VW, Daimler, BMW to upgrade 5mn diesel cars in rescue pact

Bloomberg

Volkswagen AG, Daimler AG and BMW AG agreed to upgrade more than 5 million diesel cars in Germany in a bid to salvage their beleaguered diesel technology and draw a line under an emissions scandal that shows no signs of abating after nearly two years.
The deal, hashed out at an emergency summit in Berlin on Wednesday, also includes a fund to promote sustainable transport in cities and incentives to trade-in older diesel models. The upgrades to newer vehicles will rely on software patches rather than costly component fixes, with the aim of cutting emissions of smog-inducing nitrogen oxides by 25 percent to 30 percent on average, the German auto industry lobby VDA said in a statement. VW, Daimler and BMW shares traded higher as the manufacturers dodged expensive hardware recalls.
“The automotive industry is aware that it has lost a massive amount of confidence,” the VDA said in the statement. “We must — and will — work to regain this confidence. This is a core concern of the industry, and in our own interest, in the interest of our customers and employees as well as in the interest of our country.”
Top executives from the German auto industry were summoned to face off with ministers and state leaders amid a steady drumbeat of negative news about diesel pollution, prompting threats of driving bans to improve urban air quality. The manufacturers agreed to absorb the costs of the upgrades, which they said wouldn’t diminish performance, fuel usage or durability. The recalls include 2.5 million vehicles already fixed by Volkswagen in recent months.
There’s a lot at stake for all sides. German automakers need diesel as a stop-gap technology to buy time to catch up with the electric offerings of Tesla Inc. and Nissan Motor Co. And with less than two months until a federal election, Chancellor Angela Merkel, whose ruling bloc runs the ministry overseeing carmakers, has to ward off criticism that the government is too lenient on carmakers while also not endangering the country’s 800,000 auto jobs.
Diesel was once the calling card of German auto-engineering prowess, with the industry boasting about the technology offering more power while emitting about a fifth less carbon dioxide than equivalent gasoline engines. German politicians in turn heavily backed diesel for decades with tax incentives that make the fuel cheaper at the pump. That all started coming crashing down in September 2015 following Volkswagen’s admission that it duped regulators and consumers for years with diesels rigged to cheat on emissions tests.
“Diesel is a mess,” Ferdinand Dudenhoeffer, director of the University of Duisburg-Essen’s Center for Automotive Research, said. “Our politicians and our car industry want to save the past,” but “they need to find a solution for the future.”
Dealing with the crisis is a difficult balancing act in Germany, where every fifth job depends on the automotive industry and the sector accounts for more than half of the country’s trade surplus. Last year, some 46 percent of the cars sold in the country had a diesel engine, but demand has been sliding since Volkswagen’s scandal as consumers back away.
The turmoil compounds an already tense situation for the industry which is also struggling with the switch to electric cars and adding self-driving features, while new challengers like Tesla, Uber Technologies Inc. and Apple Inc. ready strategies to grab a slice of future profits.
To comply with environmental rules, German carmakers rely on diesel to power their big sedans and a growing fleet of brawny sport utility vehicles, as consumers remain reticent to buy a sparse lineup of electric cars. The industry’s reliance on diesel has been attributed to a slow pivot to battery-powered vehicles.