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German car companies are at it again: Emissions cheating big four get fined, yet shares go up

12 July 2021

There are cartels, and there are car-tels. Germany, a heavily industrialized nation which is home to approximately 80 million people, relies on traditional manufacturing for its bread and butter, and more specifically, its car industry which is vast and exports products across the entire world.

Vast it may be, but modern it is not

The legacy nature of Germany's world-renowned motor industry is such that the corporate culture is dyed-in-the-wool and to a large extent, unable to modernize. Despite a modicum of modernity having recently emerged from the concrete expanses at Ingolstadt and Stuttgart in the form of the Porsche Taycan and the Audi e-tron, both of which are fully electric vehicles and have up-to-the-minute technology, trouncing other German products yet falling short of Sweden's efforts, or the disruptive and overtly advanced methodology used by Elon Musk's Tesla.

Modernizing and moving away from old methodology whilst retaining the charisma and brand integrity of a long-established institution is no easy task, and the German manufacturers have found this to be an almost insurmountable challenge in recent times.

Volvo, Sweden's urbane and sophisticated marque which celebrates its 100th anniversary soon and is planning its IPO this year is doing incredibly well, having pioneered hybrid and all-electric technology along with staunch rival Tesla, whilst remaining true to its Scandinavian virtues of style, safety, performance and build quality.

CEO Hakan Samuelsson has been held in universal acclaim and the company has mastered the ultra-modern Scandinavian ethos whilst keeping its traditional and equally Scandinavian values.

Ford has been on a roll too. Whilst many European firms began to worry when Elon Musk came out of nowhere and attempted to disrupt the automotive industry, Ford's executives remained composed, safe in the knowledge that Ford Motor Company is so well operated that it could easily develop and launch a Tesla rival, and it did, the Ford Mustang Mach-E, and a great car it is too.

With all of this move toward low emission or zero emission vehicles, the German giants have found themselves exponentially challenged and their core models are still relatively mundane diesel powered items which, apart from a few styling changes, do not differentiate much between today and the 1990s. For this reason, resorting to cheating the system came about, and a few years ago Volkswagen fell foul of a class action lawsuit led by famous lawyer Reiner Fuellmich in which customers sued the company for lying about its official emissions for diesel engined cars by fitting a device to the exhausts which causes any emissions reading technology to show a lower reading.

Volkswagen settled this lawsuit in 2020 with a £698 million offer to the Federation of German Consumer Organisations. Now, they are at it again, but this time it is all four of the big German manufacturers who have been issued a collective fine by the European Union authorities for 875 million Euros, for colluding to curb the use of emissions cleaning technology they had developed.

Volkswagen, alongside its subsidiaries Audi and Porsche, has been fined €502million (£432million) whilst BMW must pay €373million (£321million).

The leader of the EU's antitrust efforts Margrethe Vestager told mainstream media today that even though the companies had the technology to cut harmful emissions beyond legal limits, they resisted competition and denied consumers the chance to buy less polluting cars.

The question is, however, how much of this do these firms have to do before it has any effect whatsoever? The global public still buy the product in its droves, a matter backed up by share prices which are up tremendously. Volkswagen, for example, which is the world's second largest car manufacturer, is up an astonishing 89.2% over the past 5 years, despite that being a period in which electric car technology has boomed and Volkswagen's products have been left behind.

It is worthy of note that Volkswagen produces a huge number of vehicles in South East Asia and South America for local markets, and these are areas which are less concerned with electric vehicle use hence sales of traditional and relatively cheap vehicles are high.

Even on a daily basis, Volkswagen's stock is up 4.9 points to 205.30 euros per share, and Porsche is up 2.82 points to 90.38 euros per share. BMW is up 1.93 points to 86.38 euros per share, and Mercedes Benz is up 71.94 euros per share. Mercedes Benz parent company Daimler AG is the only German manufacturer which avoided fines because it snitched the whole cartel up to the European Union.

By avoided competing on technology to restrict pollution from gasoline and diesel passenger cars, the EU viewed this as an unlawful cartel. So, there are huge companies that have been sued in the aformentioned 'Dieselgate' scandal and are now in trouble with the European Union government over a similar issue, yet they remain evergreen.

Perhaps some firms really are too big and their marques are too famous to be seen by the public as old-fashioned wrongdoers. Risk warning: Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74.5% of retail investor accounts lose money when spread betting or trading CFDs with ETX. You should consider whether you understand how spread bets or CFDs work and whether you can afford to take the high risk of losing your money.

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