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German Auto Investors Fear Big Fines From Cartel Allegations

German Auto Investors Fear Big Fines From Cartel Allegations.

“The E.U. will punish them even more severely to set an example once and for all that governments aren’t prepared to close their eyes to the doings of the automotive industry,”

Auto  investors were spooked by reports German automakers faced an investigation into possible illegal collusion that might incur massive fines from the European Union (E.U.).

If the cartel allegations are proven, the German companies involved – VW and its Audi and Porsche subsidiaries, BMW and Daimler – could face crippling fines, not least because the industry has been found guilty of illegal cartel activity in the recent past. 

On Wednesday, VW shares opened more than 1% higher before falling marginally. BMW was just about in the plus column. Daimler, which owns Mercedes cars, fell 2.3% initially but by midday was up nearly half of a percent, although that might have been related to its latest earnings report.

VW had fallen more than 5% and BMW and Daimler more than 3% as news broke at the weekend that the E.U. Commission said anti-trust regulators were investigating a possible German auto industry cartel to fix prices and designs of diesel emissions treatment systems and other vehicle parts.  They emerged last week in the German magazine Der Spiegel.

Peter Schmidt, editor of the Automotive Industry Data (AID) newsletter, said because these allegations come after recent cartel convictions, the E.U. is likely to fine anyone found guilty much more heavily than usual.

Punish them
“The E.U. will punish them even more severely to set an example once and for all that governments aren’t prepared to close their eyes to the doings of the automotive industry,” Schmidt said.

Christian Breitsprecher, analyst with Macquarie Research, said cooperation between car manufacturers in the past has been formally approved in the past.

“The borderline between agreeing on industry standards to the benefit of all – suppliers and consumers as well – and measures that cut out competition may sometimes be hard to define. However, agreeing on industry standards is something that happens out in the open and not behind closed doors,” Breitsprecher said in a report.

“The fines could be in a range from minimal to several billion euros. The fines that are put on companies in cartel cases are based among other factors on the annual revenue of the companies of up to 10%, the gravity and the duration of the violations. So in this case the fines could potentially cost the companies billions. On top of this fines could come from damage claims from suppliers if they can prove they have been damaged,” Breitsprecher said.

“We could also see the scenario that the activities were actually fine. However with all the scandals evolving already, VW and Daimler just wanted to play it safe. This now raises the question why shareholders and the public were not informed about this potentially significant risk,” Breitsprecher said.

AID’s Schmidt said the industry faces a big financial hit.

“I think it inevitable this time that if proven guilty by the E.U. they will pay massive fines,” Schmidt said.

He said Daimler paid 1 billion euros for participation in a truck cartel. If it was found guilty this time, the fine would be at least double.

Uncertain degree
Under E.U. rules, if an illegal cartel is revealed by a whistleblower, the whistleblower gets off with either no fine at all, or a very small one. The fines mount as members of the cartel admit their guilt.

Macquarie’s Breitsprecher said guilt would spell more bad news for the industry.

“In how far laws and regulations have been really violated remains still uncertain. However, next to the diesel problems, challenges like e-mobility and automated drive this is another troubling risk factor that the German car companies did not need. It will put further pressure on the share prices of the German car makers overall,” Breitsprecher said.


 

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