According to the news report by Bloomberg, the German authorities have ordered Daimler to recall 774,000 of its vehicles for having used illegal defeat devices in their engines. However, the company was able to avoid having to pay massive fines for this issue.
Daimler’s Chief Executive Officer, Dieter Zetsche met with German government officials on June 11, after which this decision was taken. Zetsche said that the talks with the government were constructive. However, the Transport Minister, Andreas Scheuer was very clear about the immediate recall of cars that had prohibited shut-off devices.
On Sunday, German publication Bild am Sonntag had reported that the German auto regulator, KBA had found 5 prohibited software functions in Daimler’s new Euro 6 diesel engines. According to the report, this affected about 1 million cars in Europe. In May, the company had already received an order to recall 4,923 of its Vito vans globally which had not met regulatory standards. Daimler had stated that it was going to appeal this decision.
The challenge that auto makers are facing in Europe is the liberal interpretation of rather loose European regulations with regard to car emissions. This is caused a lot of stress between government authorities and car manufacturers in the region since there is a lot of room for “misinterpreting” these laws, because of which many cars – and cities – failing EU pollution standards.
The German car manufacturer will be upgrading software in the engines of the Vito vans, the GLC SUVs and the Mercedes C-Class sedan. According to the company’s website, none of these models are available in the US. The company also repeated its denial of having cheated on emissions tests in any way, the way Volkswagen had done 3 years ago.
London’s Evercore ISI analyst Arndt Ellinghorst stated that there is no evidence that Daimler had designed software as a deliberate attempt to cheat on emissions tests. Ellinghorst estimates that the cost of these recalls will be less than €100 million (~$118 million). And with this recall, he said, the company would not have to pay any hefty fines.
While this recall will hurt Daimler’s reputation as a clean-engine company, the fact that the recall is only to upgrade the engines’ software will save the company the much more expensive hardware fixes or even heavy fines. German authorities have been bearing down on the car maker for its piece-meal responses to allegations that its diesel cars were emitting higher than acceptable pollutants. This recall, however, should put things back on track for the company and ease pressure from the authorities.
The auto industry in Europe has been under intense scrutiny after Volkswagen admitted that it had rigged its engines to pass diesel emissions tests. This admission in 2015 caused authorities in Europe as well as the US to question all auto makers’ emissions standards. Things were made even worse due to the aggressive attitude adopted by some of the leaders of the auto industry.
The previous Transport Minister, Alexander Dobrindt had not taken a strong stand against the auto makers and the issue of diesel emissions. In 2016, Opel, which was at the time owned by General Motors Co., avoided facing sanctions after Dobrindt raised doubts about the legality of the devices that were being used in the engines’ software. And then later, FIAT Chrysler snubbed the Minister’s request for a meeting to discuss diesel emissions standards.
With cities across Europe battling against the high levels of smog-inducing nitrogen oxide (produced mainly by diesel engines), the new Transport Minister, Scheuer had taken a much more hardline stance against auto companies and diesel emissions issues.