UK Markets open in 6 hrs 21 mins

Merkel to open Frankfurt auto show under diesel cloud

Estelle PEARD

Chancellor Angela Merkel will formally open the Frankfurt car show on Thursday, where she will face a delicate balancing act between defending millions of duped diesel owners without alienating Germany's most powerful industry.

With (Other OTC: WWTH - news) 10 days to go until a general election, the fallout from the 'dieselgate' emissions cheating scandal has emerged as a top campaign issue and cast a shadow over the glitzy Frankfurt International Motor Show (IAA).

Once nicknamed the "car chancellor" for her cosy relations to the industry, Merkel has sharpened her attacks on auto company bosses in recent weeks, accusing them of "unforgivable mistakes".

As pollution-plagued German cities mull diesel bans and voters worry about the resale value of their cars, fairgoers at the IAA are bracing for a sterner inaugural speech by Merkel than in previous years.

"It's somewhat frustrating for Angela Merkel to see that the close ties she has nurtured with the auto sector are not helping her right now," said industry expert Stefan Bratzel of Germany's Center (Shanghai: 603098.SS - news) for Automotive Management.

"The mood has changed and the government is now looking at the sector and its main players more soberly," he said.

But Merkel, who is widely expected to win a fourth term, will also be careful not to demonise an industry that employs more than 800,000 people and is seen as the backbone of Europe's powerhouse economy.

On the campaign trail, she has praised carmakers for ramping up their push towards zero-emissions electric cars while continuing to defend diesel -- a technology she has already said will be around "for decades" to come.

- 'Crucial' diesel -

The dieselgate crisis erupted at the height of the last IAA in 2015 when Volkswagen (IOB: 0P6N.IL - news) stunningly confessed to installing cheating software in 11 million diesel cars worldwide designed to dupe pollution tests.

In reality, the cars were spewing up to 40 times the permissible levels of toxic nitrogen oxides (NOx).

Similar suspicions have since spread to other carmakers, highlighting just how much the industry has resorted to skirting the rules, or outright cheating, to cover up high NOx emissions.

The scandal deepened in July on reports that Daimler (IOB: 0NXX.IL - news) , BMW (EUREX: BMWE.EX - news) , Volkswagen and its Audi (IOB: 0FG8.IL - news) and Porsche subsidiaries for years colluded on technical specifications -- including emissions technology.

The revelations prompted some 70 cities, including the car industry bastions of Stuttgart and Munich, to consider banning dirty diesels from their smog-clogged roads, fuelling concern among drivers.

"The pressure on politicians is growing," said Peter Fuss, an auto expert at EY. "In Germany, the land of the car, the idea of taking someone's car away is inconceivable to most people."

Merkel -- dubbed the "car chancellor" in 2013 after she went to bat for the sector and argued against an EU cap on emissions -- was initially criticised for being slow to respond to the diesel backlash.

"She (Munich: SOQ.MU - news) was late in realising that the environmental problems linked to diesel could hurt her," Ferdinand Dudenhoeffer, director of Germany's CAR (HKSE: 0699-OL.HK - news) research centre, told AFP.

- Cleaner cars -

The beleaguered sector has since tried to make amends by shifting gears to the cleaner cars of the future, with BMW, VW and Daimler all announcing ambitious goals for hybrid and electric cars.

But take-up among consumers has been slow, with e-cars accounting for barely one percent of sales in Europe.

And after years of heavy investments in diesel, which was invented in Germany, the nation's vaunted auto giants aren't ready to let go yet.

"The Germans still think they have to save diesel, including the chancellor," said Dudenhoeffer.

Long touted as more environmentally friendly than petrol because of its lower climate-altering carbon dioxide emissions, diesel has a key role to play in helping countries meet the targets of the Paris climate accords, they argue.

"The latest generation of diesel vehicles is crucial for our continuous efforts to decarbonise road transport," Dieter Zetsche, Daimler chief executive and head of the European Automobile Manufacturers' Association (ACEA), said at the IAA.