The End of a Legend 'Made in Germany' Label Badly Damaged By Car Scandal

Germany's diesel scandal occurred because the government has long been too lenient on the automobile industry. Deep ties between politicians and the sector allowed the situation to get out of hand, with enormous damage to the country's reputation as one of the world's best carmakers. By SPIEGEL Staff

Angela Merkel has a talent for being at the right place at the right time. She's currently in the village of Sulden in Southern Tyrol on vacation. The German chancellor is fond of hiking in the mountains, where she can catch fresh air and admire the spectacular, 1,900-meter-high (6,000-foot-high) Alps.

Some had hoped she would come down from the mountains to attend the diesel summit between carmakers and the German government on Wednesday and make a clear statement of position, like she did after the Fukushima nuclear disaster in Japan. At the time, she announced the phaseout of all German nuclear power plants. This time, she had the opportunity to chastise the automobile industry for knowingly and intentionally poisoning people and the environment with its diesel motors.

But Merkel doesn't enter into battles she can't win, which is probably why she sat this one out.

German Chancellor Angela Merkel

German Chancellor Angela Merkel


Instead, it was German Transportation Minister Alexander Dobrindt of the conservative Christian Social Union (CSU) party and Environment Minister Barbara Hendricks of the center-left Social Democratic Party (SPD) who demonstrated just how little power the government in Berlin has in standing up to the automobile industry. First, they had to move the meeting at very short notice to the Interior Ministry so that industry executives wouldn't have to have uncomfortable encounters with the protesters and environmental activists who had surrounded the Transportation Ministry. Even people who like fast cars can be cowards.

After the meeting, the ministers had to present its disgraceful outcome at a press conference -- with Dobrindt taking up its preemptive defense and Hendricks pale with anger over the arrogant executives. They presented the minimal consensus offered by the industry -- namely an update to the software used in over 5 million diesel automobiles. But even that figure had been airbrushed given that VW has already installed new software in 1.9 million cars. It is the solution that is by far the most inexpensive for the carmakers, and the worst for human lungs.

Of course, the government ministers are aware that this measure will not be sufficient to significantly improve the air quality in cities. Environmental organizations and experts have carried out those calculations and an administrative court in Stuttgart recently confirmed their findings.

Kowtowing to the Car Industry

It would have been easy enough for the government to use those verdicts as a pretext to go up against the industry. It likely would even have drawn applause given that pollster Civey recently found that 72.8 percent of all surveyed on the issue of air pollution believe the government is too lenient toward the automobile industry. Some 80.6 percent of urban residents say they would like to see less consideration of the industry's interests.

So why is the government kowtowing to the car industry?

The German automobile industry isn't just any industry. With around 800,000 jobs and over 450 billion euros in sales, it is one of the country's key sectors. Germany is the world's fourth-largest car producer. That puts it in a position to blackmail the government.

Pride also plays a role. The Germans invented the automobile and are still admired worldwide today for their engineering skill. "Made in Germany" is a symbol of quality -- especially when it comes to cars.

That was, of course, before people found out about the German engineers' dirty tricks and the fact that German politicians had spent years covering up the cheating. It is the result of an unsavory amalgamation of people and interests -- a system of mutual financial perks and party donations, and a supervisory authority that, as a result of lobbying work, has withered to the point that it has become an extended arm of the industry.

The government is no longer able to come down hard on carmakers because it has loosened the laws over the years to the point that few still have much impact. Heck, the company leaders may have had a good laugh about the government ministers' strict demands for a culture of greater corporate responsibility at the companies when they sped away from the meeting in their black limousines.

They feel unassailable -- too big to fail. It would have been hard to surpass the arrogance of VW CEO Matthias Müller at the press conference following the diesel summit. He said hardware improvements were out of the question and, besides, he had not recognized any "management failures."

No failures? What about the manipulated diesel emissions values, the defeat software used so that cars could cheat in emissions testing situations or the consultations  between competitors that may have violated cartel law? And what about the threat now potentially being faced by millions of diesel car owners that their vehicles may soon be banned from driving in cities? They claim it was all legal. But was all of it legal?

Reporting by DER SPIEGEL shows that the companies didn't just coordinate on harmless issues like convertible tops. The documents submitted by VW when it turned itself in to the European Commission in Brussels and the Federal Cartel Office in Bonn for possible violations of cartel law include some potentially explosive revelations.

They indicate that Daimler, BMW, Audi and Volkswagen, by 2006 at the very latest, agreed in their working groups on how to deceive CARB and EPA, two U.S. government environmental agencies. They also agreed with car parts supplier Bosch on a joint software platform which included in its base version a defeat device that could manipulate emissions in each car in which it was installed. It meant that the so-called AdBlue technology  built into the cars -- a urea solution that is used to reduce dangerous nitrogen oxide emissions in diesel motors -- would only truly comply with emissions standards in a lab testing situation. When driven on the road, however, they would emit far more nitrogen oxide. The deception made it possible for the companies to use smaller and less expensive tanks for the AdBlue technology.

They also colluded on their excuse to the U.S. authorities for how they could meet the nitrogen oxide emissions standards with such a small tank. Addressing the subject, a VW employee wrote that people were working in a "legal gray area."

Excuses? Gray areas? It sounds like a great deal of criminal planning. But, of course, they had no reason to fear strict oversight -- particularly when it came to politicians.

A Secret Meeting

It was late in the day on Nov. 3, 2015, when Angela Merkel's government buckled to the automobile industry. That night, German Transportation Minister Dobrindt and top officials in his ministry met with VW CEO Müller and VW supervisory board chairman Hans Dieter Pötsch. Few knew about the secret meeting and there are no notes from it.

The question at hand was what could be done about the millions of diesel vehicles in which the defeat software had been deployed? Would the cars have to be taken off the road? Or would buy-back programs like the ones offered by the company in the United States be required? It was clear to all that the last option wouldn't be possible. "That would have been the end of VW," recalls one government official.

The attendees at the meeting decided on a solution that would save VW. Müller had to agree to provide a software update. In exchange, the government would not pursue any additional legal channels that could damage Volkswagen. Dobrindt also wanted Müller to promise that no further defeat devices would be found in the company's vehicles. Müller dodged, because he could only hope for that to be the case.

But Müller was still given carte blanche. Since that meeting, Volkswagen has been able to claim that what is prohibited as manipulation in the U.S. isn't a crime in Germany. The other companies using similar cheat technologies were also spared. Auditors from the Federal Motor Transport Authority (KBA) dispatched by Dobrindt concluded that the tricks could be warranted for technical reasons. "The protection of motors is more important in this country than the protection of people's lungs," Jürgen Resche, the head of Environmental Action Germany (DUH), says angrily.

As soon as the German government starts expressing doubts, the automobile industry shows its instruments of torture. In July, the German Association of the Automotive Industry (VDA), a lobby group, presented a study by Munich's Ifo economic institute showing that 600,000 jobs in Germany dependent on the combustion technology. That has a way of keeping politicians in line, especially in an election year.

Unsavory Symbiosis

Since the days of former Chancellor Gerhard Schröder, who served from 1998 to 2005, Germany's leaders have been nicknamed the "Auto Chancellor" for their close ties to the industry. Schröder felt he was a patron of the industry. And Merkel, his successor, was quick to see the connection between maintaining close ties to the key industry and staying in power.

On Sept. 23, 2008, she spoke to workers at a Volkswagen factory. "The German government stands behind VW. VW is a great piece of Germany." The sheer mass of 18,000 workers seemed to awe her. She had likely never spoken in front of that many people at one time. She said she would travel home with the feeling that many workers at Volkswagen wanted "Germany to be doing well."

Observers of the chancellor say that visit to Wolfsburg had a deep impact on Merkel. A short time later, as the world faced a major economic crisis, she gave employees and executives at Germany's car companies a gift worth billions of euros in the form of government subsidies that saved jobs and kept the floor from falling out on the industry.

The unsavory symbiosis between the government, the industry and the lobbying groups -- and the revolving door of personnel moving between them -- seems to be the root of the evil. This ensures that the industry has influence and access, and assures employees money and access to the career ladder.

It can also cause a bit of head-scratching. A public servant who is supposed to one day passionately fight for the good of the people, is suddenly ready to contribute to their systematic poisoning only a moment later.

Former German Transportation Minister Matthias Wissmann, who served as a member of Merkel's cabinet and is also a friend, sticks out. Today he's the president of the German Association of the Automotive Industry (VDA). All he has to do to get the chancellor's attention is send her a text message on his mobile phone.

Merkel's former chief of staff at the national headquarters of her conservative Christian Democratic Union (CDU) party, Michael Jansen, now works at Volkswagen as the head of the VW's Berlin office, which conducts the company's lobbying. A few months ago, carmaker Opel's chief lobbyist, Joachim Koschnicke, left his job to join the CDU's election campaign team.

'Excessive' Proposals

All have showered the federal government with emails and letters in recent years to ensure that their companies' interests are fulfilled.

In May 2013, VDA head Wissmann wrote to "Dear Angela" that she should try to hinder the European Commission's "excessive" proposals on CO2 targets.

VW lobbyist Jansen also wrote to the Chancellery in July 2015 that, on the issue of "air quality/diesel," the industry's proposals should be given the "greatest possible consideration."

When he was still an Opel lobbyist, Joachim Koschnicke warned the head of the KBA when approval was delayed for a new Opel model that without it, there would be "potential effects on our business operations." He said it jeopardized production at five plants and that the "negative effects would be dramatic in every aspect."

And then there's Eckart von Klaeden, who served as minister of state in the Chancellery from 2009 to 2013 and has since served as head of global external affairs at Daimler.

Klaeden, whose nickname is "Ecki," is a particularly brazen example. In May 2013, Klaeden announced that he would begin his job as Daimler's chief lobbyist in the fall. Previously, the aristocrat had enjoyed an exemplary career as a conservative politician. He completed a law degree at Germany's respected University of Göttingen, served in a fraternity, became active in the youth wings of the conservative Christian Democrats and got elected to the federal parliament, the Bundestag, at the young age of 28.

During his time as a minister of state, he had already developed good contacts to carmakers. Evidence also exists that he was informed of a Daimler financial transaction worth billions. Before the company sold its shares in the aerospace concern EADS in December 2012, he had documents sent to the Chancellery several times and also met with Daimler's bankers a total of 23 times.

There wasn't a lot of commotion around Klaeden when he first started his new job as Daimler's chief lobbyist. He's a man who prefers silent lobbying. But it didn't take long for him to face his first test. Daimler's diesel cars were emitting massive quantities of nitrogen oxide, which is deleterious to health. The company's engineers were only able to get the emissions systems on Daimler's luxury automobiles through the licensing authorities' test labs by using tricks.

But the measuring stations in German cities had been registering treacherously high levels of contaminants. In response, the European Commission wanted to end the practice of having vehicles tested exclusively in testing labs before they are authorized as roadworthy -- it wanted tests to take place on actual roads. The new procedure was called RDE, which stands for Real Driving Emissions. It threatened to expose the entire swindle.

Time Runs Out

On the afternoon of March 18, 2015, Eckart von Klaeden wrote an email to his old colleague, the head of the economic policy department at the Chancellery ("Dear Professor Röller"). Time was running out -- less than a week later the Technical Committee on Motor Vehicles in Brussels wanted to make a decision on RDE tests.

Klaeden warned: "What may sound like a minor technical decision could have enormous consequences for the automobile industry with regard to the future use of diesel motors." The European Commission's draft "cannot be accepted." He said there is the sense of a "massive threat" and that he would be "grateful" if the German government would "reconsider its position again."

The next morning, Klaeden followed up with a phone call. He proposed that a CEO contact Merkel. An official noted, "Winterkorn?" The idea was for the then VW CEO to bring the chancellor into line. The Chancellery did not answer the question posted by DER SPIEGEL as to whether that conversation ever happened.

The same day as Klaeden reached out, VDA head Matthias Wissmann also put in his own two cents. Wissmann wrote an email to Chancellery Chief of Staff Peter Altmaier ("Dear Peter").

His aim was also to put the brakes on the EU officials' regulatory zeal. The lobbyists promoted "sensible limits" and a "realistic comprehensive package." In concrete terms, they were asking for a delay in the decision on when the road tests -- that were so important for the environment -- would be introduced in a binding way. Klaeden and his fellow lobbyists also wanted the the emissions limits to be weakened.

They got what they wanted. Altmaier, who as chief-of-staff is Merkel's right-hand man, took up the issue himself. Altmaier received a written "opinion" from his staff stating the Environment and Transportation ministries would be asked to "explicitly address the concerns expressed by VDA/Daimler" as well as "take into consideration in further discussions" the "realistic comprehensive package" called for by Wissmann.

The outcome? The German government shifted positions within 48 hours -- even the Environment Ministry, run by Barbara Hendricks of the center-left Social Democrats, backed down. On March 24, the European Commission's Technical Committee -- Motor Vehicles met in Brussels. At Germany's suggestion, the concrete date for the introduction of stricter emissions tests disappeared -- at least for the time being. Klaeden and Co. could breathe easier. When the final decision was made in autumn 2015, the German government made broad concessions to the industry.

Cluelessness at the Federal Car Authority

Things are also too close for comfort in another area, too: At the Federal Motor Transport Authority (KBA) -- the very agency responsible for providing automobiles with the roadworthiness certification required for them to go on sale. Employees here should, as a prerequisite, have a certain amount of basic technical knowledge and at least an interest in gathering critical information.

Ekhard Zinke, who is KBA's president, doesn't appear to possess these traits. He told an investigative committee in the federal parliament that he first learned about the use of defeat devices through the diesel scandal.

The Flensburg authority's cluelessness might also be a result of the office's excessive closeness to the industry.

The Federal Highway Research Institute, a sister authority, had measured noticeably higher emissions of environmentally damaging CO2 gas among several carmakers in 2010 and 2011. The KBA requested a response from the car companies in the spring of 2012. What the then head of the KBA's product monitoring division then wrote to his colleagues at the institute demonstrates his ignorance: He claimed that BMW and VW had conducted random tests on vehicles themselves and thus eliminated any doubt.

The authority tasked with conducting the tests thus allowed itself to be tricked into letting the delinquents inspect themselves? And it accepted the result?

The unit leader had very different concerns: He didn't want to jeopardize his relationship with the companies. "A thank you note should be written to all the affected manufacturers," the KBA employee argued. The measurements and resulting responses from the manufacturers wouldn't even need to appear in the project report.

Another case also demonstrates that, while the authority was capable of lots of things, this didn't include monitoring the auto industry. During their 2016 measurements, the authority discovered that half of the inspected cars had dramatically elevated CO2 figures. Greenhouse gas emissions can be translated directly from consumption. The frontrunners were, among others, an Audi A6 (36.4 percent above the limit), a Jaguar with 28.3 percent and a BMW 216d with 19 percent.

The KBA kept the numbers under wraps even as environmental organizations and media took legal action for their release. They claimed the data were company secrets. After DER SPIEGEL released the list, they claimed that more measurements needed to be carried out -- with a remarkable result: The elevated results disappeared, as if erased by a ghost hand. In one case, a car suddenly went from consuming 30 percent more, to consuming 4 percent less than the manufacturer had claimed.

'The Bedside Rug of the Automotive Industry'

It wasn't until the Green Party made a request for information that the miracle of Flensburg came to light. During the measurements, apparently, "drivers" had been used that "partly belonged to the manufacturers." The agency claimed that this was allowed by EU law. It also claimed that manufacturers were entitled to test the vehicles' technical state. In several cases, it claimed, manufacturers had detected supposed defects.

"I wouldn't allow a criminal to investigate his own case either," says Oliver Krischer, who chairs the investigative committee in parliament. It seems likely that DUH manager Resch isn't totally wrong in his assessment of the KBA. The authority, he says, is the "bedside rug of the automotive industry."

…But now all the sides seem to have gone too far. It was difficult, even for the most critical observer, to take the government's kowtowing at the diesel summit. The arrogance of the automotive executives was equally unpallatable.

The government representatives had been made furious ahead of time by the text promoted by the automobile industry association, which included, in all seriousness, the sentence: "This contribution of the German manufacturers is unique in Europe and around the world."

"How do people even muster up that level of shamelessness?" one of the officials present later askes. "First they build these awful polluters, and then they congratulate themselves for having made them a little bit cleaner." Hendricks commented that there is a lack of "insight and humility" in the companies' attitudes.

But how would they even have that? Humility requires understanding. And the heads of the companies are still very far from that.

Getting Off the Hook

They believe they have found a solution that solves everything: no expensive hardware, no expensive catalytic converters that would have costed up to 1,500 euros per car including installation, but instead a dubious software update. Dubious because the experts are asking themselves why it wasn't implemented a long time ago, if it is really so simple to lower emission levels of nitrogen oxide by 25 to 30 percent. Dubious because it changes the vehicle and motor properties, and might affect vehicle longevity and inspection intervals.

But especially dubious because it won't deliver much in terms of improvement. Environment Minister Hendricks, the host of the summit, admits this too. "With the software update," she says, "we can reduce nitrogen oxide in the cities, but the reduction will be considerably under 10 percent." Hendricks claims that this will not be enough to prevent restrictions on the use of diesel cars. "That's why I think the automotive sector still has to do more work."

As it turns out, officials at the Federal Environmental Agency had been prevented from calculating the software's effects, down to the comma, because, according to someone in the government, "the result would have placed too large a burden on the talks." It would have finally revealed the desperate attempts to find a compromise.

For the auto executives, the comparatively low costs involved are less of a concern than the potential effect of driving bans on diesel cars in cities. The debate has already contributed to a 25-percent drop in diesel vehicle prices in recent months, which is not only a source of irritation for the private owners of these cars, but also a burden for the big car companies. The carmakers have used their own banks to finance leasing agreements with customers for hundreds of thousands of diesel vehicles. The decreased value of the vehicles could put pressure on the balance sheets.

And then there's the fact that customers' decreasing confidence in diesel is also reflected in declining registration figures. This Wednesday, a decrease of 13 percent compared to same month the previous year was reported. For German car manufacturers, this is a real problem. They have committed themselves to the EU to significantly lower CO2 emissions in the next few years. This is already a challenge for the luxury cars and SUVs produced by Daimler, BMW or Audi. Without stable diesel sales numbers, it will be impossible. Although diesel engines release poisonous nitrogen oxide, they have better CO2 values than comparable gas models. If the Germans manufacturers don't reach their agreed CO2 targets, they could face billions in fines.

Resistance in Brussels

As it happens, people in Brussels are following the puppet show in Berlin with a great deal of interest. No small number of people in Brussels would like to properly push back against the Germans. The German government's ruthless engagement on behalf of its own auto industry is visibly irritating the European Commission.

During the diesel scandal, Brussels learned how difficult it is to prevail against the key industry of the most powerful member country of the EU. EU Consumer Commissioner Vera Jourava repeatedly took VW and its head, Müller, to task for not better compensating European customers. VW reacted by writing a letter of complaint to Commission President Jean-Claude Juncker claiming that there was no legal basis for this demand.

European Commission President Jean-Claude Juncker and Competition Commissioner Magrethe Vestager

European Commission President Jean-Claude Juncker and Competition Commissioner Magrethe Vestager


Meanwhile, Industry Commissioner Elzbieta Bienkowska is trying to get more powers for the Commission when it comes to the oversight of the approval of new models of cars. She wants to make it so that the Commision is allowed to conduct random tests to determine whether the national inspection agencies are fulfilling their duties, as well as the power to trigger Europe-wide recalls. But Germany has repeatedly slammed the brakes on the initiative at the level of the European Council, the powerful EU branch helmed by the leaders of the member states.

The auto industry's influence can be felt everywhere in Brussels, too. The big German companies have well-staffed lobbying offices. BMW likes to invite lawmakers and Commission officials over for discussions about climate-friendly car policies -- wine and three-course dinners included. And VW's head lobbyist Thomas Steg, a former government spokesperson, today entertains members of the European Parliament inside the luxurious Sofitel hotel at Place Jourdan, almost in view of the parliament.

Commission President Jean-Claude Juncker long ago recognized that the emissions scandal has long been more than just a German problem because the cars are exported everywhere in Europe. In reaction to the diesel scandal's seemingly endless revelations, he is now giving his excutive branch a bit more punch in dealing with it. In the future, Commission Vice President Jyrki Katainen is to bring together the different strands of the diesel affair.

The Commissioner Who Could Stand Up to VW and Daimler

Ultimately, though, the German carmakers' strongest adversary won't likely be the industry- or consumer commissioners, but rather a woman famous for her oversight of some of the world's biggest companies: Competition Commissioner Magrethe Vestager. The 49-year-old Danish economist has gone up against Google and Gazprom, and has no reason to be afraid of VW and Daimler. Company executives used to walking through politicians' open doors need to wait for months for a meeting with her. She doesn't meet with lobbyists at all.

The German transportation minister doesn't even get any preferential treatment. Vestager coldly rejected Alexander Dobrindt's request to inform him what antitrust accusations manufacturers like Daimler or VW were facing before the diesel summit. Vestager wrote to Dobrindt on July 28 that her office is investigating the antitrust accusations against the German car manufacturers "with priority." She wrote that she could unfortunately not share any further details, that "maintaining confidentiality obligations" was imperative for the "integrity and effectiveness of the proceeding." As big as Germany's influence over Brussels policies may be, that influence can't penetrate the walls of the Directorate-General for Competition on Rue Joseph II.

If officials there determine that cartel laws were violated, the companies could be threatened with penalties on a whole new scale. The EU Directorate-General for Competition can slap companies with fines of up to 10 percent of revenues from the previous fiscal year. For the year 2016, for the Volkwagen Group, including Audi and Porsche, as well as Daimler and BMW, this would amount to 465 billion euros.

What everybody is missing, and which may be clearer in Brussels than in Germany, is a strategy for the future of the automotive industry. "The goal of the commission must be to sensibly harmonize the different regulations for the limits for nitrogen dioxide, particulate matter and CO2 in the future," says German EU Commissioner Günther Oettinger.

He is supported by Ismail Ertug, a Social Democrat member of the European Parliament who sits on the Transport Committee. "The commission should develop a master plan for the future of the European automobile industry: What motor are we placing our bets on for 2015? What will the automobile industry look like then?"

Markus Pieper, an economics expert for the conservative Christian Democrats in the European Parliament, also warns against restricting the debate to the German car industry. "Dieselgate and nitrogen oxide are a European phenomenon. Almost all European car manufacturers are responsible for the fact that limits are being exceeded in almost every EU member state."

So the question is this: When will it dawn on politicians that they need to act, that the situation can't go on as it is? When will they realize this, not just on the merits of the situation, but out of respect for the voters who aren't exactly thrilled about air pollution, driving bans and the loss of value of their cars?

Divisions over How to Deal with Industry

What is clear, at least, is this: The atmosphere between politicians and the automotive branch has seen better days. This was especially visible on the margins of the actual talks at the diesel summit. German Transport Minister Dobrindt was especially incensed that the lobbyists with VDA released a statement with an incomplete description of the negotiations to the press one hour before the official press conference. Whether by accident or not, they left out the trade-in rebate for drivers of older diesel vehicles which the car manufacturers are supposed to offer.

But the politicians disagree about how to best deal with the auto industry. Participants report that Lower Saxony Governor Stephan Weil, who is also a member of the VW supervisory board, since his state is a major shareholder, attempted at the last minute to reduce the number of vehicles for which the car companies needed to carry out software updates. Car industry representatives, of course, took ownership of the idea immediately. "If Governor Weil says this," one of them warbled, leading Transportation Minister Dobrindt to lose his temper. "It doesn't matter what the Lower Saxony governor said, we are sticking with the target size of 100 percent," he said by way of clarification.

So there is pressure -- and it can only increase. Because the fact that federal German ministries and authorities acted as if they were blind and deaf to the manipulations of diesel motors for years, may soon come back to haunt them. This Wednesday, a liability suit against the German government was filed in the district court of Freiburg. The law firm Stoll & Sauer, which represents 35,000 victims of the diesel affair and has filed 3,400 suits on their behalf, is leveling serious accusations against the government.

The 50-page claim, which DER SPIEGEL has seen, is directly aimed at Dobrindt's Transportation Ministry. The accusation: According to EU law, his authority should have issued deterrent sanctions when the carmakers manipulated their vehicles during the approval process for new models, as VW did. But to this day, the car companies haven't had to worry about any punitive measures.

The suit also includes the actions of the KBA in a long list of the transgressions by car companies and government politicians. The authority, it claims, had carelessly approved the diesel cars and not sufficiently supervised the process. "For years, the authorities failed to notice any of the manipulations," says lawyer Ralf Stoll. "Clues were ignored. In this, the German government has made itself complicit."

If Stoll and his partners prevail in court, an owner of a diesel VW Golf, the model at the center of the suit, would be entitled to compensation from the government. And everyone else, theoretically, as well.

By Susanne Amann, Sven Becker, Kristina Gnirke, Peter Müller, Michaela Schießl and Gerald Traufetter