Deadly fumes German court says cities can ban diesel vehicles

A landmark ruling in Germany sounds the death knell for diesel vehicles in Europe with heavy losses for owners and carmakers.
Going, going, gone.

The ruling Tuesday by Germany’s highest administrative court that cities and states have the right to impose driving bans on diesel vehicles won’t lead to an immediate prohibition but it does sound the death knell for diesel in Europe.

The Berlin government said immediately that it would push for other measures to reduce toxic emissions in order to forestall outright bans. But no amount of hemming and hawing will prevent the loss of billions in the value of diesel cars – a process that has already started and will accelerate with the ruling.

The resale value of diesel cars is sharply declining and will hit both owners and carmakers, who sell leased vehicles as used cars and are carrying them at a higher value than now warranted. In the meantime, whatever measures are taken to reduce emissions will restrict usage of diesel vehicles in one form or another, making them less valuable immediately.

The consequences from years of championing the diesel cars – including persistent fraud by automakers to deceive consumers – has caught up with Germany in dramatic fashion and there will be hell to pay. “Diesel bans are the bill for a government that has done nothing for 10 years,” former Environment Minister Jürgen Trittin, a member of the Greens party, commented on the ruling.

Pressure has now become greater. Barbara Hendricks, German environment minister

The current acting environment minister, Barbara Hendricks, a Social Democrat, went before the cameras to remind everyone that the court ruling does not require diesel bans, but only clarifies the legal authority of state and municipal governments to impose them without any enabling legislation from the federal government. “My goal is and remains that driving bans will never have to come into force,” she said.

It is a forlorn hope. The case before the high court arose because two large cities, Düsseldorf and Stuttgart, were sued by environmental groups for not doing enough to reduce emissions and lower courts recommended the cities at least look at bans on diesel driving. Virtually every large German city has emissions of nitrogen oxide and other toxic gases well above levels permitted by European Union law.

Ms. Hendricks suggested that all other measures, especially retrofitting the vehicles with hardware and software to reduce emissions, be tried before outright bans. She said it is the carmakers, not customers who bought the diesel vehicles in good faith, who should pay for it. Meanwhile, the Berlin government is budgeting for support to local governments for other measures, such as subsidies for electric buses.

The court ruling not only did not prescribe any driving bans, but also recommended that they be reasonable in economic terms and that exceptions, such as for workers and repairmen, be considered. Under EU law, cities could impose driving bans to enforce levels on emissions only four years after the standard is introduced. For the so-called Euro-5 standards that would mean immediately and for Euro-6 by September 2019.

Now hear this.

Stuttgart, the home to Mercedes carmaker Daimler, is a critical case. Both the mayor and the state’s prime minister belong to the Greens party and have pledged a clean-air policy. However, the city won’t have its action plan ready for another six months.

Elsewhere in Europe, other big cities have already imposed restrictions on diesel driving. Paris has set 2025 as the target date for a complete diesel ban in the central city and in the meantime prohibits very old diesel engines. London likewise has set 2025 as its target for zero emissions. Oslo bans diesels on days with high smog levels and will ban them altogether by 2024. Madrid bans half of all vehicles on days of elevated nitrogen oxide levels (even license plates one day, uneven the next) and plans to ban diesels from the central city by 2025.

The new ruling in Germany will lend further momentum to these plans as the staunchest resistance begins to crumble. New diesel car registrations in Europe fell already last year to the lowest level since 2003 – to 43.8 percent. Consumers worried about driving bans and resale values are holding back from buying diesel cars.

Resale values are already in free fall. This hits car owners, but also carmakers. According to one estimate, about a fourth of new cars sold in Germany go into the automaker’s own leasing program. If the resale value of diesel cars plummets, it will require them to take write-offs on their used-car inventory. Evercore ISI analyst Arndt Ellinghorst calculates that German carmakers face €1.1 billion in write-offs if resale values decline by 5 percent.

Carmakers have resisted having to pay for any retrofitting. Industry estimates reckon that installing a nitrogen oxide filter in an older diesel model can cost as much as €5,000. With the government specifically calling them out for their responsibility in creating the diesel crisis, it will be hard for them to maintain that stance.

Ms. Hendricks noted that she recommended last summer that carmakers start paying for the adjustments. Had they done so, she said Tuesday, things might not have gotten to such a critical stage. “My prognosis is,” she said, “that pressure has now become greater.”

Several Handelsblatt reporters contributed to this report. Darrell Delamaide is a writer and editor for Handelsblatt Global in Washington, DC. To contact the author: [email protected].