Tuesday, August 15, 2017

The German Big Three Must Learn Humility

Alexander Carabitses

The Germans invented the car in 1886 and since then, they don't seem to want to let the world forget about it. I'll be the first to admit that the Germans make great cars, hell, even I own one.  However, the arrogance that the German Big Three possess has allegedly reached new heights, with their firm belief that they can illegally team up with one-another in an attempt to bring the competition to its knees.  Well, apparently that alleged plan backfired immensely. For those who are unaware of what went on a few weeks ago, let me fill you in.

Late last month, the German newspaper,  Der Spiegel, reported that 60 groups, comprising of 200 employees from BMW AG, Daimler AG, and Volkswagen Group AG (along with Audi and Porsche) colluded on emissions parts and other R&D activities since the 1990s in order to gain an advantage on the competition.  Fortunately for the everyday consumer, there was no price fixing involved.  None the less, Germany, the EU, and USDOJ are all actively investigating the issue, with VW and Daimler declining to comment on the issue, while BMW once again goes into denial of being involved in any of this, much like it did in 2015 when the company said that their diesel engines were "above board."  After all is said and done, this will potentially end up being the biggest scandal in the history of the automotive industry, bigger than Dieselgate, and unlike that issue which only formally hurt VW (Daimler is still under investigation), this news has the potential to damage the credibility of the German automakers on a global basis.

Financially, the hit could also be huge for these automakers, with fines presumably being billions upon billions of dollars. Now in the case of VW, this is bad news, as the company has already spent $24 billion in the US following Dieselgate, all while the board can't seem to agree on what assets to divest itself of in order to pay the fines and not dramatically affect its R&D budget. Now it has to contend with the public perception that it not only cheated but that the cheating software was developed as part of a German automotive cartel; Daimler may be in the same boat, sooner rather than later, as well.  The only bright spot is a sea of darkness for these automakers is that the German government approved their plans to use software updates to cut diesel emissions during the Diesel Summit on August 1, just days after the aforementioned allegations broke out.  From here, things get worse.
(Image credited to Volkswagen)

The bottom line in all of this is that although the German automakers didn't collude to cheat the consumer out of money, they did cheat their competitors, all of whom spent billions of dollars in developing vehicles that complied with government regulations.  And mind you, this is not the first time that German automakers committed, or attempted to commit illegal and immoral acts of this sort. The irony is that as news of the collusion broke, I was reading Icons and Idiots, in which Bob Lutz shared a story of the then Mercedes CEO, Dr. Joachim Zahn, scolding BMW for selling six-cylinder automobiles in 1972.  In other words, he was scolding BMW for attempting to compete with Mercedes.  Another example of Deutschland's lack of ethics in the automotive business can be found in that racketeering incident of the late 1990s, in which GM's soon-to-be President of North America, Jose Lopez, abandoned the company hours before his promotion and took high-level, confidential GM paperwork with him.  When taking these two instances into account, along with Dieselgate, I can't say I would be surprised if the collusion allegations prove to be true.

Now don't get me wrong, the three German automakers are not the only ones to have done unethical things in their past.  Let's not forget about the Ford Pinto and the GM ignition switch debacle, both of which resulted from deliberate cost cutting measures that killed many people.  However, what I have noticed is that the German automakers seem to treat both regulators and other businesses like manure, purely out of arrogance.  I already recounted Bob Lutz's story and can tell you that the tables have sort of turned, with BMW's head of sales,  Dr. Ian Robertson, decrying Audi's lineup as plagiarism on a CNBC documentary.  So, I suppose that Audi, Mercedes, Cadillac, Lexus, and Jaguar should all shut down their operations completely because they have plagiarized BMW's alfa-numeric nomenclature, segment presence, and (except for Audi) the vehicles' drivetrains.  Give me a break, it isn't plagiarism, it's only competition!
(Image credited to BMW)

Competition is what drives companies in all industries throughout the world to produce the best possible products and services in an attempt to be the best, while keeping one-another on their toes. With that in mind, there is no excuse for this mistreatment of the competition, particularly if it stems from blinding arrogance.  It's the exact same arrogance that has led to BMW and Mercedes going down market and scoffing at the warnings delivered by analysts, journalist, and bloggers (like myself) of their brands' losing the cachet that made them special here in the US. I'm firmly convinced that these three companies view themselves to be the George Selden of the modern day automotive industry, meaning that both customers and competitors are in their debt.  If the three investigations prove the collusion allegations to be true, they will have a rude awakening and hopefully learn some humility in the process.

Thank you for reading and have a good week.

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