The recent allegations against Volkswagen (VW) for installing a devise allowing the company to have its 1.6 and 2.0 liters diesel models cheat test are scandalous. The VW case is nothing new in an highly competitive sector with extreme global competition. However, the turn of the debate in the United States about VW and its violations of the Environmental Protection Agency (EPA) testing these last five years do not tell the whole story about transatlantic trade competition. Interestingly enough, diesel cars only represent less than 1% of passenger vehicles in US, when it is more than 50% in Europe, and the EPA is the enemy number one of the Republicans and a large segment of American population distrust the agency. So based on the fact that all three elements, corporate ethics, environmental concerns, and small market share, rank low in the US, why would the US be so offended about VW cheating of EPA tests?
Without falling into conspiracy theory, could the US attacks against VW to be more a case of transatlantic warfare and retaliation against one of the biggest and symbolic European corporation? Could it be a retaliation for the European Commission’s cases against Microsoft and more recently Google?
VW Cheating and Systemic Failure
The VW scandal is based on the fact that VW has repetitively cheated on diesel car emission tests conducted by the EPA in the US and other agencies around the world. The company was selling its diesel models based on the claims that they were cleaner, more reliable, quicker, and greener than its competitions (one of the best discussions on the VW case was done on the Diane Rehm’s Show, listen to it here).
The cheating did not only occur in the US. VW executives are saying that “vehicles in Europe with 1.6 and 2.0 litre diesel engines were also affected by the manipulations”. This could affect over 11 millions cars around the world on models of Jetta, Passat, Audi A3, Golf.
The VW group is one of the largest world carmaker counting brands like Volkswagen, Porsche, Audi and Lamborghini. In July the group overtook Toyota for the number one global carmaker. The cheating allegations have already costed the head of its chief executive, Martin Winterkorn, and the VW shares dropped by almost 35% on Monday and Tuesday.
Historically, the United States has not been a large buyer of diesel cars as opposed to its European counterparts. In the US, diesel is more expensive than traditional gasoline because of higher federal tax. However, in Europe it is the opposite for the simple reason that European countries have imposed less taxes on diesel than traditional gasoline. Less than 1% of passenger vehicles in the US are diesel engines, as opposed to over 50% in Europe.
European against the US – Google It…
In a matter of weeks in the month of April, the European Commission went after two global giants, Google and Gazprom, both with antitrust charges. Both cases are being headed by Margrethe Vestager, the E.U. commissioner in charge of competition. She has taken over the question of competition from a different angle than her predecessor Joaquin Almunia by tackling the perceived violators with antitrust charges. Both corporations are very important for the European market. Google controls over 92% of the Search Market Share in Europe, while Russia, through in part Gazprom, provides one third of the gas imported in Europe.
In the case of Google, Vestager is accusing the company of using its dominance in the European market with its search engine in order to advance its interests.
The accusation claims that Google, through its search engine, can artificially skew results favor its own shopping service at the expense of competitors. This is a direct violation of the core principle of the Single Market and fair competition. “Dominant companies” said Vestager “have a responsibility not to abuse their powerful market position by restricting competition either in the market where they are dominant or in neighboring markets.”
The antitrust case against Google, starting in 2008, illustrates the challenges of guaranteeing fair competition in the new age of the internet era. The case against Google was brought before the Commission by British price comparison site, Foundem. As reported by the Financial Times, “almost 20 complainants against Google want the search engine to abide by strict rules that ensure its formula treats its own services — providing results for travel, shopping and maps — no differently from rivals.”
An added dimension to the Google case is the gap between Europeans and Americans’ concerns and respect about privacy and data protection. The broad American surveillance program, revealed by Edward Snowden, created a serious transatlantic crisis. Interestingly enough, the European case against Google is the only one to stick, even though Google faced charges on three continents. In case of wrongdoing, the Commission has the power to levy fines of up to 10 per cent of Google’s global turnover.
Transatlantic Retaliation or Fair Game?
For the US to go after VW is to go after the powerful ‘Made in Germany’ and German engineering savoir-faire. It is about tackling the competition where it hurts. The US have been tough on foreign competitions with cases against KIA and Hyundai, for lying on fuel efficiency, as well as its own manufacturers with Ford, whom had put defeat devises on its minivans in the late 1990s, and against GM for mechanical defaults costing the lives of more than two dozens individuals.
Ultimately, this piece does not try to lower or even reject the accusations against VW, or even defend VW from any ethical wrongdoing. At the opposite, VW has been caught for cheating by putting a product on the market, which could qualify as an environmental crime. If legally, it will be difficult to trace back the environmental consequences of these cars, it has legal grounds for lying to the costumers on car efficiency and cheating on official tests. But aside blaming one company from wrongdoing, it is interesting to try to put a rational economic look into trade retaliation between two global giants, the EU and the US. Both economic powerhouses are competing on promoting their brands on the global car market, with Ford and GM for the US, and Daimler AG, VW group, BMW AG, PSA Peugeot Citroën, and Renault for the Europeans.
The Google/VW cases should be analyzed altogether, as there are cases of transatlantic competitions and retaliation. From Europe, the Europeans are demonstrating the lack of willingness and incentives by the US government to go after Google, one of the premium American companies, even though it has used its supremacy in order to promote its interests on the American market. Europeans are claiming that they have to do the job in order to guarantee fairness of competition on the internet market. From the US, the Americans are advancing themselves as the ones that have identified the cheating thanks to the EPA and the Californian authorities, and are denouncing the lack of supervision at the European level. The Americans are talking of environmental wrongdoing and systemic failure within the most powerful auto group in the world.
Interestingly enough, when Commissioner Vestager brought the case against Google in April 2015, she then travelled to Washington D.C. meeting her American counterparts. At the time of the meeting, other American companies were backing the European claims of Google’s violations. These American companies allowed “to head off accusations the action was inspired by German-led anti-Americanism.” In Germany, the VW scandal is shaking up the population and the FT reported in a recent piece that “People will ask why the Americans, who don’t really care about the environment, are attacking a German institution.”
Germany has been the European engine for the last decade and the strongest economic pillar of Europe since the collapse of the world market. Germany economic model is directly based on an export driven economy. The automobile sector represents 2.7% of German GDP. Most car sales are made by the VW group, 70% of them are sold outside of Germany, and the group employs nearly 600,000 people around the world, and more than a third of the 775,000 people who work in the auto industry in Germany (these numbers come from CNN money’s website). Attacking the VW group will have some impact on the German economy and ultimately European economy. “If nobody else has done it, the damage would be limited. If it looks like it’s more companies, not just Volkswagen, it would be a major problem for the German car industry, and the German economy overall,” said Theo Vermaelen, a finance professor at INSEAD.
Are VW/Google cases in order to protect the consumers, data privacy, morality, ethics, and competition? It is difficult to believe it. They seem to simply be transatlantic retaliation in an more than ever-competitive global market.
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