful car industry to come clean on Dieselgate and face the consequences.

“I’m no friend of the car company bosses,” sniffed Mr. Scheuer, a member of the conservative CSU, as he started the job and he soon proved it. Mr. Scheuer summoned Dieter Zetsche, Daimler’s boss, to Berlin on Monday to explain the latest recall and whether the luxury car giant planted emissions-cheating software in other vehicles. After the meeting, Mr. Scheuer set Daimler a two-week deadline to respond to the accusations and say how many models are affected.

Daimler has long dismissed any link to the environmental scandal that has cost rival Volkswagen tens of billions of Euros in fines, refits and recalls. But the KBA, Germany’s motor vehicle authority, begs to differ. Last week the KBA ordered Daimler to recall 6,300 of its Mercedes Vito vans, but that may just be the tip of the iceberg: The agency may add up to 600,000 Mercedes C-class and G-class models cars to its list, newsmagazine Der Spiegel reported.

Daimler says it hasn’t been served any official recalls notices, but will fight them in the courts if and when it does. Two-and-a-half years after US authorities convicted Volkswagen of using emissions-faking devices, Dieselgate is still rolling on and could do major damage to Daimler.

Execs in Germany's powerful car industry are alarmed by the government's more aggressive approach.

In September 2015, Mr. Zetsche flatly denied Daimler was involved, but since then, cracks have appeared in company’s official line. In March, the CEO admitted that the company shouldn’t have taken advantage of different emission standards in different countries. “Something went wrong there,” he acknowledged.

The Stuttgart-based company has also been quietly setting aside money to cover possible fines or compensation, which could be used for potential diesel emissions cases or any other issue. In its 2017 annual report, Daimler discreetly added €1.4 billion ($1.65 billion) to the kitty for the possible financial impact of warranty claims, recalls, legal risks, and bonus payouts, for instance.

Having seen the battering that Dieselgate gave VW’s stock price, Daimler shareholders are understandably nervous. “Mr. Zetsche had better hope his denials don’t come back to bite him and Daimler,” said Marc Tüngler, head of German shareholders’ association DSW. On Monday, Daimler’s stock was down nearly 2 percent after Mr. Zetsche’s meeting in Berlin ended.

The KBA investigation into various Mercedes-Benz models is only the latest wrinkle in a long-running saga. A year ago, German police raided and searched 11 Daimler offices for evidence of fraud and false advertising related to emissions tinkering. In February, news broke that US investigators were probing Daimler’s internal emails, searching for evidence of manipulation.

In America, 13 separate US state justice departments have launched prosecutions of the company. Daimler says it is cooperating with investigations on both sides of the Atlantic, and reiterated that it has nothing to hide.

Mr. Scheuer’s predecessor, Alexander Dobrindt, was seen as being too close to the car industry. But the new minister has loudly announced the need for transparency and a quick end to remaining Dieselgate problems. Car industry leaders are said to be alarmed at Berlin’s more aggressive stance.

Kabinettssitzung
Andreas Scheuer gives German automakers a long, hard look. Source: DPA

Things are complicated further by the fact that the engines queried by the KBA were manufactured not by Daimler, but by its French partner Renault. Spokespeople for Renault point out that responsibility for engine settings lies with the manufacturer. In other words: Your engine, your problem, Mr. Zetsche.

For more than a year now, Daimler has effectively offered free servicing on all diesel cars in Europe, hoping to “restore confidence to consumers and boost trust in the engine technology.” Already, three million Mercedes vehicles have made the trip to the repair garage to have their emission software tweaked. It is hoped this may reduce levels of nitrous oxide and other pollutants by 25-30 percent.

This may not be enough to restore trust in diesel-powered vehicles. On May 31, Hamburg will become the first German city to ban older diesel vehicles. Among cities which may follow suit is Stuttgart, right in Daimler’s backyard.

In the meantime, Mr. Scheuer is putting pressure on the automakers by setting a deadline of September 1 for manufacturers to clean up their cars.

Franz Hubik covers renewable energy for Handelsblatt in Düsseldorf. Brían Hanrahan adapted this story into English for Handelsblatt Global. To contact the authors: hubik@handelsblatt.com, brianedgarhanrahan@gmail.com

Article updated on May 28 at 3.53pm to include the outcome of the meeting between Mssrs. Zetsche and Scheuer

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