VW has run out of ideas

Volkswagen isn’t the only carmaker whose future suddenly looks bleaker than ever before. So far, Europe’s largest automobile producer is the only one to have been caught cheating on emissions tests — a state of affairs that could well soon change. Last week, the U.S. Environmental Protection Agency announced that it had proof that the fabled German company had systematically deceived regulators in the U.S. (and the Germans now say in Europe, too) over the pollutants that 11 million of its diesel vehicles emit on roads across the world.

Even if no other carmaker becomes implicated, the VW debacle has dire implications for the industry’s bottom line. VW’s rigging of test results wasn’t the gaffe of a loose cannon in the branch but rather the desperate act of an industry giant who realized that the century-long reign of the automobile as we have known it is skidding to an end. The era of the internal combustion engine — the centerpiece of every fossil-fuel burning automobile — is in its twilight, and automakers that continue to stake everything on it, as is the case with Germany’s carmakers and most of those in the U.S. and Asia, too — will pay a very high price. They err in fighting off — rather than throwing in their lot with — a new age of modern mobility, namely climate-friendly transportation based on electric and hydrogen-fueled vehicles, biofuels, bicycles and e-bikes, and public transportation.

It’s not coincidence that this scandal happened in Germany or that the culprit is Volkswagen. In Germany, the automobile is king like nowhere else in the world: The industry is the most cherished, supported, protected, and pampered in the country.

It was, after all, in 1886 that German Karl Benz patented the first vehicle (three-wheeled!) powered by a gas engine, which is widely acknowledged as the birth of the modern automobile. Since then, there has been no looking back.

Today the auto sector’s turnover is $430 billion, about 20 percent of German industry’s revenue. Its specialty: heavy, gas-guzzling luxury models. Germany accounts for a third of Europe’s automobile production. One in every five cars worldwide is a German make. The industry turbo-powers Germany’s booming export trade: a record-breaking 77 percent of cars produced in Germany last year were sold abroad. In Germany alone, the auto industry employs 775,000 people. VW leads in every category — size, earnings, exports and number of workers — and employees 600,000 worldwide.

So important is the sector that politicians from all the parties fall over themselves to serve the auto lobby. Germany may have the reputation of prioritizing environmental issues and climate protection (and lecturing other countries on it) but biggering the automobile industry’s record production figures from year to year is much, much more important. (VW and its competitors love to play along, underscoring their green intentions.) But Germany is the only country in the world without a speed limit on its highways — a sacrosanct perk that the car lobby defends to the hilt.  

More damning, just this year Germany headed up a rebellion of automobile-manufacturing nations in the European Union against more stringent emissions standards for vehicles of the future. The standards had already been hammered out after months of negotiations in Brussels. But Germany would not accept no as an answer and even, according to The Guardian, pushed the EU to keep loopholes in testing that would increase CO2 emissions by 14 percent. Berlin’s lobbying began just after the 2009 national vote, which reelected Chancellor Angela Merkel and her Christian Democrats. Shortly after the election, Merkel’s party was publically put on the spot by revelations that it received donations totaling $828,000 from the family that in effect controls BMW. But the embarrassment didn’t stop Merkel from fighting tooth and nail to block the tougher exhaust emission standards for big cars. Obviously neither her environment minster nor the German version of the EPA had clout enough to outweigh the car industry. (Germany’s Umweltbundesamt doesn’t have anything close to the powers of the EPA, which is at least one reason that the VW issue was detected in the U.S. and not Germany.)

Moreover, the CEOs of VW, Mercedes Benz, BMW and Porsche have favored access to the chancellery and the Bundestag. The automobile lobby and the sector itself is stocked with former politicians, more than a handful of the big guns from previous Merkel administrations.

So, why all this coddling if German prowess in automobile manufacturing is so elite? After all, its carmakers are breaking one production record after another in the middle of a Europe-wide economic crisis.

Because such special treatment is critical now in an age in which emissions standards are ever higher and competition to produce more efficient, less polluting cars is ever greater. VW had to cheat on the emissions tests because otherwise its diesel-fueled motors couldn’t compete. The ever tougher standards for internal combustion vehicles  and high fuel prices means that VW and its peers can’t rule the road the way they had in the past. The day of reckoning, it appears, came sooner for VW than it had imagined. And since the motor is just about is the only part of the automobile that producers manufacture these days, it would have been out of business in the diesel sector — or at least earning a lot less — if it hadn’t cheated.

This inordinate reputation and lobbying clout over the decades is one reason that the German auto sector is in this pickle to begin with: It has undermined German carmakers’ motivation to innovate and devote more resources to the development of carbon-neutral mobility. Merkel’s “approach is tremendously shortsighted,” wrote the weekly Spiegel magazine in 2013. “Merkel's tactics spare the strong German car industry the need to innovate. The auto companies rely on the behind-the-scenes maneuvering of their chief lobbyists in the chancellery rather than investing early on in models with lower fuel consumption.”

This is one reason why electromobility is taking off in many places — but not in Germany. German carmakers make a lot of noise about alternative mobility but they’ve come up with nothing compared to Tesla’s Model S. There are less than a tenth of the e-cars on the road in Germany than in California alone. (Oslo, Norway’s capital city, boasts more registered plug-ins than all of Germany.)  German experts such as Ferdinand Dudenhöffer, an electromobility expert at the University of Duisburg-Essen, told me that German automakers are losing the battle for the e-car market. All they can offer, he told me, were “gimmicks” that make headlines for a week and then disappear. “The German carmakers roll out some fancy new thing every now and then to divert attention from the fact they’ve been so slow in getting their own e-cars on the road,” he said.

One reason for this is lack of government support: Unlike France and the UK, Germany doesn’t offer rebates or premiums (between $5,000 and $8,000) for the purchase of e-cars.

Germany refuses to face the reality that the era of the big car is over. Kids today don‘t want bulky, costly automobiles — especially not when they can lease one from a car-sharing outfit for a fraction of the price. In cities, in particular, car sharing makes all the sense in the world, which is why it is growing by leaps and bounds. In early 2014 there were 150 car-sharing companies in Germany with 757,000 registered customers. Their customers’ profile: under 35, urban, more than half with children under 18.

Over the past seven decades no company in the world has been able to reinvent its image like Volkswagen. Originally designed by the Nazis as an automobile (Wagen) for the people (Volk), the first VWs were reconfigured for the battlefield once WWII began. What we know as the Beetle or Bug then later became the symbol for postwar West Germany’s industrial recovery and its so-called economic miracle. The hippie generation then adopted it as its own.

VW has sadly run out of ideas. It saw the end in sight and realized that it could only stay the course by throwing all caution to the wind and cheating. Its desperation should throw up a red flag to the entire industry: The only way to stay in the game is to change with the times, not to fight change.