dieselgate fallout

German Auto Regulator Under Scrutiny

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A fight within German Chancellor Angela Merkel's cabinet has erupted over strengthening emissions testing in Germany in the wake of the VW Dieselgate scandal.
  • Why it matters

    Why it matters

    Volkswagen’s Dieselgate scandal has set off a fight within Chancellor Angela Merkel’s cabinet over a plan to more tightly regulate diesel emissions testing in Germany.

  • Facts

    Facts

    • German Justice Minister Heiko Maas is calling for stricter enforcement of consumer protection by the Federal Motor Transport Authority.
    • The agency, part of the German Transport Ministry, has been close to the nation’s powerful auto industry.
    • A report written by Mr. Maas’ Justice Ministry criticizes the authority, saying Germany needs an independent regulator to protect consumer interests.
  • Audio

    Audio

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In the wake of Volkswagen’s diesel emissions scandal, German Justice Minister Heiko Maas is taking aim at the nation’s government motor vehicle regulator, and urging reforms to boost consumer protection over industry priorities.

In a 12-page internal report seen by Handelsblatt and submitted to the German parliament’s consumer protection committee, Mr. Maas said the emissions scandal could have “consequences for the area of responsibility of the Federal Motor Transport Authority,” the regulator that reports to Alexander Dobrindt, the nation’s transport minister.

The report is certain to boost is tension between Mr. Maas and Mr. Dobrindt, both members of Chancellor Angela Merkel’s cabinet, as her government struggles to come up with a response to the Volkswagen emissions scandal.

Those close to Mr. Maas in the justice ministry are accusing Mr. Dobrindt, a Bavarian whose state hosts automaker’s Audi (Ingolstadt) and BMW (Munich) of failing to hold Volkswagen’s feet to the fire.

Introducing class-action lawsuits could provide the Justice Ministry with leverage to force Volkswagen into compensating German diesel owners.

According to Handelsblatt sources, the justice ministry wants Germany’s Environment Ministry, not the Transport Ministry which is historically close to automakers, to conduct new, independent emissions tests.

Klaus Müller, a top consumer advocate, has also expressed doubts about the ability of Mr. Dobrindt’s Transport Ministry to get tough with Germany’s big automakers in the wake of VW’s scandal.

“We need an independent testing agency,” Mr. Müller, the head of the Federation of German Consumer Organizations, told Handelsblatt. “I have my doubts about the Federal Motor Transport Authority.”

Though Mr. Maas’ report doesn’t spell out what specific changes need to be taken, there have been growing calls for the Federal Motor Transport Authority to shift its focus from industry certification to consumer protection.

The report also calls for European “control mechanisms to be checked and strengthened,” which has some support in the automobile industry. Daimler Chief Executive Dieter Zetsche has spoken in favor of realistic emissions tests.

 

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Mr. Maas is also considering setting up an “arbitration office,” where customers could submit complaints about new car purchases and have their cases mediated outside the German court system.

Right now, defendants have to present cases individually in court.

Ulrich Kelber, a parliamentary state secretary for consumer protection, told Handelsblatt he believes the Federal Motor Transport Authority should protect customers, rather than the car industry.  “Following food scandals, it has become clear just how important independent testing is,” he said.

Mr. Kelber has called for Germany to legalize and introduce a system of class-action lawsuits “to help us simplify the process of enforcing the law.” The Justice Ministry had been weighing whether or not to adopt such a class-action system before the Volkswagen emissions scandal erupted.

Introducing class-action lawsuits could give the Justice Ministry leverage to force Volkswagen to compensate German car owners.

In the United States, Volkswagen has promised to pay $1,000 (€1,080) in damages to each of the 580,000 customers with diesel vehicles, half in cash and half in vouchers, at a total cost of $600 million.

European and German diesel owners, however, would be shortchanged under the plan submitted by Volkswagen to German parliament’s consumer protection committee.

The automaker defended preferential treatment for U.S. diesel owners in its submission to parliament, which Handelsblatt has obtained.

 

VW Emblem wirft einen grossen dunklen Schatten / 271015 ***Symbol photo, the VW emblem casts a large dark shadow, Germany, Oct. 27, 2015 ***
VW’s Dieselgate scandal is casting a shadow over how the German government regulates emissions testing. Source: Montage for Handelsblatt

 

“If all customers are treated equally worldwide, then justice will be done for nobody,” Volkswagen’s leadership wrote in the submission. The automaker’s decision to refuse to compensate European customers has more to do with the price tag than anything else.

With 8.5 million Volkswagen diesel owners in Europe, the automaker would be on the hook for €8.5 billion, not including the billions it will likely owe regulators in penalties. The automaker is planning “specially tailored solutions for each market.”

In the case of the United States, refitting diesel vehicles is expected to take longer because emissions standards are stricter. Monetary compensation is meant to encourage customer loyalty as Volkswagen works out a fix with U.S. authorities.

In Europe, a recall program is scheduled to begin by the end of January. In contrast to the United States, most European diesels only need a software update.

Vehicles with 2.0-liter four-cylinder engines will receive the update first, followed by the 1.2-liter three-cylinder engines in the fall. The 1.6-liter engines, which also require a new mechanical part, will be fixed last.

 

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Volkswagen has also agreed to pay the extra taxes on cars that emit more carbon dioxide than advertised. The number of vehicles with carbon-dioxide problems, however, has been revised down from 800,000 to just 36,000.

As the automaker struggles to manage fallout from the emissions scandal, the state prosecutor’s office in Braunschweig has flipped a star witness, according to reporting by Süddeutsche Zeitung and the public broadcasters ZDF and WDR.

According to the witness, managers in engine development at Volkswagen knew since 2006 about the software designed to cheat emissions. But nobody had the courage to admit openly that they couldn’t meet the emissions requirements, the witness said.

When asked about the allegations, Volkswagen said it wouldn’t comment on speculation.

 

Anja Stehle is a correspondent for Handelsblatt in Berlin. Christian Schnell covers the auto industry in Germany. To contact: stele@handelsblatt.com and schnell@handelsblatt.com

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