Pollution ruling

The Diesel Decision

main 90312227 Stockbyte Getty Images – cars exhaust pipes emissions auto traffic
Will diesel emissions soon be a thing of the past in Germany? Source: Stockbyte/Getty

The air inside Stuttgart’s administrative court was stifling, which seemed appropriate for a trial revolving around air pollution.

The court’s 100 seats were all occupied by people interested in the city’s decision about whether to ban diesel vehicles from its streets. Stuttgart, after all, is home to Mercedes-maker Daimler and VW subsidiary Porsche, and is set to become one of the first major German cities to ban diesels. Outside the court, protesters, some wearing gas masks, waved banners with slogans like “Driving bans save lives!”

The proceedings, which started on Wednesday, will ultimately decide whether the state of Baden-Württemberg, where Stuttgart lies, is doing enough to protect its citizens from harmful nitrogen oxide, a key component of diesel emissions. German environmental group Deutsche Umwelthilfe (DUH) sued the state, demanding it implements diesel bans to reduce air pollution.

During the hearing, judge Wolfgang Kern suggested that EU guidelines were still not being met. He also questioned whether a proposal to retrofit older cars – aimed at reducing air pollution – would be enough to avoid a diesel ban. One of the state’s representatives said the proposed engine software update would cut nitrogen oxide emissions by 9 percent. “That’s not much,” the judge replied.

If Daimler were forced to take the hardware route, its overall refitting costs would surge from €220 million to nearly €5 billion.

A ruling on banishing diesel vehicles from Stuttgart could come as early as next week and set a precedent for 14 other German states, which have also been sued by DUH. The Stuttgart court has already rejected two of the state’s proposals for mitigating air pollution. But if the judge rules in the carmakers’ favor this time around, companies such as Daimler and Porsche would no longer have to worry about any impending driving bans. If the state’s lawyers fail, however, it could be a permanent stain on diesel’s reputation and endanger one of the main pillars of the German automobile industry.

Diesel vehicle sales, which accounted for up to 73 percent of VW, Daimler and BMW’s European vehicle sales last year, fell 9.1 percent in Germany the first six months of this year. In Stuttgart and Munich, where driving bans could soon be a reality, vehicle sales slipped by as much as 20 percent in June.

Just how drastic the situation has become was apparent on Tuesday evening when Daimler surprisingly announced that it would pay €220 million ($254 million) to recall and retrofit 3 million diesel cars across Europe with updated software that would lower emissions of nitrogen oxide. The Mercedes maker is feeling the heat of potential diesel bans as well as a criminal investigation into whether it too cheated on diesel emissions, similar to VW’s manipulation.

06 Diesel Past Its Peak-01

Daimler’s recall was an admission that even its most modern diesel cars, so-called Euro 6 vehicles on sale since 2014, were not equipped with proper software, Jürgen Resch, of DUH, told the court. Axel Friedrich, an automobile expert with the group, said the emissions would need to be halved in order to be effective and bring pollution below the legal limit. To accomplish such a feat, automakers would have to retrofit their diesel engines with new accumulators and catalytic converters – a much more costly fix than simply uploading some new code to vehicles’ internal computers.

Scrubbing systems for diesel engines cost around €1,500 ($1,734) per vehicle, as opposed to the €70 it would cost to install new software. If Daimler were forced to take the hardware route, its overall costs would surge from €220 million to nearly €5 billion.

BMW and Audi, a VW subsidiary, already proposed last month – in conjunction with the state government of Bavaria where they are headquartered – that they would refit at least 50 percent of German diesel cars sold between 2009 and 2014 with new software to cut emissions. BMW would have to recall at least 350,000 cars.

At least in the medium term, keeping the diesel business alive is German automakers’ top priority. They will meet with federal and state ministers on August 2 to propose nationwide measures to reduce emissions and avoid driving bans. Whether or not they’ll be successful is at least partly in the hands of a single judge in Stuttgart.

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Martin-Werner Buchenau reports from Stuttgart as Handelsblatt’s Baden-Württemberg correspondent. Markus Fasse specializes in aviation and automobile industry news and works from Handelsblatt’s Munich office. Lukas Bay is an editor with Handelsblatt’s companies and markets desk. Gilbert Kreijger, an editor with Handelsblatt Global, contributed to this article. To contact the authors: buchenau@handelsblatt.com,  fasse@handelsblatt.com and bay@handelsblatt.com

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