The Cartel Collusion Between Germany's Biggest Carmakers

The diesel scandal is not a failure on the part of individual companies, but rather the result of collusion among German automakers that lasted for years. Audi, BMW, Daimler, Volkswagen and Porsche coordinated their activities in more than a thousand meetings. The exposure of a cartel.


Sometimes big things are hidden behind much smaller things. For instance, one of the biggest secrets of the German automotive industry lies behind the mechanism that opens and closes a convertible top at the push of a button.

Daimler, BMW, Audi, Porsche and Volkswagen are engaged in cutthroat competition to produce the best cars. At least that's the story often told by auto company CEOs, economists and politicians. It's a narrative about the beneficial effect of the market economy, which is based on competition among companies. But the narrative is wrong, and this is reflected in the convertible top.

Daimler, BMW, Audi, Porsche and Volkswagen did not in fact compete over which company could offer its customers the best top. On the contrary, experts with the five automakers coordinated their actions in numerous meetings. For instance, they determined the maximum speed at which a driver could open or close the top.

"No arms race when it comes to speeds," read the minutes of a meeting in Bad Kissingen. Arguments against an arms race, according to the minutes, were "costs, weight, increasing technological risk and crash relevance." The result of that meeting is that the soft tops on the convertibles sold by Daimler, BMW, Audi, Porsche and Volkswagen can only be opened and closed at speeds of up to 50 kilometers per hour.

It was an agreement that suspended both competition and the market economy. It was reached by the "working group for mechanical attachments." There were many, many other working groups involving the five German automakers, including working groups for braking control systems, seating systems, air suspensions, clutches, gasoline engines and diesel engines. The major issues were discussed and arranged in these groups.

Reporting by DER SPIEGEL into the anti-cartel authorities in Brussels and Bonn, and automakers in Stuttgart, Munich and Wolfsburg, and conversations with current and former executives, provide a previously unknown image of Germany's most important industry. The conclusion is that Daimler, BMW, Audi, Porsche and Volkswagen often no longer compete with one another. Instead, they secretly cooperate, very closely, in fact, in the same way one would normally expect of the subsidiaries of a single company to work together, as something like a "German Cars Inc." -- or a cartel.

Daimler, Volkswagen, Audi and Porsche have already admitted as much to the European Commission and the German Federal Cartel Office. In a brief dated July 4, 2016, Volkswagen issued what amounts to a voluntary declaration of its "participation in suspected cartel infringements." According to the VW statement, Daimler, BMW, Volkswagen, Audi and Porsche have coordinated matters relating to the development of their vehicles, costs, suppliers and markets "for many years -- at least since the 1990s and to this day."

It is not just a matter of the establishment of an exclusive club of the five German automakers with the goal of attaining economic advantages over the competition. The secret agreements are also detrimental to customers, who buy German vehicles because, among other things, they expect to be getting the best possible products from a technical standpoint. But how can a company produce the best if competition is curbed, and if the engineers stop doing their utmost to outdo the engineers working for other brands?

And then there are the millions of owners of diesel cars. In an almost bizarre way, they too are victims of the German auto cartel. For the first time, there is proof that it was agreements among these five automakers that ultimately ensured that emissions from diesel vehicles were not cleaned as effectively as would have been technically possible. This all began with the cartel of the five automakers.

Diesel buyers are now left with the damage. They face the prospect of no longer being allowed to drive their cars in cities, and of suffering significant losses when selling the vehicles. Shareholders are also among the victims. Penalties for cartel violations weaken the companies in which they hold shares and can lead to declining share prices. Suppliers are also adversely affected, as is almost always the case with cartel agreements. If the five German automakers agree to buy from only one company, others stand no chance of securing orders.

The agreements among the German automakers likely constitute one of the biggest cartel cases in German industrial history. They began in the 1990s and were expanded to include more and more issues, probably in part because industry executives long viewed violations of competition law as harmless rule violations, on a par with parking tickets.

It is only in recent years that the European Commission has begun imposing drastic penalties on companies that secretly collude on pricing or the technology they use. In 2012, manufacturers of cathode ray tubes were ordered to pay 1.5 billion euros in fines. In 2016, a 2.9-billion-euro penalty was imposed on commercial truck manufacturers.

The cartel of German automakers could also face fines in the billions. And the industry's image, which has already suffered considerably from the diesel scandal, will be damaged even further.

The exposure of the club of five strikes the companies at a time when they need all of their strength and financial assets for other things: the transition to electric cars and their transformation into mobility service providers. It is also a time when they are being challenged by new competitors from Silicon Valley and China.

But now VW, Audi, Porsche, Daimler and BMW must first address a problem in their most recent past. It is a painstaking process, because the agreements extend across such a long time period and so many managers were involved.

The development experts at the German auto companies met "regularly several times a year." They met in Stuttgart, Munich, Ingolstadt and Wolfsburg, and at the major auto shows in Geneva, Frankfurt and Paris. There is "the suspicion," as Volkswagen stated in its brief, also speaking on behalf of subsidiaries Audi and Porsche, that there was "behavior in violation of cartel law."

When a car company itself voices the "suspicion" that it may have violated laws, the evidence must be very clear. And it is.

Sometimes the cooperation among Daimler, BMW, Audi, Porsche and Volkswagen worked more effectively than cooperation among various departments within a company. The automakers' experts were assigned to working groups and sub-working groups, classified according to the following development areas: "engine," "car body," "chassis," "electric/electronic" and "total vehicle." Because five brands were involved, the groups were known internally as the "groups of five."

The VW Group's self-incrimination offers a new look at the diesel scandal and its evolution. It also provides a surprising answer to the question of why the German auto industry was only able to comply with emission limits for diesel cars with tricks and deception, and why VW, Audi and Porsche even used fraud as a tool: The manufacturers were not competing to achieve a Vorsprung durch Technik, or "technical edge," as Audi likes to tout in its British and German advertising, by effectively cleaning exhaust gases. On the contrary, they largely removed competition from this area.

At numerous meetings, they coordinated the size of tanks for AdBlue, a urea mixture used to split nitric oxide into its harmless components of water and nitrogen. Large tanks would have been expensive, so Daimler, BMW, Audi and Volkswagen agreed to use small tanks. However, at some point the amount of AdBlue the tanks contained was no longer sufficient to adequately clean exhaust gases.

The European Commission is currently examining the auto cartel case. It has seized records from the participating companies and has begun questioning witnesses. Last Wednesday, DER SPIEGEL extensively questioned the participating companies about the cartel accusations.

BMW stated: "Please understand that we cannot process your extensive list of questions. We do not participate in such speculations."

Daimler responded: "Please understand that, as a rule, we do not comment on speculations."

Volkswagen wrote: "We have no comment on the speculations and presumed circumstances that you have mentioned."

The cartel authorities face a Sisyphean task in their investigation of the auto cartel. There were more than 60 working groups in which the automakers cooperated. "We assume," Volkswagen wrote in its statement to the authorities, "that more than 1,000 relevant meetings took place in the last five years."

More than 60 working groups and more than 1,000 meetings.

At this point, it makes sense to pause for a moment and ask: Excuse us? What exactly was going on in an industry that, for decades, was considered a symbol of the strength of German industry? Weren't the heads of these auto companies constantly pointing out how fantastic the competition was, especially among the German automakers?

Commenting on the fact that Audi, BMW and Mercedes together hold about 80 percent of the global market share in the premium segment, Daimler CEO Dieter Zetsche said that one of the reasons was that "as neighbors, we are constantly stepping on each other's toes. In this sense, competition is an incredibly good thing." BMW CEO Harald Krüger said: "This competition constantly motivates us to achieve excellence." VW CEO Matthias Müller praised the competition among brands. And Audi CEO Rupert Stadler said that competition had "given us all a technological advantage."

Was it all just for show?

Of course there is still competition among German carmakers. Each of them strives to ensure that its latest model has either the most comfortable or the sportiest chassis. Each of them aims to design an especially safe vehicle that performs well in crash tests. And each company wants to be at the forefront when it comes to offering the first fully self-driving car.

There are cases in which the German carmakers do officially work together. For instance, Mercedes-Benz and BMW cooperate in buying certain auto parts. This is allowed if the parts are not relevant to competition, that is, if they do not constitute a distinguishing feature between a BMW and a Mercedes -- windshield wiper blades, for example.

But beyond this known cooperation, apparently the companies, in their groups of five, secretly shut out the competition in many areas of vehicle development for years, thereby violating the basic principle of the market economy.

This has already come back to haunt them, and in dramatic fashion. The diesel scandal would not have taken shape as it did, and perhaps not even at all, without the agreements among German automakers. It is not the work of a few criminal managers in the Volkswagen Group, but ultimately the result of secret agreements within the entire German automobile industry. DER SPIEGEL has already reported on the initial signs of collusion.

The companies have been coordinating their efforts in numerous meetings and conference calls since 2006. There were agendas and minutes of these meetings. And sometimes the participants even joked about the aspect of confidentiality. One Audi email, for example, reads: "Hello everyone, here is the information on the 'secret' meeting in Munich."

The starting point was the debate over the increase in the greenhouse gas CO2 and the resulting global warming. Calls for limits on CO2 emissions became more and more vocal worldwide. After heavy industry and energy producers, the automobile industry also came under fire.

A Japanese carmaker had a response to the criticism. Toyota was already selling vehicles with hybrid drives, in which a classic combustion engine is supported by an electric motor. Fuel consumption and, as a result, CO2 emissions declined considerably. It was considered a pioneering technology. The European Commission, under then President José Manuel Barroso, even discussed imposing a mandatory quota for hybrid drives.

The German automobile industry had nothing comparable to offer in this area. Instead, it chose to back the more than 100-year-old diesel technology. Diesel engines, which emit less CO2 than gasoline engines, were to become their answer to climate change.

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mrbenrathbone 07/27/2017
1. Cartel Advertising/brain-washing
For years it has become apparent that the German automotive cartel also have huge influence over motoring press across Europe. In the UK virtually all car reviews in magazines such as Auto Express (plus sister websites etc etc) are completely biased towards German manufactured cars. Even articles regarding lets say a Jaguar product, would have many favourable nods towards various German equivalents to poison the mind of the reader. The result of many years of brain-washing in this way has led to consumers being tricked into buying over-priced and unreliable cars, giving the consumer the perception of 'buying the best'. Then you have VW charging differing amounts for the same product with a different badge, if consumers were more aware they surely wouldn't do it. VW seam to be taking the hit for the rest, purely because their brand structure can take it. Porsche diesel owners are blinkered to the current emissions scandal, but rest assured their engines are identical to those in the other VW products and will be suffering the same issues, along with all the Audi products too....they are just VW's in disguise. Far too many German cars are bought in the UK, hopefully this number will reduce in favour of more honest manufacturers across the world.
bicester55 07/27/2017
2. The fault is the regulator's. Fines are not the problem.
The regulators failed to do their job. Yet it is the industry and hence Germany which will suffer. Regulator's nearly always only start fining to hide their own failure. Europe would be better of without such useless regulation. Both France and now UK have made ignorant statements about only electric cars after 2040. Though many at immense cost and weight only have the range of a diesel with a one gallon tank. The future should be diesels with sufficient Urea as these are also clean and much cheaper in the UK we do not have any chance of providing the electricity needed to power many vehicles anyway.
jwalter 07/27/2017
3.
Why is there not outrage at OPEC? That is "the" cartel that suppresses economies and funds terrorists.
Democrat 07/27/2017
4. Collusion between German carmakers
Even on the basis of the sparse details disclosed so far, a sense of incredulity prevails; a feeling very similar to that felt at the time of the banking sub-prime fraud and deceptive practices first becoming known. Unlike the banking scandals, however, which involved mostly all banks of many nationalities, the German car making collusion seems to have been a German national club and affair with a clear prejudice against any other nationality participating. The Donald Trump regime must be "licking its lips" at the spoils that can be had here in fines and penalties, damages, class actions etc. and not least, for example, over the moon with delight in the succour and propaganda this will provide to the US administration's apparently intended policy to limit German car imports (and presumably other German products) to the US. As with the banking crisis, this all begs the question as to how large corporations and their managers can, for so long and in such great numbers, be so stupid, myopic, arrogant and so lacking in simple morality? Even worse, what role and culpability can be attributed to, for example, the German government, EU-Brussels and their compliance institutions and regulatory bodies for their dereliction of duty over so many, many years? Once again, one is left to value and appreciate the importance of a free media, without which, one suspects, this whole, sorry affair may never have come to light.
turnipseed 07/28/2017
5. There's a lesson here that has nothing to do with economics
Historically the success of Germans in philosophy, theology, biblical studies, economics, technology, science, and military affairs made people in Europe and America so impressed with everything German that when Germany turned evil and Satanic, at first in WWI and then more obviously and disastrously in WWII, people couldn't believe it possible. The Holocaust: not something civilized Germans would participate in! Yet many Germans with PhD and MD degrees and status and wealth were among the most enthusiastic followers of Hitler to the very end. Eugenic crimes, duplicity in diplomacy, unrestrained objectives in military goals, etc., etc., not something civilized Germans would engage in. Yet they did and gloried in it. This should remind us that just because Germans make fine products in industry (and not always, by the way) they are not free of sin and vice and crime. Let's give Germans their due, both good and bad. It is about time for a balanced assessment.
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