Carmaker-government breakup

The End of the Affair?

Germany Merkel Daimler
It's not you, it's me... Angela Merkel and Daimler boss Dieter Zetsche. Source: AP

A characteristic of symbiosis is that both species benefit from the process. What is true in biology also applies to the relationship between the German automobile industry and lawmakers. At least that has been the case until now.

The automotive industry makes impressive contributions to the gross domestic product, creating jobs, providing tax revenues to the state and contributing significantly to Germany’s international reputation as a leading exporter.

In this sense, the political world benefits from the auto industry. The esteem that automakers enjoy among lawmakers as a result provides the companies with tangible benefits. When it comes to issues of regulation, the review of pollution limits, the speed limit on the German autobahn, subsidies for electric cars or tax breaks on company cars, carmakers can depend on lawmakers to present them with favorable solutions.

But for the past few weeks, many politicians have been increasingly wondering whether they truly benefit from the industry. The Dieselgate scandal and new allegations of a cartel existing between VW, Daimler and BMW are escalating into a serious problem, as automakers are faced with serious allegations that they engaged in trickery and deception on a massive scale.

If everything goes badly, the federal government will be blamed for the scandals caused by the companies.

Years of legal disputes, palpable damage to the industry’s image, the threat of job losses, a debate over the future of the diesel engine that was not entirely necessary – these are all problems that automobile manufacturers will be facing for a long time to come. But now the German government is also being drawn into the maelstrom.

Frustrated diesel car owners, who can expect their vehicles to lose considerable value and may even be confronted with driving bans, become unpredictable voters. If everything goes badly, the federal government will be blamed for the scandals caused by the companies. That’s a worry with elections looming in September.

No member of the government is willing to admit it openly, but reservations have grown tremendously. No responsible politician would condemn the most important German industrial sector at the drop of the hat. But the days of preferential treatment for VW, BMW, Daimler and the other German carmakers could soon be over. Some members of the government are already quietly speculating about whether it would not have been better to have taken a hard line with the industry a few years ago, instead of rolling out the red carpet for a corporate and model policy that was not very sustainable.

Here is one example of many: A few years ago, when it was time to define European CO2 limit values, the Angela Merkel-led government of the day put its shoulder to the wheel in Brussels. The result was absurd, but it was very satisfactory for the industry: CO2 emission limits were set in relation to the weight of the vehicle, so that a two-ton SUV could still be treated as a gleaming champion of the environment. In short, the industry has always taken things too far. But now this is coming back to haunt automakers.

You don’t have to be an economic historian to see a parallel. For decades, the energy sector enjoyed similar cozy dealings with the government. Nuclear and coal-fired power plants were their diesel. Their aim was to use the plants to make as much money as possible, for as long as possible, without any government interference. For years, energy suppliers treated renewable energy sources as playthings, either not investing or investing only half-heartedly in wind and solar. They relinquished the field to others. The similarities to the way the German auto industry has handled hybrid and electric vehicles are obvious.

For years, the heads of energy giants such as RWE, E.ON, Vattenfall and EnBW walked in and out of the chancellery and government ministries with confidence. They sometimes achieved some outrageous privileges, such as the allocation of emission rights or the rescue of old power plants.

The outcome is well-known. Voters wanted safer, less polluting energy sources, so the tide turned against the big utilities. Lawmakers lost their affection for the companies, in some cases feeling exploited and deceived. Love quickly turned into open hostility. The companies were eventually taken to task. Now, some no longer exist in their previous form. One manager claimed lawmakers were trying to strangle the industry twice.

This doesn’t have to happen to the auto industry. But an honest change of culture and a credible strategy for the future is urgently needed, so that the political world at least remains well-disposed to the auto industry.


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