Autos

Chris Bryant is a Bloomberg Gadfly columnist covering industrial companies. He previously worked for the Financial Times.

Fiat Chrysler's decision to snub a German government invitation to discuss vehicle emissions last week seemed, on the face of it, deeply imprudent. If you have nothing to hide, why not play ball?

Bump in the Road
Fiat shares have been hit amid reports linking the company to the diesel-emissions scandal
Source: Bloomberg
Intraday times are displayed in ET.

Fiat says that because its biggest operations are in Italy, the country is responsible for testing its cars under European Union rules. But it looks like the automaker is playing a different game -- namely, politics -- a strategy European car companies have been pursuing very effectively for years.

Before U.S. environment authorities exposed Volkswagen's emissions cheating in September, European governments had turned a blind eye to claims that manufacturers' vehicle emissions were often far higher than permitted.  

National governments have since been spurred into limited action, but instead of truth and reconciliation, we've had smoke and mirrors. It looks rather like protectionism is coming to the fore. 

Italian transport minister Graziano Delrio told his German counterpart last week to direct any questions about Fiat to him, rather than to the carmaker, according to this Bloomberg News report.

Why such defensiveness? Could it be the Italian government has no interest in seeing a large Italian employer hit by emissions-related fines or reputational damage?

And consider France, where investigators raided Renault's offices in January. A sign of progress, perhaps? Au contraire. The French government, which holds a 20 percent stake in Renault, swiftly assured the public that there no fraud had been discovered.

Stock Skid
Renault shares are down 20% over the past year
Source: Bloomberg

Germany's transport ministry should be commended for setting up a commission to investigate manufacturers' emissions. But don't expect wonders.

The State of Lower Saxony holds a 20 percent voting stake in VW, which employs more than 275,000 Germans. Not surprisingly, the carmaker been treated more leniently there than in the U.S., where the company likely faces billions of dollars in fines. It took the U.S. Department of Justice, not Berlin, to force Daimler to review its exhaust emissions certification process.

Curiously, though, there is one "German" carmaker that hasn't been spared a little rough treatment by Berlin -- Opel. Its Zafira model is at the center of a row about software that allegedly switches off emission controls under certain conditions. Transport Minister Alexander Dobrindt publicly raised doubts about the legality of the devices, while the company says its engines fully comply with the law.

Though a big employer in Germany, Opel is the European subsidiary of General Motors. It's surely not a stretch to think Berlin wouldn't mind seeing a U.S. carmaker get a taste of the medicine Washington is meting out to VW.

Besides these protectionist instincts, Europe's response to the emissions scandal has been so ineffective because the testing structure is inadequate. 

Testing is left solely up to national governments and carmakers can shop around among countries for the easiest treatment. Carmakers pay those local agencies for the tests, raising questions about a conflict of interest.

Transport & Environment, a lobby group, called for Europe set up a single body up to test vehicles in September. Instead, the European Commission proposed a softer regime, whereby member states and the Commission would carry out spot checks on vehicles after they are certified.

Multiple Contraction
Investors aren't willing to pay as much for most European auto stocks. Emissions worries aren't helping
Source: Bloomberg

If national governments can't effectively police the car industry, then maybe the capital markets will.

Valuations of European carmakers have tumbled since last September. Several factors have played a role here -- but emissions worries shouldn't be overlooked. Fiat's shares fell almost 6 percent on Monday after Bild am Sonntag reported the company had cheated. (The carmaker says it meets all European rules.)

Instead of griping about whose government has jurisdiction, that should be a lesson to automakers that they need to put their cards on the table, fix any contraventions and move on. Until then, Europe's response to the emissions scandal risks remaining a farce.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. The Commission also reserved the right to impose fines and initiate recalls "to deter manufacturers…from allowing non-compliant vehicles onto the market".

To contact the author of this story:
Chris Bryant in Frankfurt at cbryant32@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net