Collusion Case Could Cost German Automakers Billions

BRUSSELS – The German auto industry could be facing fines totaling €50 billion ($58.3 billion) from European antitrust authorities investigating allegations of a long-running cartel, experts say.

With Audi, BMW, Mercedes-Benz manufacturer Daimler, Porsche and Volkswagen all being investigated on allegations they were neck-deep in a collusion deal dubbed “Das Kartell,” the resulting fines could prompt a permanent change in how German automakers work, one industry-watcher says.

If found guilty, each automaker could be fined up to 30% of worldwide revenues –  and that is just from the EU antitrust authority, the European Commission’s competition directorate general. U.S. regulators also likely will take a dim view of any cartels involving vehicles on the North American market.

Moreover, EU law allows any individual or company hit by anticompetitive behavior to sue the offenders for damages in national courts. An EC finding that companies participated in a cartel would serve as binding proof for courts in the EU’s 28 member states awarding damages.

BMW alone is facing a €10 billion ($11.6 billion) fine and Volkswagen up to €22 billion ($25.5 billion), based on their revenues. But with VW joining Daimler in turning whistleblower, both could see the fines waived or significantly reduced.

The EC, the EU’s executive branch, habitually waives or slashes fines against companies that turn themselves in and admit to participating in a cartel. The first to blow the whistle on the cartel tends to get a 100% leniency waiver, while others that admit to taking part get at least 10% knocked off their fines. Further reductions are possible depending on the timing of their cooperation and the extent to which the evidence they provide helps the EC prove the cartel’s existence.

The result, says Professor Stefan Bratzel, director of the Center of Automotive Management, an independent research institute at the University of Applied Sciences in Bergisch Gladbach, Germany, is that while these fines and penalties could be harsher than any ever faced by the German auto sector, he does not see any takeovers or closures resulting.

“I don’t think that these car cartel allegations will change more or less the path of the auto industry,” he tells WardsAuto.

But what Bratzel does forecast is potential change in “the culture of cooperation” between automakers.

“Cooperation can be in the interests of customers,” he says, but adds, “Carmakers have to see when they are cooperating that it is within the law. Maybe (the cartel investigation) leads to more transparency in the way of cooperating.”

Collusion Course?

What does Das Kartell involve? More than 200 staffers from the German automakers have met since the 1990s in 60 working groups on technical issues, such as curbing emissions and brake systems.

The cartel allegations notably focus on the AdBlue selective catalytic reduction system, which uses urea to clean up nitrogen-oxide emissions and needs a 5-gallon (19-L) tank to work. Reports in German national news magazine Der Spiegel contained allegations that the companies agreed to use maximum 2.1-gallon (8-L) tanks allowing more trunk room but rendering AdBlue ineffective.

Daimler and VW blew the whistle on the cartel in July and the EC launched an investigation.

“The Commission can confirm that Daimler and VW are cooperating with the Commission under its leniency program,” an EU spokesperson tells WardsAuto, adding the program “is an effective method for the Commission to uncover and sanction anticompetitive agreements between companies.”

The cartel probe has prompted sharp criticism of the German auto sector by environmentalists. Greg Archer, clean-vehicles director at the European think-tank Transport & Environment, says: “Following the Dieselgate scandal it is illustrative of an industry that views itself above the law with an unhealthy influence over the design of European regulations; and close relationships with governments that are desperate to preserve domestic jobs in manufacturing.”

The German automotive-industry association VDA has been contrite. It has said the “allegations must be pursued consistently,” adding the auto industry for its part “have to cooperate with the authorities without restriction and provide full information.”

The VDA says that for it and its 600-plus members, “illegal agreements, as well as surfing in legal gray areas, are unacceptable.”

Meanwhile, the inquiries continue. On Oct. 16 the commission and the Bundeskartellamt, Germany’s antitrust body, swooped in on BMW’s premises to look for evidence of anticompetitive behavior, both on paper and electronically. Oct. 23 was Audi, Daimler and VW’s turn.

Both times the EC issued statements announcing the raids, but not which companies were involved – although the companies themselves subsequently disclosed their involvement.

The EC said the inspections related to “concerns that several German car manufacturers may have violated EU antitrust rules that prohibit cartels and restrictive business practices.”  But, it stressed: “The fact that the Commission carries out inspections does not mean that the inspected companies are guilty of anticompetitive behavior, nor does it prejudge the outcome of the investigation itself.”

Its caution reflects how the probe could take over a year as the EC has no legal deadline to complete antitrust inquiries.

Collaboration Speeds Innovation

BMW, Daimler and Volkswagen Group, which also is the parent company of Audi, did not reply to a WardsAuto request for a comment on the allegations. However, a July 26 VW board statement after Das Kartell was revealed in Der Spiegel argued, “It is quite common for car manufacturers all over the world to engage in an exchange on technical issues in order to accelerate the pace and quality of innovations.”

Benefits cited included speedier and more economic introduction of “innovative solutions,” with an example being “the envisaged standardization of charging connections for electric vehicles.”

Das Kartell is the latest scandal to hit the German auto industry coming after the Dieselgate emissions-test cheating furor. And it is not the first scandal involving a cartel that has hit the sector with huge fines. Daimler and Volkswagen-owned MAN were among the firms involved in a truck cartel, which colluded in price-fixing, including agreeing to pass emissions-compliance costs along to customers from 1997 until 2011.

However, as a whistleblower MAN gained a 100% waiver from its €1.2 billion ($1.4 billion) fine and Daimler received a 40% reduction for cooperating, paying out just over €1 billion ($1.2 billion). Fines doled out to cartel members by the EC in July 2016 totaled €2.9 billion ($3.4 billion).

T&E’s Archer points out, “This recent investigation follows eight previous cartel cases affecting the automotive sector that has resulted in cumulative fines of €4.5 billion ($5.2 billion).”