The automotive industry cannot escape the negative headlines.

The German automotive industry cannot seem to escape negative headlines. VW scandal, various emissions manipulations, and now cartel accusations. Sounds like a media witch hunt.

"The rumor grows as it spreads"! Even the ancient Latins knew that one can best discredit or bring down disliked individuals or circumstances by exposing them to malicious rumors. Because, as the wise insight goes: "The rumor grows as it spreads."

The German media seem to have fully internalized this. If there were a manual for the public dismantling of a successful and internationally highly esteemed industry sector, the press, radio, and public television could not have implemented it better in their coverage of the alleged revelation of decades-long secret cartel agreements between the five major German car manufacturers Audi, BMW, Mercedes, Porsche, and VW. True to the motto: Where there's smoke, there's fire - and the more smoke, the greater the likelihood of a fire.

The perfect timing

And what could be more suitable for stimulating the imagination than the keywords "revelation" and "secret"? And all this in relation to the automotive industry - nationally seen as the flagship of the German economy in terms of growth and prosperity. However, the industry's image was already tarnished by the VW emissions scandal and subsequent negative headlines at the beginning of summer 2017.

The stage was set for a media knockout blow, the timing for a news sensation before the onset of the summer break could not have been better. Especially since the tired election campaign was unlikely to provide any excitement, and Trump's platitudes were increasingly losing their novelty value.

Meetings and secret agreements?

The media image dismantling wave of the German automotive industry was triggered by the spectacular cover story of a news magazine under the headline: "The Cartel - Revealed: The secret agreements of the car manufacturers." Specifically, the allegation was that the "Auto Syndicate" of the five companies had circumvented competition to the detriment of customers, the environment, and suppliers through secret meetings and agreements - thus violating cartel laws. Even worse: The diesel scandal was not a failure of a single company, but the result of years of collusion among German car manufacturers. Over the past decades, they had secretly coordinated in more than 60 VDA working groups and countless subcommittees, as well as over 1000 meetings - details are scarce. "The unmasking of a cartel," as the news magazine put it. No doubts, rather a hard-hitting statement.

A media self-runner!

And then it happened as expected. As soon as the exposé about the "Auto Syndicate" was published, the media fate took its course. A self-runner! All media eagerly jumped on the topic, conducted their own research, expanded on it, and more or less openly speculated further. Speculations were gradually transformed into facts in the public consciousness through verbal repetition. One outlet picked up the information from another, expanded on it, and passed it on. And when the public broadcasters' news also reported on the possible cartel agreements in the automotive industry, it was a done deal for the public despite the lack of evidence. Especially when it was revealed that Daimler and VW - there is still a dispute over the consequential order - preemptively reported themselves to the cartel office "for alleged participation in cartel violations" (VW).

In our own interest

To avoid being suspected of taking sides with the automotive industry, it should be noted at this point: The author has been working in and for the automotive industry since 1974, initially for 24 years as Chief Economist in the Strategic Corporate Planning of a Munich-based premium manufacturer, and since 1997 as Head of the Institute for Economic Analysis and Communication (IWK) externally as a scientific analyst and strategy consultant. During the active period in strategic planning, he was a member of two strategic working groups at the VDA and the European umbrella organization ACEA as a company representative. In a nutshell, he knows the industry, the command and decision structures, processes, and mindsets of the actors inside out. It is the engineering mindset that has propelled successful automotive companies in Germany to the forefront out of nowhere, not that of cunning lawyers or risk-averse and penny-pinching merchants.

The accusation is...

So what are the facts regarding the agreements? What are the companies accused of? Summarizing the press releases, the following agreements/incidents - in part - are cited as evidence of illegal, years-long, and above all secret cartel agreements among the car manufacturers in specific working groups (WG) and committees (C) to eliminate competition among themselves and to the detriment of customers and suppliers:

Convertible roofs that can only be operated up to a maximum speed of 50. Literally: "It is an agreement that nullified competition and market economy."
Then the accusation that due to agreements, the emissions of diesel vehicles were not cleaned as effectively as technically possible. Reason: Agreement on too small tanks for the urea mixture AdBlue, which can clean diesel emissions efficiently. The smaller the tank, the earlier the emission cleaning stops. So, what could be more logical than extending the illegal emission cleaning by cheating on the tank capacity, instead of installing larger tanks that are more expensive?
Final serious accusation: Since 1996, the manufacturers have been closely collaborating on emissions control, especially for diesel emissions, at the Porsche development center in Weissach in the "emissions center of the automotive industry." According to "Welt," this might have been "...perhaps the seedbed for the largest cartel in German automotive history."

Counterarguments

From personal knowledge of the industry, all these accusations of secret and conspiratorial agreements are not very convincing. Certainly, there are gray areas in terms of cartel law, where, according to VDA, one should not "surf." But the accusations focus solely on technical matters, not on possible agreements on coordinated pricing policies for purchases and sales; and precisely there, the cartel office would have had a lot to do during the legendary spring price rounds in the 1970s and 1980s. However, when it comes to technical issues, the working groups and committees consist of honest and diligent engineers of medium to lower decision-making caliber who aim for cost-optimal technical solutions, not the conscious and conspiratorial restriction of competition. And they do not meet in back rooms, but officially at the VDA or in turn at the individual working group members. The VDA alone has 56 full-time working groups and committees.

As counterarguments to the accusations, the following points can be summarized briefly:

In the mass market, higher speeds when opening convertible roofs only bring safety risks and higher costs for the customer, not more joy in convertible driving. Anyone who wants to open or close their convertible roof at 60 mph or more is either a case for a psychiatrist or a bodywork specialist, both are feasible.
At the time when the AdBlue tank volume was determined, the Euro 5 emission standard was the basis, for which the set tank volume was completely sufficient. Only Euro 6 increased the urea demand by 50 percent. And even then, each manufacturer was free to increase the mileage range of the tank volume through more efficient engine technology. In Formula 1, the current regulations also provide for the same tank volume for all, yet there is competition between teams, and not all finish at the same time or stop.

In analogy to Shakespeare's summer theater, one could say: "Much ado about nothing" - or little. The fact is that it is very difficult to derive competition agreements to the detriment of customers from technical standardization