Cars

Germans Are Too Hard on Their Automakers

Cooperation doesn't have to be a crime.

National champion.

Photographer: Thomas Niedermueller/Getty Images

Germans can be relentless at beating themselves up. When it comes to their auto industry, this tendency may be getting out of hand.

The latest scandal for German automakers started with a cover story in the respected newsweekly Der Spiegel, which suggested that Volkswagen, Daimler and BMW have operated as a cartel since the 1990s. It described how the companies formed myriad working groups to agree on common standards and specifications -- for example, to keep urea tanks for diesel engines relatively small so more space under the hood would be available for pricey extras. The urea agreement was portrayed as particularly sinister: Smaller tanks mean more pollution, because manufacturers can't force customers to come in for a change as often as necessary. Hence, it may be partly to blame for Volkswagen's emissions-manipulation disaster and for the broader problems of the diesel engine, which faces bans in some European cities.

The multiplying scandals are a big blow to Germans, who have long taken pride in an auto sector that accounts for about 20 percent of domestic corporate revenue and 18 percent of exports. Everyone from workers to Economics Minister Brigitte Zypries is demanding explanations. As Georg Meck put it in the Frankfurter Allgemeine Zeitung, "How much criminal energy is there in the industry, which has long served as an example and is still important for the country's prosperity?" This is no longer merely an economic or business matter -- it's like being told that your country's entire Olympic team cheated on doping tests.

The auto woes are also an immediate political threat to Chancellor Angela Merkel, who is cozy with the car lobby and has pushed for softer European emissions legislation. The Green Party, struggling to stay in parliament at the next elections in September, has seized the opportunity to criticize Merkel and her conservative Christian Democratic Party for covering up the collusion. And Zypries is a member of the Christian Democrats' coalition partner, the Social Democratic Party, which is frantically looking for ways to undermine Merkel's poll dominance.

But was the automakers' behavior really so bad? They have long cooperated openly in some areas, such as buying windshield wipers, investing in mapping technology and building networks of charging stations for electric cars. Seeking consensus and compromise to avoid unreasonable expense is part of the German culture, not just German business practice. It's a trait that tempers competition and breeds national champions. When Germany deregulated intercity bus service in 2013, for example, the companies that emerged quickly consolidated into a leading operator, Flixbus, that now controls 71 percent of the market. A similar liberalization in Italy led to a highly fragmented market. 

To be sure, a cooperative culture can engender abuse. Consider the four European truck makers -- Volvo/Renault, Daimler, Iveco and DAF -- that the European commission fined last year for offenses that included coordinating when emission-reducing technology would be implemented. Such anti-competitive behavior arguably harms both customers and the planet. 

Yet the top three German automakers aren't nearly as dominant in Europe as the truck makers. Their combined European market share is just 36 percent. They have to compete with Japanese, French, British, Korean and U.S. manufacturers. To that end, cooperating to reduce research costs and preserve the precious German supplier ecosystem seems sensible rather than criminal. If they all merged into one big German automaker, European regulators would be fine with its internal efforts to standardize and achieve efficiencies, just as they are fine with such efforts at VW, which has Audi, Skoda, Seat and Porsche in its portfolio.

Perhaps the German car industry should consolidate, creating Deutsche Automobil AG with the three firms' entire brand portfolio. Regulators would almost certainly require some divestments, but the advantage of formalizing all the open and open-secret cooperation might make it all worthwhile.

German cars sell so well thanks to their superlative quality and the enormous investments the producers make in new technology. Tesla would be impossible without parts produced by German suppliers. Instead of moaning about the industry as a national disgrace, perhaps Germans should embrace the closer cooperation it needs to survive.

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

    To contact the author of this story:
    Leonid Bershidsky at lbershidsky@bloomberg.net

    To contact the editor responsible for this story:
    Mark Whitehouse at mwhitehouse1@bloomberg.net

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