Handelsblatt Global Edition Magazine - - Front Page - BY TE­RENCE ROTH

Ger­man dis­coun­ters ta­ke over the world

The U.S. is the next fron­tier in a glo­bal batt­le bet­ween the world’s big­gest re­tailers. Why do Ger­ma­ny’s le­gen­da­ry dis­coun­ters seem to ha­ve such a big edge on the com­pe­ti­ti­on?

Rock-bot­tom ga­me plan: Ger­man gro­cers Al­di and Lidl ta­ke on their glo­bal ri­vals with their suc­cess­ful no-frills for­mu­la.

When Ja­nel We­a­ber went to check out the new Al­di su­per­mar­ket ope­ning in her home­town of Har­ris­burg, Penn­syl­va­nia, it was a ve­ry dif­fe­rent shop­ping ex­pe­ri­ence from the Wal­mart or Sam’s Club next door. She was sur­pri­sed by the shop­ping carts re­qui­ring a co­in de­po­sit, the slim selec­tion of brands, and the ex­tra she had to pay for gro­ce­ry bags. Most pro­ducts — in­clu­ding pro­du­ce and meat — we­re still in their card­board ship­ping bo­xes, and the on­ly staff in sight we­re a few ca­shiers. But the event pl­an­ner and mo­ther of two hadn’t go­ne the­re for con­ve­ni­ence. She’d co­me for Al­di’s pro­mi­se of su­per-low pri­ces.

Mo­ve over, Wal­mart. Eu­ro­pe’s most suc­cess­ful chain of dis­coun­ters, Al­di, has its sights set on con­que­ring the ne­ar­ly $700 bil­li­on U.S. mar­ket with its ba­sic low-over­head, low-pri­ces for­mu­la that has tri­um­phed whe­re­ver Al­di sets up. The Ger­man chain has be­en relent­less­ly ex­pan­ding in­to Eu­ro­pe and across the world at a ti­me when ot­her glo­bal re­tailers are re­tren­ching and pul­ling out of for­eign mar­kets. In Ja­nu­a­ry, Wal­mart — the world’s lar­gest re­tailer — an­noun­ced the clo­sure of 269 sto­res world­wi­de. Fran­ce’s Car­re­four, ano­ther glo­bal re­tail gi­ant, has aban­do­ned 19 for­eign mar­kets in re­cent ye­ars.

What ma­kes Al­di’s world­wi­de roll­out even mo­re re­mar­ka­ble is that a se­cond Ger­man dis­count re­tailer, Al­di’s ar­ch­ri­val Lidl, is fol­lo­wing right on Al­di’s heels, blan­ke­ting the glo­be with its own no-frills sto­res as well. Do the Ger­man re­tailers ha­ve a for­mu­la that has elu­ded Wal­mart and ot­her com­pe­ti­tors that ha­ve at­temp­ted to go glo­bal? Or is their leanand-aus­te­re bu­si­ness mo­del bet­ter sui­ted for the glo­bal eco­no­my’s new nor­mal, as con­su­mers strugg­le to ma­ke ends meet in the world­wi­de eco­no­mic slow­down?

The U.S. is the next big fron­tier in the glo­bal race for dis­count su­pre­ma­cy. With their ar­ri­val, Al­di and Lidl po­se the big­gest ex­ter­nal th­re­at so far to a U.S. re­tail land­scape that lar­ge­ly in­ven­ted the su­per­mar­ket ge­ne­ra­ti­ons ago. Al­di has be­en pre­sent in the U.S. sin­ce 1979, when it bought the Tra­der Joe’s chain of gro­ce­ry sto­res. Now, it’s Al­di’s own sto­res that are ex­pan­ding, at a ra­te of ne­ar­ly 200 per ye­ar. The­re are now mo­re than 1,300 sto­res con­cen­tra­ted along the East Co­ast, in Flo­ri­da and in Te­xas. By Ju­ly, the com­pa­ny plans to ha­ve ma­de its first fo­r­ay in­to sou­thern Ca­li­for­nia. Lidl is tes­ting the wa­ters with 50 sto­res over the next two ye­ars, but pro­mi­ses a mo­re ra­pid ex­pan­si­on to co­me.

To­ge­ther, they ho­pe to un­leash in the U.S. the kind of fier­ce pri­ce wars that ha­ve trans­for­med tra­di­tio­nal gro­ce­ry mar­kets all over Eu­ro­pe and ot­her cor­ners of the world. Whe­re­ver the two set up shop, Al­di and Lidl be­co­me for the food tra­de what OPEC has be­en for the oil mar­ket. When Al­di cuts the pri­ce of but­ter, its com­pe­ti­tors fol­low suit. If Al­di char­ges mo­re for cof­fee, its com­pe­ti­tors gra­te­ful­ly mark up their pri­ces.

If Ger­ma­ny’s re­tail mar­ket has the re­pu­ta­ti­on for being the toughest in the world for its ra­zor-thin mar­gins, that’s lar­ge­ly the work of Al­di, Lidl and ot­her Ger­man dis­coun­ters. Their mar­ket sha­re keeps gro­wing as they ap­p­ly their no-frills, low-mar­gin for­mu­la to for­mer­ly high-end pro­ducts from or­ga­nic pro­du­ce to French cham­pa­gne. It’s a les­son com­pe­ti­tors igno­re at their pe­ril. It was Wal­mart that tried and spec­ta­cu­lar­ly failed to ex­pand in­to the Ger­man mar­ket. In 2006, a bloo­di­ed Wal­mart clo­sed the last of its Ger­man sto­res. Now, Al­di and Lidl are ta­king their vic­to­rious fight ab­road.

Even though they are glo­bal now, the two com­pa­nies ha­ve ho­me-grown, lo­cal roots. Both are pri­va­te­ly held by Ger­man fa­mi­lies, and pu­b­li­ci­ty-shy about their fi­nan­ci­al re­sults. Their ri­val­ry is most of­ten mea­su­red in relent­less­ly ri­sing mar­ket sha­re and the ra­pid sur­ge in sto­re openings whe­re­ver they set down sta­kes.

Al­di’s de­eper roots reach down to just af­ter the end of World War II, when the Al­brecht bro­thers Karl and Theo re­tur­ned from fight­ing in Rus­sia and North Af­ri­ca to run their mo­ther’s small gro­ce­ry sto­re in Es­sen. Amid the post­war hardships and food-shor­ta­ges in Ger­ma­ny’s bom­bed-out ci­ties, Karl and Theo ad­ded mo­re bran­ches of the Al­brecht fa­mi­ly sto­re, and in 1961 foun­ded the mo­dern com­pa­ny, who­se in­iti­als stand for Al­brecht Dis­kont. Their ra­pid spre­ad across Ger­ma­ny

Al­di has its sights set on the $700 bil­li­on U.S. mar­ket with a no-frills re­ci­pe that has paid off whe­re­ver the dis­coun­ter sets up.

was ba­sed on an un­com­pro­mi­sing man­tra of low-over­head and rut­h­less pri­ce com­pe­ti­ti­on.

The bro­thers’ vi­si­on was ba­sed on the as­sump­ti­on that lo­wer-in­co­me con­su­mers will al­ways want to stretch their pay­checks, whi­le the midd­le class will turn to dis­coun­ters in eco­no­mic hard ti­mes or just for con­ve­ni­ence. In 1962, the bro­thers split the fa­mi­ly em­pi­re — as well as the Ger­man and glo­bal mar­kets — in­to two di­vi­si­ons that work in tan­dem and do not com­pe­te. In the U.S., Tra­der Joe’s is ow­ned by one di­vi­si­on and the Al­di-bran­ded sto­res by ano­ther. Lidl co­pied the Al­di dis­count mo­del in the 1970s and has al­most equa­led Al­di’s €63 bil­li­on in an­nu­al re­ve­nue.

Bri­tain is Ex­hi­bit A when it co­mes to se­eing how the ar­ri­val of Ger­man dis­coun­ters can upend a ma­jor con­su­mer mar­ket. Th­rough ra­pid ex­pan­si­on and ag­gres­si­ve pri­cing that big­ger sto­res can ra­re­ly match, Al­di and Lidl ha­ve dou­bled their U.K. mar­ket sha­re to 10 per­cent in the past th­ree ye­ars. The Ger­man ons­laught has left es­ta­blis­hed Bri­tish chains — long used to hig­her mar­gins — bad­ly scar­red. Tes­co last ye­ar re­por­ted its de­epest an­nu­al loss in the com­pa­ny’s 96-ye­ar-his­to­ry as it tried un­suc­cess­ful­ly to de­fend its mar­ket sha­re against the Ger­man in­cur­si­on. As­da, ow­ned by Wal­mart, is con­side­ring job cuts and lo­wer pri­ces to match the Ger­man dis­coun­ters. Me­anw­hi­le, Lidl is ad­ding new sto­res in the Lon­don’s posh West­mins­ter and Ken­sing­ton neigh­borhoods, a fur­ther sign that dis­count gro­ce­ries are in­cre­a­sin­gly attrac­ting wealt­hier cust­o­m­ers.

But much of their suc­cess still co­mes from the tra­di­tio­nal for­mu­la: st­ack ‘em high and sell ‘em low. That for­mu­la is still wi­de­ly in evi­dence to­day from Har­ris­burg to Ber­lin to Mel­bourne. The­re are no ser­vice coun­ters, ever­y­thing is pa­cka­ged or laid out in card­board bo­xes, and staff are re­du­ced to a ba­re mi­ni­mum — a few ca­shiers plus a for­k­lift ope­ra­tor to bring in new pa­let­tes.

Ano­ther cor­ners­to­ne of the Al­brecht bro­thers’ mo­del was sim­pli­fy­ing selec­tion by, well, not ha­ving much of a selec­tion. In Ger­ma­ny, a standard mid-mar­ket su­per­mar­ket li­ke Rewe or Ede­ka stocks 20,000 pro­ducts, com­pa­red to Lidl’s 2,500 at most. Even to­day, mo­re than 90 per­cent of the pro­ducts on Al­di’s shel­ves are la­be­led with its own sto­re brands. Of­ten, the pa­cka­ging is a knock-off of the mar­ket lea­der. Al­di’s Frosted Flakes bre­ak­fast ce­re­al, for ex­amp­le, clo­se­ly mi­mics— from the co­lor sche­me to the de­sign of the lo­go — the fa­mi­li­ar ce­re­al sold for ge­ne­ra­ti­ons by Kel­logg’s. Ins­tead of Kel­logg’s ti­ger, you on­ly get Al­di’s be­ar. But you al­so pay about one dol­lar less.

Al­di’s stra­te­gy goes bey­ond me­re co­py­cat be­ha­vi­or. Su­per­mar­ket stra­te­gists say that by mi­mi­cking the ma­jor brands in such ex­ac­ting de­tail, the who­le idea of a brand is un­der­mi­ned. Ac­cor­ding to the Hart­man Group, a re­tail con­sul­tan­cy, “Al­di has per­fec­ted [this stra­te­gy] li­ke no ot­her.” In a re­cent shift, Al­di and Lidl ha­ve ad­ded a smat­te­ring of top brands li­ke Co­ca-Co­la.

The dis­coun­ters’ mar­ket po­wer is im­men­se, even with big na­ti­onwi­de brands; in their Ger­man ho­me mar­ket, a brand-na­me pro­duct’s aver­a­ge pri­ce plum­mets by 17 per­cent across the coun­try on­ce the dis­coun­ters start sto­cking it on their shel­ves. When Lidl in­tro­du­ced the po­pu­lar ener­gy drink Red Bull at €1.49 per 0.33-li­ter can, it set off com­pe­ti­ti­on that brought the pri­ce down to €0.95 soon the­re­af­ter.

Ano­ther ma­jor chan­ge has be­en the ad­di­ti­on of or­ga­nic food to the pro­duct ran­ge, though un­der Al­di’s own brands.

The dis­coun­ters ha­ve al­so scored sur­pri­sin­gly high on qua­li­ty. In Ger­ma­ny, their de­als on, say, French cham­pa­gne or ex­tra-vir­gin oli­ve oil, are le­gen­da­ry among up­mar­ket ur­ba­ni­tes. All the­se steps are part of a mo­ve to attract mo­re up­mar­ket cust­o­m­ers.“Even if people are poor, they want to shop in a sto­re whe­re they don’t feel poor,” said Bo­ris Pla­ner, a re­tail ana­lyst at mar­ket re­se­ar­cher Pla­net Re­tail. “That was li­kely one of the big les­sons of the fi­nan­ci­al cri­sis.”

With this stra­te­gy, Al­di and Lidl are blur­ring the li­ne bet­ween dis­count and con­ven­tio­nal gro­ce­ry chains. This has be­en es­pe­cial­ly im­portant as they ex­pand ab­road. In Ger­ma­ny, a no-frills dis­count cul­tu­re is long es­ta­blis­hed. But over­seas shop­pers are choo­sier. In Aus­tra­lia, whe­re Al­di is ra­pidly ex­pan­ding mar­ket sha­re, it has laun­ched what it calls “Pro­ject Fresh.” Its sto­res are get­ting an up­grade. The pro­du­ce sec­tion — usual­ly a ba­re mi­ni­mum at ot­her sto­res — looks mo­re li­ke a nor­mal su­per­mar­ket’s. Gour­met pro­ducts ha­ve be­en ad­ded to the li­ne.

Lidl has al­so go­ne up­mar­ket. At two out­lets in Ve­ro­na, Ita­ly, Lidl has built sto­res with high cei­lings, wi­de ais­les, a hu­ge glass fa­ca­de and de­si­gner walls in warm brown to­nes. Wi­ne and veg­gies are dis­play­ed in woo­den cra­tes, not tras­hy card­board.

The sto­re smells of fresh bre­ad. The­re are even such no­vel­ties as cust­o­m­er toi­lets and dia­per­ch­an­ging fa­ci­li­ties, so­me­thing un­he­ard of even at bet­ter su­per­mar­kets in Ger­ma­ny. Lidl plans a si­mi­lar lay­out at its U.S. sto­res.

Al­di al­re­a­dy crea­ted a stir in the U.S. re­tail in­dus­try as it rolls out its cur­rent $3 bil­li­on ex­pan­si­on. At the start of this ye­ar, Al­di dr­ew in­dus­try-wi­de at­ten­ti­on by re­mo­ving un­he­althy can­dy and snack of­fe­rings from check­out la­nes, brea­king from a com­mon su­per­mar­ket prac­tice to en­cou­ra­ge im­pul­se buy­ing. Al­di’s Ame­ri­can sto­res ha­ve al­so in­tro­du­ced a broa­der selec­tion, in­clu­ding mo­re brand­na­me pro­ducts as well as or­ga­nic meat and pro­du­ce, but still un­der­cut­ting the com­pe­ti­ti­on by up to 50 per­cent. “Wal­mart, the ever­y­day-low pri­ce hea­vy­weight, is get­ting beat at its own ga­me,” wri­tes tra­de pu­bli­ca­ti­on Su­per­mar­ket News.

The Ger­man dis­count kings al­so ha­ve be­en ex­pe­ri­men­ting with gi­ving their sto­res an aes­t­he­tic face­lift. Al­di’s new con­cept sto­re sou­theast of Mu­nich is part sto­re and part re­tail la­bo­ra­to­ry. Go­ne are drab sto­re fronts and gloo­my wareh­ou­se-style in­te­ri­ors. Shop­pers are gree­ted with tower­ing glass win­dows, LED light­ing, es­pres­so ma­chi­nes elec­tro­nic dis­plays and — a re­al first — cust­o­m­er rest rooms. Lidl is ad­ding self-check­out, fi­ne wi­nes, wi­der ais­les, in-sto­re bake­ries and even fresh fish as part of its “sto­re of the fu­ture” pro­ject.

The Ger­man dis­coun­ters will still ha­ve to show they can go the dis­tan­ce in the U.S. su­per­mar­ket land­scape. When ta­king aim at U.S. icons li­ke Kro­ger and Sa­fe­way, Al­di and Lidl are se­en sti­cking to the low-cost, low­pri­ce for­mu­la that has hel­ped them slay gi­ants be­fo­re. Small re­gio­nal re­tailers will li­kely be the first to feel the pinch. “Wea­ker re­tailers the­re will be the first to lo­se mar­ket sha­re,” says Mi­ke Wat­kins, a re­tail spe­cia­list at Niel­sen. “They will ste­al sa­les and they are in this for the long haul.”

But the U.S. has bloo­di­ed for­eign in­va­ders be­fo­re. Bri­tain’s Tes­co chain, the world’s No. 3 af­ter Wal­mart and Car­re­four of Fran­ce, in 2007 be­gan its as­sault on the U.S. mar­kets with 200 of its Fresh & Ea­sy sto­re chain that en­ded in failu­re and a $1.6 bil­li­on loss six ye­ars la­ter. Ana­lysts at the ti­me bla­med Tes­co’s failu­re to un­der­stand how Ame­ri­cans shop for food. Tes­co al­so was un­lu­cky in its ti­ming, laun­ching just ahead of Ame­ri­ca’s sub­pri­me mort­ga­ge cri­sis and an eco­no­mic re­ces­si­on. By con­trast, the U.S. eco­no­mic down­turn worked in Al­di’s fa­vor as hou­se­holds loo­ked to pinch pen­nies.

Lidl might be a la­te­co­mer in the U.S., but its glo­bal ex­pan­si­on has be­en just as relent­less. The com­pa­ny is spen­ding an amount in the th­ree-di­git mil­li­on eu­ros to mo­der­ni­ze and en­lar­ge its sto­res in Fran­ce. Lidl al­so plans to spend €1 bil­li­on by 2020 to ex­pand in Ita­ly fol­lo­wing Al­di’s own plans to ex­pand south of the Alps. Each has about 10,000 sto­res world­wi­de, and both con­sis­tent­ly rank in the world’s top 10 lar­gest su­per­mar­kets by sa­les. Lidl CEO Sei­del said that his own com­pa­ny’s en­try in­to the U.S. mar­ket will be fo­cu­sed and brisk. Nor is he bo­the­red by Al­di’s sub­stan­ti­al he­ad start. “The Uni­ted Sta­tes is a big coun­try,” says Sei­del. “We won’t get in each ot­her’s way.”

Yet if the ex­pe­ri­ence in ot­her coun­tries is any gui­de, the two Ger­man dis­count gi­ants could soon chan­ge Ame­ri­ca’s su­per­mar­ket land­scape fo­re­ver.

Fa­vo­r­ed vi­si­tor: Volks­wa­gen CEO Mar­tin Win­ter­korn of­ten cal­led on An­ge­la Mer­kel be­fo­re re­si­gning in the wa­ke of the scan­dal.

The Ger­man au­to in­dus­try has al­ways had clo­se ties to go­vern­ment. But sin­ce the Volks­wa­gen scan­dal, the coddling has co­me un­der scru­ti­ny, as has the cheer­lea­ding ro­le play­ed by the chan­cel­lor.

It was a high-le­vel mee­ting on April 14, 2010, at the Four Sea­sons Ho­tel in Be­ver­ly Hills, Ca­li­for­nia. Chan­cel­lor An­ge­la Mer­kel sat with a de­le­ga­ti­on of se­ven people on one si­de of the ta­ble, fa­c­ing Ca­li­for­nia go­ver­nor Ar­nold Schwar­ze­negger and a small en­tou­ra­ge on the ot­her. The to­pics for this wor­king bre­ak­fast we­re cli­ma­te chan­ge and re­ne­wa­ble ener­gy sour­ces.

The le­a­ders smi­led for the pho­to­graph­ers, and when the lat­ter left, the con­fe­rence room’s dou­ble doors clo­sed. Then Mer­kel stop­ped smi­ling. She tur­ned to a wo­man sit­ting at the ta­ble’s far end and snap­ped at her: “Your ni­tro­gen oxi­de stan­dards in Ca­li­for­nia are too strict,” one of the par­ti­ci­pants re­calls Mer­kel say­ing.“They are hur­ting our Ger­man die­sel car­ma­kers.”

The wo­man ad­dres­sed — Ma­ry Ni­chols, the chair­wo­man of the Ca­li­for­nia Air Re­sour­ces Bo­ard (CARB) — was sur­pri­sed that Mer­kel knew her. Eu­ro­pe’s most power­ful wo­man had in­for­med her­s­elf about the emis­si­on pro­blems Ger­man car­ma­kers we­re ha­ving in Ca­li­for­nia. She was not on­ly blunt­ly stan­ding up for her coun­try’s car­ma­kers, but at the sa­me ti­me ques­tio­n­ing Ca­li­for­nia’s ri­go­rous en­vi­ron­men­tal laws.

Ni­chols ro­se to the de­fen­se. “Our en­vi­ron­men­tal laws are es­sen­ti­al for air pol­lu­ti­on con­trol” was her re­ply to Mer­kel, she la­ter told re­por­ters. “I think your car pro­du­cers are most cer­tain­ly in a po­si­ti­on to com­ply with them.” La­ter, she said in an in­ter­view: “I ha­ve ne­ver ex­pe­ri­en­ced a si­mi­lar in­ter­ven­ti­on of a po­li­ti­ci­an against our en­vi­ron­men­tal laws, neit­her be­fo­re nor sin­ce.”

Fi­ve and a half ye­ars af­ter Mer­kel’s un­di­plo­ma­tic per­for­mance, ever­y­bo­dy knows at least one Ger­man car­ma­ker that hasn’t be­en able to com­ply with en­vi­ron­men­tal laws in the Uni­ted Sta­tes: Volks­wa­gen. The com­pa­ny faked its ni­tro­gen oxi­de emis­si­ons tes­ting in or­der to meet strict U.S. gui­de­li­nes and is now sin­king ever de­eper in­to a mo­rass of scan­dal. Mer­kel’s in­ter­ven­ti­on du­ring her sta­te vi­sit to Ca­li­for­nia was to no avail.

When CARB and the U. S. En­vi­ron­men­tal Pro­tec­tion Agen­cy (EPA) went pu­b­lic with the VW scan­dal in Sep­tem­ber, most we­re ta­ken by sur­pri­se - in­clu­ding the pu­b­lic, com­pa­ny share­hol­ders and pro­bab­ly most VW

em­ployees. On­ly a few in the car in­dus­try knew what pro­blems U.S. emis­si­on stan­dards had cau­sed the Volk­wa­gen Group, which in­clu­des the VW brand, Au­di, Por­sche, SEAT and Sko­da.

This casts a du­bious light on Mer­kel’s attack at that bre­ak­fast in 2010. How much did she know back then, and from whom? What dro­ve Mer­kel, a for­mer Ger­man en­vi­ron­ment mi­nis­ter who hel­ped draw up the ori­gi­nal Kyo­to Ac­cor­ds to batt­le cli­ma­te chan­ge, to ta­ke such an ab­rupt stand against en­vi­ron­men­tal laws?

The chan­cel­lor’s of­fice has de­cli­ned to cle­ar up the is­sue. When que­ried, a go­vern­ment spo­kes­man said on­ly that“we don’t gi­ve any in­for­ma­ti­on about the fe­deral chan­cel­lor’s non-pu­b­lic con­ver­sa­ti­ons.”

That is all the mo­re cri­ti­cal sin­ce Mer­kel’s attack mo­re than fi­ve ye­ars ago fits in­to a chain of in­ter­ven­ti­ons on be­half of do­mestic car pro­du­cers to the de­tri­ment of both the en­vi­ron­ment and the he­alth of ci­ti­zens. Sin­ce ta­king of­fice in 2005, the chan­cel­lor has con­ti­nu­al­ly tor­pe­do­ed stric­ter en­vi­ron­men­tal ru­les — most li­kely in the be­lief she is ser­ving car­ma­kers and the com­mon good. Ins­tead, she could be ur­ging Ger­ma­ny’s car­ma­kers to use high-tech to build the world’s most en­vi­ron­men­tal­ly fri­end­ly cars.

Mer­kel and her cabinet ma­de su­re that stric­ter CO2 li­mits would be de­lay­ed and that the car in­dus­try could get around stan­dards with nu­merous tricks. Even­tual­ly, the­se ina­de­qua­te con­trols crea­ted the foun­da­ti­on for fraud at Volks­wa­gen. Ger­hard Schrö­der, the for­mer Ger­man chan­cel­lor, was nick­na­med the “au­to chan­cel­lor” be­cau­se of his sup­port for the in­dus­try. To­day, he has be­en re­pla­ced by Mer­kel, the Volks­wa­gen chan­cel­lor.

Bet­ween 2009 and 2013, few in­dus­tri­al le­a­ders vi­si­ted the Ber­lin chan­cel­le­ry as of­ten as for­mer Volks­wa­gen CEO Mar­tin Win­ter­korn. Al­so vi­sit­ing Mer­kel al­most 10 ti­mes we­re the di­rec­tors of VW sub­si­dia­ries Au­di and Por­sche, as well as mem­bers of the Piëch fa­mi­ly, who to­ge­ther with the Por­sche fa­mi­ly con­trol 50.7 per­cent of VW sha­res. On­ly Daim­ler CEO Die­ter Zet­sche paid mo­re vi­sits to the chan­cel­lor, 15 in to­tal du­ring the sa­me pe­ri­od.

But wha­te­ver Mer­kel wan­ted to pre­ser­ve with her fri­end­ly over­tu­res to the car­ma­kers — jobs, pro­fits, tax re­ve­nues — is now threa­te­ned by the VW scan­dal. Her ye­ars of de­di­ca­ti­on to ea­sing the laws has pro­ven to be a dis­ser­vice not on­ly to the en­vi­ron­ment and he­alth, but al­so to the Ger­man car in­dus­try.

In Ju­ly 2007, the Ger­man news­ma­ga­zi­ne Fo­cus re­por­ted on a new draft bill by Wolf­gang Tie­fen­see, a mem­ber of the So­ci­al

De­mo­cra­tic Par­ty of Ger­ma­ny and trans­por­ta­ti­on mi­nis­ter in Mer­kel’s first go­vern­ment, that cal­led for lo­wer­ing the cost of man­da­to­ry au­to emis­si­ons tes­ting. A pre­con­di­ti­on was that cars must ha­ve a so-cal­led on-bo­ard dia­gno­sis, or OBD, sys­tem.

The OBD elec­tro­nic de­vice was de­si­gned to check the pro­per func­tio­n­ing of the ex­haust sys­tem. Be­cau­se pol­lutant emis­si­ons we­re com­pli­ca­ted to mea­su­re in the ex­haust pi­pe, the idea was to ha­ve faults re­ad out by com­pu­ters in cars equip­ped with an OBD. If no fault was re­cor­ded the­re, the car in­spec­tor as­su­med the emis­si­on con­trol was func­tio­n­ing and the car was cer­ti­fied for ano­ther two ye­ars on the road.

Os­ten­si­bly, Tie­fen­see wan­ted to re­du­ce the cost of tes­ting emis­si­ons and sa­ve car ow­ners mo­ney for the man­da­to­ry test. But in reality, swit­ching from ac­tu­al mea­su­ring to a self­check by the OBD opened the door for fraud in tes­ting pol­lut­ants.

A vi­sit to a car tu­ner in a small Ger­man town shows how it’s do­ne. The au­to­mo­ti­ve tech­ni­ci­an ex­plains how an en­gi­ne con­trol works. He doe­sn’t want his na­me ma­de pu­b­lic, be­cau­se he is ope­ra­ting in a le­gal gray area with the per­for­mance-en­han­cing chan­ges he ma­kes to his cust­o­m­ers’ cars. He con­nects a con­trol sys­tem, a litt­le black box, to his

“I ha­ve ne­ver ex­pe­ri­en­ced a si­mi­lar in­ter­ven­ti­on of a po­li­ti­ci­an against our en­vi­ron­men­tal laws, neit­her be­fo­re nor sin­ce.” Ma­ry Ni­chols, Chair­per­son, Ca­li­for­nia Air Re­sour­ces Bo­ard

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