BMW, Daimler, and Volkswagen May Face Fines of Up to €50 Billion for Conducting Cartel to Conceal Diesel-Emissions Cheating

Today, The Times reported that leading German automakers BMW, Daimler, and Volkswagen “are facing fines of up to €50 billion as the European Commission [(EC)] investigates claims that they conspired as a cartel to cover up their cheating on diesel emissions.”  The article cited a report that Margrethe Vestager, the EC Commissioner who oversees the Directorate-General (DG) for Competition, is preparing to send the three companies “a formal letter of complaint that would be a prelude to heavy penalties.”  Once the EC completes its work, reportedly in the spring of 2019, the penalties it could levy under EU competition law could be as much as “10 per cent of each company’s annual turnover, which last year amounted to a combined total of nearly €500 billion.”

The Times explained that “German prosecutors suspect that the car manufacturers not only systematically gamed pollution tests on their diesel engines but also colluded over at least eight years to conceal their actions from the authorities.”  According to The Times, the German business newspaper Handelsblatt obtained a substantial quantity of emails indicating “that the three carmakers were aware that their vehicles were emitting illegal levels of nitrous oxide and nitrogen dioxide at least 12 years ago.”  Although German automotive engineers had devised a method of reducing those levels by washing a cleaning fluid known as Adblue through a car engine after the combustion process, “this method turned out to be prohibitively expensive and left potentially damaging residues in the machinery.”

This reportedly led to a “crisis meeting” in Munich between representatives of the three German companies in 2007.  The representatives “allegedly made a pact to limit their use of Adblue and to cover up their tracks,” as reflected in various emails, such as:

  • An email circulated within BMW after the meeting “is said to have included a warning that its contents should ‘by no means be shown to the authorities’.”
  • In January 2008, an Audi manager “allegedly wrote to his colleagues in an email with the subject line Adblue consumption: ‘My verdict: we won’t make it without cheating’.”
  • A subsequent email in 2008 by “another senior developer at Audi apparently warned Volkswagen executives that the Adblue taskforce’s conclusions were ‘not to be mentioned in any way’ to American environmental regulators.”

Handelsblatt also stated that the three companies, seeking to expand their U.S. market share, reached an agreement to put smaller Adblue tanks in their vehicles.

Note: The DG-Competition investigation, which began in September 2018, appears to be part of a broad-based enforcement program by the EC directed at cartel behavior in the German automotive industry.  Just yesterday, the EC announced that it was fining Autoliv and TRW, two car safety equipment suppliers, a total of €368,277,000 ($416,851,000) for their participation in two cartels for the supply of car seatbelts, airbags, and steering wheels to the Volkswagen and BMW Groups.  The EC stated that because those two carmakers sell approximately three out of every ten cars bought in Europe, the cartel behavior “is likely to have had a significant effect on European customers.”

Even though Commissioner Vestager has yet to make a final decision regarding the three German automakers’ own cartel behavior, both she and the companies must be mindful that in its emissions-cheating scandal, Volkswagen paid a total of $25 billion in fines, penalties, and restitution in the United States, but nothing to authorities in Europe, where it sold nearly 14 times as many diesels.  The DG-Competition will likely have little patience with the three companies’ allegedly compounding diesel-emissions cheating with concerted action to conceal that cheating.

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