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German Luxury Automaker Collusion and Antitrust Class Action

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The pride of German industry are its automakers, which employ over 800,000 people and bring in roughly a fifth of its industrial revenue, with a worldwide reputation for precision and quality. But new class actions claim that the Volkswagen/Audi emissions scandal was just the tip of an iceberg that could rip away that fine reputation. This complaint alleges that for the past two decades, Volkswagen, Audi, Porsche, BMW, and Daimler (Mercedes), along with Robert Bosch, a supplier, participated in a cartel which suppressed innovation and undercut engineering in favor of cost savings, while keeping prices high and pretending to be competitive, cutting-edge companies.

Two classes have been proposed for this action. The Nationwide Injunction Class includes all persons and entities who, during the class period, bought or leased a new German luxury vehicle in the US, not for resale, which was made or sold by any of the defendants in this case, any of their subsidiaries, or any co-conspirator. The Indirect Purchaser Damages Class includes all persons or entities who, during the class period, bought or leased a new German luxury vehicle in the Indirect Purchaser States, not for resale, which was made or sold by any of the defendants in this case, any of their subsidiaries, or any co-conspirator.

According to German magazine Der Spiegel, German authorities discovered signs of illegal collusion when they were investigating Volkswagen to see if automakers were fixing the price of steel. Volkswagen began cooperating with authorities and admitted that “more than 1,000 relevant meetings took place in the last five years” although the collusion is said to go back roughly twenty years and involve committees of up to 200 employees in 60 working groups.

According to the complaint, these meetings aimed to fix costs, eliminate competition, and increase car prices, in areas such as “vehicle development, brakes, petrol and diesel engines, clutches and transmissions as well as exhaust treatment systems.”

In the past ten years, the European Commission, which is investigating, has found nine cartels in the automotive sector, including a cartel of truck makers, which involved Daimler and two Volkswagen subsidiaries. This might explain why Daimler is also said to be cooperating in hopes of leniency. 

Volkswagen pleaded guilty in recent years to cheating on US emissions tests and was given a $2.8 billion criminal fine in April 2017. The emissions issue is a good example of how the cartel worked to hamper innovation and provide customers with less than they thought they were getting. In fact, Der Spiegel’s English edition said, “The diesel scandal is not a failure on the part of individual companies, but rather the result of collusion among German automakers…”

Der Spiegel claims that the companies coordinated the size of tanks for AdBlue, a substance used to change nitric oxide emissions into harmless components of water and nitrogen. A report showed, the article says, that different makers were using sizes of from 17 to 35 liters, which could go for 16,000 to 30,000 kilometers before they needed refilling. But large sizes were expensive and took up room that could be used for trunk space and premium options, which led, the article said, to “an urgent need for cooperation” between the car manufacturers.

The article claims that, at the time, US regulators were insisting on tanks that did not need to be refilled between oil changes, which would require a tank of about 19 liters. The article claims that marketing and sales concerns won out: The cartel approved 16-liter tanks for the US and 8-liter tanks for Europe—conveniently small, but not enough to last even 6,000 kilometers if the emissions were cleaned properly.

Then, according to the article, environmental regulations were strengthened in both the US and Europe, meaning that AdBlue consumption would need to rise by about 50%, so that the European tanks would now need to be refilled every 2,000-3,000 kilomters. None of the makers wanted larger tanks, which Audi said could become “an arms race”; and if one manufacturer installed a larger tank, the complaint says, regulators might ask “how some companies could use less AdBlue to meet emissions standards while others needed more…” Avoiding the “arms race,” the complaint alleges, led to “the elimination of competition and the innovative benefits that flow from it.”

It seems also to have led to the devices that were programmed only to use enough AdBlue to operate properly during an emissions test. The complaint alleges that during their meetings, the car makers traded information on ways to circumvent emissions tests and other manipulations. Although only Volkswagen and Audi have admitted to installing defeat devices, the New York Times reports that all the major German car makers have say that “their vehicles may produce excess levels of nitrogen oxides during every driving.”

According to the complaint, the market for German luxury cars is susceptible to collusion because it has high entry barriers, is inelastic, and is highly concentrated among the five car maker defendants. Because the collusion was secret and consumers could not know about it or its results, the complaint alleges that claims are not barred by the normal statute of limitations.

The complaint alleges that the car makers violated the Sherman Antitrust Act as well as state antitrust statutes and consumer protection laws.

The New York Times says that, because of concern over emissions, some European cities are considering banning diesel cars and consumers are also opting for regular vehicles. It says that diesel engines were “a largely German innovation that traditionally accounted for half the market.” It’s a sad comedown for companies once believed to be at the forefront of engineering and craftsmanship.

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