How dearly will Germany pay for the Volkswagen emissions rigging scandal

Arrival and doorstep comments by Étienne Schneider, Luxembourg Deputy Prime Minister and Minister of the Economy, at the Informal Meeting of Energy, on 23 September 2015, in Luxembourg. He answered questions about the Volkswagen affair without being able to clarify the matter from EU’s perspective. Luxembourg currently holds the rotating EU Presidency. (European Council – Council of the European Union Audiovisual Services. Snapshot from a video footage, 23/09/2015).

The Volkswagen emissions scam exposed by the US authorities last week has more substance than the vast and varied financial, commercial and legal consequences wherever in the world the company is present. VW has a great weight in the German car universe with its 12 brand names (VW, Audi, Porsche, the Volkswagen trucks Scania and MAN, Skoda, Seat, etc). It’s also a fact that the automotive industry has a tremendous importance in the German economy. One in every seven jobs depends directly or indirectly on it.

As a result, the enormous but still indeterminate consequences of the emissions rigging scandal constitute an unprecedented blow to Germany itself. In reality this affair takes on the dimensions of a top political issue between the US and why not the rest of the world on the one side and Germany on the other. There is no doubt that this is an affair with many tails.

A technical or political affair?

The complexity of the technical aspects, the statistical or the uncertainty that is always present in measurements, the choice of conditions in applying the rules and the timing of the announcement can mould the American ‘discovery’ into a rather calculated hit against Germany’s industrial heart. This can be a clear Washington tracer for Berlin to see. It may be the result of a number of wider conflicts between the two countries around burning issues like Eurozone’s economic policies or the West’s action in Ukraine, the Middle East and Africa.

Mind you that in the Volkswagen case nobody can accuse the US of being biased against Germany. Only lately the Japanese Toyota and the American General Motors conceded to pay $1.2 billion and $ 900 million respectively in fines for technical faults in their cars. In the VW occasion though, there is overt cheating against the US authorities and millions of consumers and a fine that can reach the astronomical amount of $18bn.

Comparing the cases of Toyota and GM with Volkswagen, the former companies’ faulty cars caused tens of deadly accidents, while VW just polluted the environment a bit more. Understandably, an impartial judge may conclude that the US authorities are using double standards in imposing fines. The immeasurable fine of $18bn has already caused VW a loss of one third of its stock exchange capitalization and this is just the beginning. Let’s dig a bit further.

The Americans say they have just discovered hidden software in VW cars which alters pollutant emissions when the vehicle is immobilized while undergoing tests. Whatever questions one may have about the technical aspects of this matter, the truth is that most times the technicalities have never been a key issue in similar cases of international trade as for example in food and food packaging material testing. Usually, the technical determinants and the conditions of the tests are extensively and bitterly fought at the political level between the trading partners. The currently negotiated Transatlantic Trade and Investment Partnership is a most striking proof of that.

VW dignitaries self humiliated

In any case, the full acceptance by the VW dignitaries of the fact that their company by design rigged the emissions tests is so conclusive and final that leaves no room for technical discussions. Actually, this pathetic ritual by the Germans reached self humiliation. It also opens the way to each of the private owners of the affected 11 million VW cars sold in the US to take legal action against the company. Of course this will be an independent legal procedure quite different from the official action against VW that may be initiated in practically every country of the world and before the international courts.

As for the damage to VW’s name, it obviously has a crushing impact on the entire German automotive industry and beyond. It tarnishes the reputation of the ‘Made in Germany’ seal in its entirety. Undoubtedly it also touches the Teutonic ideological assertions about honest and hard work as well as uncompromised clarity of the country’s commercial and economic statements. Not to forget however that the VW case comes after a number of German giants are been condemned for corrupted commercial practices in gaining government contracts in Greece and elsewhere. This new flagrant cheat may definitely destroy the German quality image.

US vs Germany

This US case against VW will have different consequences than the repercussions stemming from the fact that the big German multinationals like Siemens, Ferrostaal, ThyssenKrupp and HDW being condemned for using corrupt commercial practices. Those last cases may be considered as symptoms of a common international illness concerning western companies hunting for government contracts in developing countries. The VW affair though is different because it reveals a carefully panned and engineered swindle intended to cheat millions of consumers and numerous governments around the world.

It’s more than certain then that the Americans will upgrade this case to the highest political levels. It means that Washington will press Berlin on a number of strategic issues in the international arena. This may challenge the German longtime efforts to prevail in Europe and will curb Berlin’s objections against the American plans in the Middle East and elsewhere.