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German Coalition Could Clamp Down On Diesels

German Coalition Could Clamp Down On Diesels.

New Government Might End Gas Engines, Force Electric Car Sales.

“The likelihood of the CDU, FDP and Greens forming a ruling coalition in Germany has strengthened our expectations for a tougher crackdown”

As the dust settles after the German election, the auto industry faces some hefty challenges including tougher rules on diesel emissions, demands for an early phase-out of traditionally powered cars, and possible government measures to force the public to buy electric ones they don’t want.

The future of giant Volkswagen is also coming under scrutiny. For years, analysts and investors have implored VW to change its structure to give shareholders more power and curb entrenched politicians from its home state of Lower Saxony and the unions. Allegedly, this has crippled attempts for VW to match the efficiency of the likes of Toyota.

But now a new and intriguing possibility looms because on October 15, an election in Lower Saxony could see the victory of Bernd Althusmann. If his Christian Democrat Union (CDU) led coalition defeats the Social Democrat’s (SPD) premier Stefan Weil, Althusmann would be entitled to a seat on VW’s supervisory board. That in theory could lead to a removal of union and political power from VW’s governance, investors dream for years as they sought to make the company accountable to them.

The indecisive result of Sunday’s election, which left Chancellor Angela Merkel’s centre-right CDU-CSU as the biggest party but without enough seats to govern alone, means months of negotiations with the business-oriented Free Democrats (FDP) and the Greens. The party which came third behind the SPD, Alternative for Germany, is considered beyond the pale to take part in civilized government.

This means that there will be months of speculation about the possible horrors awaiting the industry from a coalition with the Greens. Meanwhile, fears for the future can only focus on generalities.

BMI Research put it this way.

VW
“The likelihood of the CDU, FDP and Greens forming a ruling coalition in Germany has strengthened our expectations for a tougher crackdown on vehicle emissions, more generous incentives for EVs and more pressure for the state (of Lower Saxony) to divest its ownership of Volkswagen shares,” BMI Research said in a report.

During the election campaign, Merkel unleashed some harsh rhetoric on the auto industry, saying it had lost the trust of consumers because of VW’s dieselgate conspiracy in particular and the industrys’ attitude to diesels in general. And it paid itself too much money.  Other politicians demonized diesel manufacturers because of its alleged health risks. Some want to bar diesels from city centers.

If that wasn’t enough for investors to worry about, in July, the German cartel watchdog said it was investigating reports VW, Mercedes’ parent Daimler, and BMW might have colluded illegally to fight off competition.

Matthias Holweg of the SAID Business School at Oxford University said Green party participation in government would probably mean it was in charge of the environment ministry. 

“While the auto lobby’s power should not be underestimated in Germany, the public image of the industry is damaged. Everyone wants to avoid driving bans for diesel cars, but these will happen if the car industry does not agree to swift retro-fitting. Also more stringent test scenarios are likely, as city air quality is very much in the center of the public debate at present. So interesting times to come, but expect little until the new coalition is set up,” Holweg said.

End date for conventional power?
Professor Ferdinand Dudenhoeffer from the Center for Automotive Research at the University of Duisberg-Essen in Germany expects the Greens to push for an early date to ban the sale of combustion engines. It has already opted for 2030, 10 years before the U.K. and France have indicated they will go for.

“It is not clear whether they (the Greens) will be successful, however, they will try and also try to stop tax subsidies for diesel fuel. If one thing is clear, it will become more difficult for combustion engines with Greens instead of Social Democrats,” Dudenhoeffer said.

“We will see more support to start battery-innovations in Germany, we will see more support for EVs, however I don’t think it will be overwhelming. They need compromises between yellow, green and black (the colors of the three parties) – and that means no strong push to change,” Dudenhoeffer said.

BMI Research is a little less certain the impact will be small.

“Despite the potential commercial damage a crackdown on emissions may bring to major German brands, rhetoric from the CDU, FPD and Greens during the election campaign all remained steadfastly critical of German automotive producers. This suggests this topic is very much likely to shape a tougher future government policy on emissions, a view that is strengthened by the inclusion (possibly) of the Greens as a junior coalition partner whose environmentally-focussed manifesto heavily prioritized a tougher policy stand on emissions issues,” BMI Research said.

Pressure on VW to divest its Lower Saxony stake is likely to mount because the FDP wants this to happen, BMI Research said.

Lower Saxony election
In a report published before the general election, investment researcher Evercore ISI wondered what might happen to VW governance.

“Should the CDU win on the 15th, there is a strong possibility that Althusmann will end on VW’s Supervisory board representing Lower Saxony. In addition to recent comments around the next CEO, (suggesting it could be an outsider) Althusmann previously promised to give one of the two Lower Saxony seats to an independent and qualified person as opposed to another politician from Lower Saxony,” the report said.

“It seems Althusmann may be the key to moving VW’s governance and fortunes forward,” it added.


 

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