How Dieselgate saved Germany’s car industry

“This is North Korea minus the labor camps,” Germany’s premier magazine Der Spiegel wrote in 2013 to describe Volkswagen, the country’s largest automaker. The statement referred to the way Martin Winterkorn, then-CEO of VW, was leading the company: no one dared to criticize his decisions, not even top executives. A climate of fear prevailed.

Winterkorn was convinced that diesel vehicles would be decisive for Volkswagen’s success in the coming years. Under his leadership, VW wanted to significantly increase the market share of diesel in the US. It launched the now-infamous clean diesel campaign to boost sales numbers. Winterkorn didn’t think much of electric vehicles, although Tesla was already selling its groundbreaking Model S. Too expensive, too little range, he said.

Winterkorn was forced to resign in September 2015 because of Dieselgate, the biggest scandal to hit the auto industry in decades. For years, VW had cheated emissions tests by installing illegal manipulation software in 11 million diesel cars. And, ironically enough, the scandal and the ensuing fallout might just be what saved Volkswagen and probably the whole German car industry. Before Dieselgate, Volkswagen wasn’t really investing in electric cars, autonomous driving, or mobility services, even though that’s clearly the future of the auto industry, Ferdinand Dudenhöffer, a professor for Automotive Economics at the University of Duisburg-Essen, told The Verge. “Without Dieselgate, VW would have failed.”

Hans-Liudger Dienel, who teaches sustainable mobility management at the Technical University of Berlin, agreed. Even though the affair was expensive, it forced a reckoning, one that steered German car manufacturers into the future, he told The Verge. Just recently, Volkswagen’s CEO Herbert Diess said the company “stepped up the pace” of its strategic realignment.

Before the scandal, it seemed like German manufacturers would rather wait and see what setbacks other companies might suffer while introducing those new innovations, Dienel said. “German companies are often more likely to be technology followers than technology leaders,” he said. German brands traditionally lag years behind their Japanese competitors. For example, Dienel cited lean production techniques and hybrid vehicles: Toyota had already perfected lean production in the 1980s; Volkswagen had just started it in the 1990s. And while Toyota released the first hybrid Prius in 1997, Volkswagen waited until 2010 to begin selling its first hybrid Touareg. “After a few years, the Germans usually roll up the market from behind, regaining their leadership position,” Dienel said. “But sometimes being late can really mean being too late.”

Dudenhöffer and Dienel said Dieselgate was a wake-up call for Volkswagen, Daimler, and BMW, spurring those companies to refocus much faster on future technologies and alternate business models. This September offers examples: Audi and Daimler’s Mercedes-Benz presented their first all-electric vehicles that will hit US streets in 2019 and 2020, respectively. Volkswagen Group affirmed that four of its brands, including Audi, will release a total of 27 electric models through 2022. The group plans to sell 10 million electric cars during this “first wave.” And BMW,  which already has the battery-powered i3, recently introduced a futuristic concept car.

The faster-than-planned shift to electric mobility isn’t just thanks to savvy executives who don’t want to let a good crisis go to waste. Since Dieselgate, carmakers have sold fewer diesel cars in Europe. In Germany, for example, the market share of diesel cars dropped to around 30 percent in the first half of 2018 from over 40 percent in the same period last year.

That should be a good thing, but, ironically, it means that German car manufacturers are likely to exceed the stricter limits for CO2 emissions that the EU put in place for 2021. That’s because even though their nitrogen dioxide-containing exhaust gases are polluting the air in European cities, diesel cars emit less carbon dioxide than gasoline cars.

The new EU directives set maximum limits for the average CO2 emissions of vehicles sold by a manufacturer. So without a high share of their low-CO2 diesel cars, German manufacturers have little chance of meeting those limits. “Their only chance is to sell more electric vehicles as soon as possible,” Dudenhöffer explained. The combination of Dieselgate and stricter CO2 limits is, therefore, pushing electric mobility. “And that’s good for the climate,” Dudenhöffer added.

But apart from electric vehicles, there are other signs that German brands want to be regarded as innovators: Daimler and BMW merged their car-sharing companies Car2Go and DriveNow to form a global leader that could compete with Uber. Volkswagen is starting an ambitious project to upgrade ride-sharing and car ownership in Africa. Mercedes-Benz unveiled a new mobility concept based on autonomous and modular vehicles. Mercedes and BMW are producing their own AI-powered in-car voice assistants. And with a vision to create a decentralized blockchain infrastructure for a future of interconnected, self-driving cars, Germany’s automotive industry clearly wants to outpace Silicon Valley.

There is a cultural change going on right now inside Volkswagen with its over 600,000 employees. “The diesel engineers were very strong and self-confident for a long time,” said Dienel, who met with representatives of Volkswagen two weeks ago. “But the scandal has broken up these old power structures.” Fear has given way to an open environment. Experts for sustainability and environmental protection are now more vocal within the company. In the times of Martin Winterkorn, many of them would have hardly dared to speak up.