Dirty diesel

Berlin, carmakers mull diesel rebate deal affecting 1.2 million cars

63326963 picture alliance Zumapress com – VW diesel rebates Daimler Mercedes BMW emissions air pollution Dieselgate nitrogen dioxide
Now we’re talking. Source: Picture Alliance / Zuma Press

With German courts slowly forcing more and more cities across Germany to ban diesel cars, Angela Merkel’s government has proposed a new plan to prevent a looming disaster.

Hamburg introduced the first city ban in May and other cities will follow suit as early as next year, which threatens to disrupt the daily lives of millions of car owners. They would also deal a huge blow to carmakers, who are already grappling with plummeting sales of diesel cars.

Ms. Merkel met on Sunday with the chief executives of Volkswagen, Mercedes-maker Daimler, and BMW, as well as the head of industry lobby group VDA in the chancellor’s office. Transport Minister Andreas Scheuer, who also attended, proposed the carmakers take back up to 1.2 million old, polluting diesel cars and offer cleaner vehicles in return, government sources told Handelsblatt.

Under the proposal, the carmakers would offer new diesel, gasoline or electric vehicles at discounts of at least several thousand euros per vehicle. Current incentives have been too low to push drivers out of their older diesel cars and buy newer, cleaner vehicles. An attractive rebate program would also prevent a scenario of recalls to technically upgrade millions of cars and make them cleaner. This latter scenario could cost as much as €14.5 billion, according to an analyst at Evercore ISI.

G S21 Polluted german streets – diesel emissions

The old stinkers are a big problem: Around 60 German cities suffer from high air pollution, specifically toxic nitrogen dioxide gases emitted by diesel cars. German courts have ordered cities such as Hamburg, Frankfurt and Stuttgart to outlaw older diesel models, which are most polluting, from city centers. More bans could follow in dozens of other cities. That threat hangs like a sword of Damocles over diesel owners, who worry that their cars may soon be illegal to drive in metropolitan areas.

Fearing the bans, German car buyers — as well as those in other European countries — have been buying fewer diesel cars, affecting Germany’s car giants. VW, Mercedes and BMW rely heavily on diesel sales in Europe, because the fuel is cheaper in many countries thanks to tax breaks. If the downward sales trend continues, it could affect their bottom line.

The carmakers, which declined to comment, want to avoid this scenario. They had already offered to upgrade the engine software of 5 million diesel cars, but this fix is not reducing urban nitrogen dioxide levels sufficiently. Some politicians and environmental groups have called for technical refits of all the older diesel cars but the carmakers resist this very costly route.

23 p16 Market share of vehicles with diesel engines-01

That’s why VW boss Herbert Diess, Daimler CEO Dieter Zetsche and BMW’s Harald Krüger are open to Mr. Scheuer’s proposal to exchange older diesel cars for new, cleaner ones, even if they have to offer steep discounts. The carmakers would offer the indemnity to drivers in some 65 German cities and the surrounding area, to cover commuters.

The plan would also involve technical refits, but only for those cars where it is easily feasible and effective at relatively low costs. This would apply mainly to fleet versions of the VW Passat, the BMW 3-series and the Mercedes C-Class. The carmakers would pay 80 percent of the costs, capped at €3,000 per vehicle.

No decisions were taken at the meeting with the chancellor. The automakers have to figure out just how much it will cost them to get customers to make the swap. But they don’t have much time: Merkel’s government wants to decide on a draft proposal next Monday. One thing is clear: The carmakers will likely have to cough up millions of euro in rebates and refitting costs to make the air cleaner in German cities.

Daniel Delhaes covers politics and economic policy for Handelsblatt in Berlin. Markus Fasse is a correspondent in Munich. Martin Murphy covers the auto industry for Handelsblatt. Darrell Delamaide adapted this article into English for Handelsblatt Global. To contact the authors: delhaes@handelsblatt.com, fasse@handelsblatt.com, and murphy@handelsblatt.com.

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