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German Auto Stocks Calm After Election

German Auto Stocks Calm After Election.

Will Greens Be In Government?

“Large sections of the auto industry have gambled away unbelievable amounts of trust”

German auto stocks showed little reaction to news Angela Merkel will return as Chancellor, but on the day after the election, the makeup of a required coalition government wasn’t clear.

The voting figures suggested that Merkel’s right of centre Christian Democrats (CDU) with about 33% will seek a deal with the business friendly Free Democrats (FDP) 10.7% and the Greens 8.9%.

That would raise the scary possibility for the auto industry of the Greens inflicting some serious damage with extreme action against diesels. But with the Green Party in control of the state of Baden Wuerttemberg where Daimler’s Mercedes and Volkswagen’s Porsche have factories it is on the record as saying diesel must be retained as an interim technology before electric cars take over.

The Greens have suggested though that internal combustion engines be phased out by 2030, about 10 years ahead of similar plans from France and Britain. Merkel has hinted she might go for the 2040 option too. The Greens also want a carbon tax, and tougher measures on climate change, opposed by the FDP.   

The previous grand coalition between Merkel’s CDU and left of centre Social Democrats (SDP) will come to an end, after SDP leader Martin Schulz, stung by the party’s worst defeat since World War II, opted for opposition. It polled about 21%.

But according to investment bank UBS, this decision might be reversed if Merkel can’t do a deal with the FDP and the Greens. Either way, UBS expects talks to drag on for months with a new government not emerging until the first quarter of 2018. 

During the election campaign Merkel had plenty of harsh words for the auto industry 

“Large sections of the auto industry have gambled away unbelievable amounts of trust. This is trust that only the auto industry can restore. And when I say ‘the industry’ that is the company leaders,” Merkel said at the start of the campaign. She also said big bonuses for executives were unfair.

Merkel was referring to the diesel scandal, after Volkswagen admitted a couple of years ago to conspiring to thwart U.S. anti-pollution laws with diesel emissions cheating software, now known as “dieselgate”. Since then politicians have been demonizing diesel manufacturers because of the alleged health risks and the industry generally has been scrambling to show modern iterations of the technology are not harmful to health.

If they fail, a huge part of their strategy for meeting ever harsher E.U. fuel consumption rules will be in tatters. That would mean massive spending on new technology to bridge the gap.

Merkel also complained about the industry’s slow progress in moving to electric propulsion. The SPD threatened E.U. wide electric car quotas. Schulz said the industry hadn’t planned seriously for the future.

Merkel reinstated her target of 1 million electric cars on the road by 2020, which seemed to have been dumped earlier this year on the grounds that it was impossible. There were 25,154 electric cars on German roads in 2016.

If that wasn’t enough for investors to worry about, in July, the German cartel watchdog confirmed it was investigating reports VW, Mercedes’ parent Daimler, and BMW might have colluded illegally to fight off competition. VW’s protected status is also under threat by a local election in October.

Even wiith a Merkel win, the industry might face a harsher environment.

“Regardless of who wins the election we would expect a tougher stance towards the nation’s carmakers, but our core view of another term for Angela Merkel as Chancellor enhances this view given her reputation as a strong leader. She will not push for electric vehicle quotas, however, favoring innovation in other areas instead,” said industry analyst BMI Research before the election.

More scrappage
Professor David Bailey of Aston Business School said before the election that a Merkel win will mean more scrappage schemes for diesels which can’t make the latest emissions standards, and seek to head off more political air quality action in towns.

The German environmental movement is mounting a big campaign to use the courts to ban older diesels from city centers which can’t meet the strictest emission standards.

By midmorning in Germany VW’s stock price was down 0.35%, BMW’s off 0.53%, while Daimler edged 0.5% higher. No sign of panic there.


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