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German Automakers Put the “Car” in “Cartel”

Published onOct 04, 2017
German Automakers Put the “Car” in “Cartel”

Since 2015, when Volkswagen admitted to installing defeat devices to cheat emissions testing, German automakers have faced increased scrutiny and investigation. Now, BMW AG, Daimler AG/Mercedes-Benz, Volkswagen, Audi, and Porsche are facing class action suits alleging that these five companies have been engaged in a twenty-year cartel in violation of Section 1 of the Sherman Antitrust Act. A cartel is a group of similar independent companies who conspire together with the goal of restricting competition.  This group of automakers has been named “Fünfer Kreise,” or the “Circle of Five.”

The first class action lawsuit, Burton v. BMW AG, was filed in U.S. District Court, Northern District of California. This suit alleges that the “Circle of Five” have colluded for the past twenty years in an effort to suppress competition through exclusive agreements to share “competitively sensitive information with each other about costs, technologies, and virtually every important element of design and manufacture of German automobiles.” The suit alleges that the commencement of the conspiracy around 1996 was not coincidental. Plaintiffs state that the cartel was created because these German automakers were frustrated that “Japanese automotive manufacturers were dominating U.S. markets,” so the cartel was created to disadvantage Japanese carmakers.

In their complaint, Plaintiffs assert that the conspiracy is what allowed Volkswagen to create the “defeat device” that cheated U.S. emissions standards, “enabl[ing] one of the greatest frauds ever perpetuated on U.S. consumers and regulators.” One of the main areas of alleged collusion among the “Circle of Five” was the agreement to restrict the size of the diesel exhaust fluid tank. This tank is responsible for holding the fluid which reduces the concentration of nitrous oxide in the exhaust of diesel engines, allowing the automobile to meet emissions standards. Because the tanks agreed upon were too small, they did not hold enough of the neutralizing solution to last between oil changes, causing the automobiles to exceed the allowable emissions standard.

The second class action lawsuit, Kaufman v. BMW, was filed in the U.S. District Court of New Jersey. The suit includes Bentley as a defendant, in addition to the “Circle of Five” mentioned above. This complaint asserts similar grievances as those described in Burton v. BMW AG. The complaint goes into great detail about the German automakers’s collusion concerning the size of the diesel exhaust fluid tanks, also known as AdBlue tanks. According to Kaufman v. BMW, “Volkswagen feared that different sized AdBlue tanks would cause U.S. emissions regulators to question how some companies were getting away with less AdBlue while others need substantially more solution to clean their emissions.”

Daimler has admitted to German and European Union authorities its involvement in cartel activity in hopes of avoiding a multi-billion dollar fine. After Daimler broke the silence, Volkswagen came forward also hoping to avoid full punishment. In the European Union, companies who are found to have breached cartel rules can be fined up to ten percent of their global revenue. Since the news of the cartel broke, Daimler has announced a voluntary recall of more than 3 million Mercedes vehicles, Audi said it would retrofit 850,000 diesel cars to improve their emissions, and BMW has offered a voluntary software upgrade for at least 350,000 of its diesel vehicles.

“German engineering” is highly regarded in the automotive industry because of its reputation for “precision and craftsmanship.” However, with “Dieselgate,” followed by news of the “Circle of Five” cartel, consumers are inevitably going to lose trust in German automakers. These “Circle of Five” automakers will likely realize that it is hard for consumers to trust companies involved in antitrust behavior. Thus, it seems the enormity of the scandal is just beginning to “rev up.”

Emily Marcum is a third-year law student at Wake Forest University School of Law. She graduated from the University of South Carolina, where she received her degree in political science with a minor in business administration. Upon graduation, Emily plans to stay in the Carolinas in hopes of working for a business’s general counsel or compliance team.

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