Mercedes-maker DAIMLER

Introducing Dieter Z's 99 Problems

  • Why it matters

    Why it matters

    The diesel emissions scandal has hit German auto manufacturer Volkswagen hard. Attention is now shifting to Daimler, maker of Mercedes-Benz cars.

  • Facts

    Facts

    • Public prosecutors in Stuttgart recently searched 11 Daimler sites.
    • Initial emissions tests have shown Daimler vehicles emitting more nitrogen oxides than permitted.
    • Daimler voluntarily recalled thousands of vehicles for software updates.
  • Audio

    Audio

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69678455 Dieter Zetsche Daimler Mercedes Uli Deck dpa MAIN
Dieter Z. at the Paris Motor Show last September. Jay Z. might have advised: "Put the pedal to the floor." Source: Uli Deck/dpa

“Dieter,” a woman calls out as Daimler CEO Dieter Zetsche is swallowed by a group of people after stepping down from the stage. “Dieter, I made a bet with my boss that I could get a picture with you,” the woman says. Mr. Zetsche has just finished a public debate in central Frankfurt, he’s running late, and his entourage wants him to keep moving. But he turns to the lady with the camera and gives her a broad smile. Dieter Zetsche doesn’t just run Mercedes, one of the world’s best-regarded premium carmakers. He’s a celebrity, too.

But Mr Zetsche must be careful not to lose his luster. Two weeks ago, state prosecutors from Stuttgart raided 11 Daimler sites in the course of an investigation into possible fraud and false advertising. They suspect Daimler may have manipulated diesel emissions data – much like Volkswagen did, with catastrophic effect for its balance sheet. Investigators so far have focused on rank-and-file employees at Daimler, not its top executives. In January 2016, Mr. Zetsche told the “Welt am Sonntag” newspaper: “No one committed fraud at our company, no emissions data ​​have been tampered with at our company.” But how long until Mr. Zetsche’s composure cracks?

In the United States, Daimler is still being scrutinized by the Department of Justice regarding its certification of exhaust emissions. More than a year after the inquiry began, Daimler recently suspended certifying diesel cars there, blaming a surge in administrative costs. But would Mr. Zetsche himself smile and say that is reason enough to give up business in one of Daimler’s biggest markets? Surely not. 

“No one committed fraud at our company, no emissions values ​​have been tampered with at our company.”

Dieter Zetsche, Daimler CEO

In Germany, Daimler is one of several manufacturers of diesel cars having their CO2 emissions data investigated by the Federal Motor Transport Authority (KBA). In a first round of testing last year, the KBA looked at three Daimler models and failed them all for emitting significantly more CO2 than measured during initial certification – though this saw the German Transport Ministry, which supervises the KBA, declare its agency’s results an “insignificant” by-product of its scrutiny of possible wrongdoing at Volkswagen.

This has led to accusations of political interference by Daimler. The deputy parliamentary leader of Greens in Germany’s Bundestag, Oliver Krischer, suspects heavy backroom lobbying by Germany’s mighty car sector in Berlin: “Transport Minister Alexander Dobrindt is in the process of somehow straightening out the [emissions] issue with the car manufacturers,” he said. “There is absolutely no enthusiasm for seeing yet another flagship of the German automotive industry being discredited by yet another emissions scandal.”

But the next emissions scandal could well be brewing, regardless of Mr. Dobrindt’s alleged biases or Mr. Zetsche’s smiles. German public prosecutor are so far scrutinizing Daimler for possible infractions regarding nitrogen oxide levels. Should they widen their scope to include CO2 emission, the stakes for Daimler would rise immeasurably. As German car taxes are based on CO2 emissions, manipulating CO2 data can – over and above fraud and false advertising – be classed as tax fraud. This would bring a new dimension to the emissions scandal.

On top of that, Mr Zetsche faces emissions-related headaches caused by Renault. The French automaker supplies Daimler with diesel engines for some models, and is being investigated by French prosecutors for possible manipulations of emissions data. So far, Mr. Zetsche has good naturedly brushed off any hint of strain. At a joint event with Renault chief executive Carlos Ghosn at the Paris Motor Show last September, Mr. Zetsche said Daimler had never had any problems with or complaints about Renault engines, and praised the partnership.

Nine months later, Zetsche’s composure remains in tact. But it is under strain. Most of the Daimler models that failed the KBA diesel tests were fitted with Renault engines. According to Daimler, the French automaker last year “assured in writing” that “the engines meet the necessary requirements.” But even Daimler engines raised red flags. A report by the Ministry of Transport said the Mercedes V250 Bluetec “incomprehensibly” sometimes exceeded nitrogen oxide limits by 2.9 times, while Daimler measurements showed much lower values. The automaker placated the ministry by recalling thousands of vehicles for software updates. But state prosecutors remain concerned.

Mr. Zetsche might have to rethink his claim that nobody at Daimler committed fraud. The company itself warned in its latest quarterly report in April that US environmental authorities had informed another automaker some devices in its diesel models counted as “undisclosed auxiliary emission control devices” and were as a result “potentially impermissible.” Daimler told investors: “It cannot be ruled out that the authorities might reach the conclusion that Mercedes-Benz diesel vehicles have similar functionalities.”

For now, Mr. Zetsche continues to cheerfully live it up. At a Mercedes-Benz reception in Detroit, for example, US pop singer Bebe Rexha belted out her hit song “Me, Myself and I.” As soon as she finished, Mr. Zetsche stormed onto the stage of the historic Westin Book Cadillac Hotel and embraced the singer. Such events can make Daimler seem a little like the Titanic. The band will play on – at least until nobody wants to take a selfie with Mr. Zetsche anymore.

 

This article first appeared in Handelsblatt sister publication Wirtschaftswoche. To contact the authors: annina.reimann@wiwo.de and martin.seiwert@wiwo.de

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