German Car Companies Are Driving the Country Off a Cliff
"Made in Germany" used to mean reliability. Now it means collusion.
The proximate cause of Germany’s recently enhanced international clout has been the presidency of Donald Trump, but its ultimate foundation is the country’s economic strength -- and, more specifically, the strength of German car companies. Germany’s unemployment rate has fallen from 7.4 percent to 3.8 percent since 2010, and its middle-class household incomes have seen marked increases in that period, in large part because Daimler, BMW, and Volkswagen, which also comprises the Audi and Porsche brands, have posted record results.
The proximate cause of Germany’s recently enhanced international clout has been the presidency of Donald Trump, but its ultimate foundation is the country’s economic strength — and, more specifically, the strength of German car companies. Germany’s unemployment rate has fallen from 7.4 percent to 3.8 percent since 2010, and its middle-class household incomes have seen marked increases in that period, in large part because Daimler, BMW, and Volkswagen, which also comprises the Audi and Porsche brands, have posted record results.
The country’s post-war identity has largely been defined by these auto manufacturers, which together symbolize the promise of excellence conveyed by the label “Made in Germany.” But the engineering and moral reliability of the German auto industry — and by extension the solidity of the entire German economy — is now being called into question. Both at home and abroad, consumers are now asking whether they can still trust German-made products. For Germany this amounts to an existential crisis.
When VW — the Federal Republic’s largest company, whose 2014 turnover of 200 billion euros equaled two-thirds of the federal budget — was revealed in September 2015 to have systematically manipulated the diesel emissions of 11.5 million of its cars, it unleashed a tsunami of anxiety. In the United States, VW has already paid a high price for its criminal dealings; court settlements and fines stand at over $21 billion. But the VW scandal has proven to be only the tip of an iceberg.
On July 22, a cover story in the investigative weekly magazine Der Spiegel claimed that VW, BMW, Daimler, Audi, and Porsche had formed “one of the largest cartels of German industrial history.” Dating back to 2006, the “Big Five” had maintained more than 60 working groups that held over 1,000 meetings to exchange information, exert pressure on suppliers, and agree technical specifications for key components used in current and future models. They also seem to have been consistently collaborating on diesel emissions in ways that, according to Der Spiegel, suggest an intention to break existing environmental law.
In response to stricter limits on carbon dioxide due to concerns about climate change, German manufacturers pushed the development of a carbon dioxide-efficient diesel technology that happens to also produce increased levels of noxious nitrous oxides. The latter can be removed from exhaust fumes through the injection of a urea solution, so long as manufacturers are prepared to equip vehicles with sufficiently large urea tanks. But to save costs and space — and to appease sales departments, which vigorously opposed the installation of larger tanks that would have prevented the installation of powerful stereo speakers and precluded carrying golf equipment in the trunk — the Big Five agreed to fit many models with tanks that were too small to keep the exhaust within legal limits.
The Spiegel article was especially damaging because the auto industry’s cozy mutual accommodation stood in such contrast to its reputation for rigorously pursuing quality and competition — a reputation that not only helped sales, but helped shape post-war German national identity. Indeed, the Federal Republic’s national identity has been decisively shaped by the automobile.
It was in the immediate post-war period that Volkswagen, which had been founded by the Third Reich government to pursue a wholly unrealistic plan to mass-motorize Nazi Germany, turned from failed propaganda project into a leading firm. In the legendary Beetle, VW produced Germany’s equivalent to the Model T, which played the leading role in West Germany’s transformation into a car society. Beyond fulfilling the dream of individual car ownership, the Beetle became the widely revered icon of the Federal Republic’s much-vaunted “economic miracle”; its durability and robustness stood in pronounced contrast to the country’s instability in the first half of the 20th century and thus turned it into an ideal projection surface for hopes that the postwar order with its appealing affluence was here to stay. Quality, the Beetle suggested to postwar Germans, created stability and prosperity.
At the same time, the small car became an export success, helping revitalize the “made in Germany” label internationally and consolidating Germany’s reputation as a purveyor of quality products. Today, German car companies continue to leverage their reputation for quality and reliability to expand sales in new markets. In China, sales by Volkswagen group quadrupled from 1 million to 4 million between 2008 and 2016, allowing it to lay claim to the title of world’s largest auto manufacturer; meanwhile, sales by Daimler-Benz tripled from 160,000 to 488,000 between 2010 and 2016. After the difficulties of the immediate post-reunification years, the recent performance of the German car industry could be read as a sign that the country was resuming its march to prosperity through quality engineering.
But now Germans are learning that their leading industry may have always been focused on prosperity by any means necessary.
It will be up to the courts and the European Union competition commissioner to assess the extent to which German car manufacturers breached the law during their decade-long collusion. Yet, behind this most recent scandal lurks a fundamental issue. In light of international trends toward stricter environmental regulations, it is surprising that so many German auto manufacturers put their faith almost exclusively in an old technology — diesel — to respond to the hybrids and electrical cars Japanese, American, and Chinese competitors regard as more promising. Of course, lacking access to the recorded minutes of strategic meetings we cannot know the ultimate reason for this preference.
But we do see in the German car sector the flip side of its reputation for reliability: a commitment to the tried-and-tested that appears to extend to a willingness to break the law. “What does all of this say about the state of nation?” asks a worried Der Spiegel. “A cartel that choses the wrong path and defends it prevents innovation and cannot win.” The very emblem of postwar stability — the German car — is beginning to lose cultural currency at home, as well as abroad. What this forebodes for the sector’s economic future is still unclear.
The Americans have Trump and the British have Brexit; and both threaten the political and economic order that favors Germany as an export nation. Meanwhile, Germany has dirty diesel. “Big parts of the motor industry have gambled away unbelievable trust,” Merkel said in the opening speech for her reelection campaign last weekend. Car companies, she demanded, have to clean up their act, and fast.
She was not merely worried about a disgruntled electorate and an eroding international customer base. If Merkel is to defend economic and political liberalism on the international stage, she cannot do so as the representative of a country whose most prominent industry is a synonym for self-serving dishonesty.
Photo credit: PATRIK STOLLARZ/AFP/Getty Images
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