Germany’s Biggest Carmakers are a Cheating Cartel

Germany’s Biggest Carmakers are a Cheating Cartel, by Frank Dohmen. The diesel scandal was just the tip of the iceberg.

Daimler, BMW, Audi, Porsche and Volkswagen are engaged in cutthroat competition to produce the best cars. At least that’s the story often told by auto company CEOs, economists and politicians. It’s a narrative about the beneficial effect of the market economy, which is based on competition among companies. But the narrative is wrong, and this is reflected in the convertible top.

Daimler, BMW, Audi, Porsche and Volkswagen did not in fact compete over which company could offer its customers the best top. On the contrary, experts with the five automakers coordinated their actions in numerous meetings. For instance, they determined the maximum speed at which a driver could open or close the top.

“No arms race when it comes to speeds,” read the minutes of a meeting in Bad Kissingen. Arguments against an arms race, according to the minutes, were “costs, weight, increasing technological risk and crash relevance.” The result of that meeting is that the soft tops on the convertibles sold by Daimler, BMW, Audi, Porsche and Volkswagen can only be opened and closed at speeds of up to 50 kilometers per hour.

It was an agreement that suspended both competition and the market economy. It was reached by the “working group for mechanical attachments.” There were many, many other working groups involving the five German automakers, including working groups for braking control systems, seating systems, air suspensions, clutches, gasoline engines and diesel engines. The major issues were discussed and arranged in these groups.

Reporting by DER SPIEGEL into the anti-cartel authorities in Brussels and Bonn, and automakers in Stuttgart, Munich and Wolfsburg, and conversations with current and former executives, provide a previously unknown image of Germany’s most important industry. The conclusion is that Daimler, BMW, Audi, Porsche and Volkswagen often no longer compete with one another. Instead, they secretly cooperate, very closely, in fact, in the same way one would normally expect of the subsidiaries of a single company to work together, as something like a “German Cars Inc.” — or a cartel. …

It is not just a matter of the establishment of an exclusive club of the five German automakers with the goal of attaining economic advantages over the competition. The secret agreements are also detrimental to customers, who buy German vehicles because, among other things, they expect to be getting the best possible products from a technical standpoint. But how can a company produce the best if competition is curbed, and if the engineers stop doing their utmost to outdo the engineers working for other brands? …

And then there are the millions of owners of diesel cars. In an almost bizarre way, they too are victims of the German auto cartel. For the first time, there is proof that it was agreements among these five automakers that ultimately ensured that emissions from diesel vehicles were not cleaned as effectively as would have been technically possible. …

The cartel authorities face a Sisyphean task in their investigation of the auto cartel. There were more than 60 working groups in which the automakers cooperated. … More than 60 working groups and more than 1,000 meetings. …

Market principles were thwarted for their own advantage:

But beyond this known cooperation, apparently the companies, in their groups of five, secretly shut out the competition in many areas of vehicle development for years, thereby violating the basic principle of the market economy. …

It is standard practice in the industry to analyze competitors’ vehicles. The automakers buy cars, drive them and sometimes dismantle them. This is a complex and expensive undertaking.

The members of the group of five helped each other to facilitate these comparisons by exchanging data on such variables as the “driving resistance coefficient.” The Third-Party-Motor Analysis working group oversaw this effort. According to one employee, “the ‘give and take’ motto is correct and, in this manner, is also experienced in a friendly manner within the working group.”

This may not have posed a problem under cartel law if all automakers had been given access to the data, including competitors from France, Italy, Japan and the United States. But the members of the German group of five wanted it to remain an exclusive group. Inquiries from Jaguar, Volvo, Renault and Fiat were rejected. …

The individual cases described in the Volkswagen brief reveal that the German automakers live in two worlds. The one world, the hidden one, is characterized by a lively “give and take.” In the other world, the one on display at auto shows, the automakers act as if they were in bitter competition with each other.