The government is considering how to proceed with its industrial policy following the scandal over the manipulated diesel engines of the Volkswagen Group. At the moment only one thing is sure: the exhaust malfunction touched a sensitive area.
Minister of National Economy Mihály Varga stepped up again this week to explain the government’s position on the Volkswagen scandal, since Audi Hungaria Motor Kft. is a Volkswagen subsidiary. “The most important thing for the government is to protect the jobs in the automotive industry,” he explained on national news channel M1.
The automotive industry provides stability in Hungary, which must be protected by any means given the present circumstances. Besides that, there was a consultation with the most important players of the national car industry, namely Mercedes-Benz and Audi Hungaria, of course.
The scandal touched a “sensitive” area, since the automotive industry represents more than 22% of industrial production and secures 13% of all the country’s exports. Varga also mentioned that Audi Hungaria produces 7-8% of these exports all alone.
Government considering diversification of foreign investor structure
The answer is simple as one-two-three: the government realises that the economy needs to be diversified. The predominance of the automotive industry, raised as an issue in the regular monthly report about the development of industrial production, is considered “unhealthy”, so it’s desirable to steer it to a more rational path.
For this reason the minister is planning to promote traditional industrial branches, such as the pharmaceutical industry, the production of medical appliances and components for machine construction, in a more intensive way.
The automotive industry accounted for almost one third of the total manufacturing sector by the middle of this year, while in the boom year 2014 its share was only one quarter. The food industry and electronics industry are adding up to barely one quarter, while machine construction fell back to about half of the normal volume, down to 5-6%.
It’s interesting that Varga did not mention the also traditional chemical industry, but no matter where we are trying to look we cannot locate the possible saviour of industry statistics once the automotive industry goes wrong. Domestic industry might just work out, however around 80% of exports are dominated by large companies, mostly subsidiaries of multinational company groups.
The ambitious goal to tune up the export performance to 100% of gross domestic product and become number one in Europe in this category will never be achieved by the government without the help of the multinationals.
The extent to which the economy is dependent on the automotive industry and especially car exports can be well represented by looking at the monthly figures of the development of producer prices in the industry. The Central Statistical Office has just presented the result for August, when export prices were still showing a growing trend.
Domestic prices on the other hand are decreasing day after day each year; it looks like industry is not able to reach success domestically. In case the Volkswagen Group would decide to “adjust the value” for the transfer prices of the 50-100,000 diesel engines produced by Audi Hungaria each month, the statistics for producer prices could very well show a new negative trend for the autumn months.
Audi Hungaria only producing “clean” engines
Varga mentioned 2-2.5 million engines, as the “contribution” of Audi Hungaria to the diesel scandal. The production of the affected EA189 engine was said to have been stopped in Győr last year. If that is true, then Audi Hungaria has been producing clean engines for a while now.
If this is true, then Audi Hungaria was also only producing “clean” engines for quite some time. However, due to the crisis of trust diesel engines are selling particularly poorly at the moment; in many countries they are even considering a sales ban on the VW brands as long as the scandal is being investigated.
The product recall announced by the new VW management led by Matthias Müller will probably affect many fewer car owners in Hungary than it does in Germany (2.8 million vehicles) or in Austria (363,000). The problem’s reflection on the consumer side is only secondary compared to the production side. Audi Hungaria Motor Kft employed more than 11,300 workers by the middle of the year, who built 1,067,525 engines and 84,888 cars in the first semester – both numbers are absolute high scores within one semester in the history of the company.
For the moment there is no substantial anxiety about losing jobs, according to the information received from the factory, since the intensive work in shifts is being continued for the time being – many people still have to work even on Sundays to manage the high order backlog.
Time to bury the diesel?
It’s not sure yet when the VW centre will send the logically upcoming correction to Győr, since reactions are sometimes a bit more cumbersome in larger organisations. Varga wanted to encourage the employees even further when he said: “Even if the production should fall back due to the scandal, this is going to affect the factory in Győr to a smaller extent than other factories owned by the group, since the Volkswagen Group owns one of its most modern locations in Győr.”
This might not only be an encouragement, in fact it could prove to be an absolutely logical conclusion. After all, the Hungarian subsidiary became the largest engine factory with an “annexed” car factory in the world within two decades of investing over EUR 7.5 billion – this is the merit of Thomas Faustmann, who just recently “emigrated” to Neckarsulm, for reasons independent of the scandal, and who cannot be praised enough for this masterpiece.
In addition to the billions invested in the production of engines and cars they have also invested increasingly large amounts in engine development, since the task of Audi engineers is to make the world-class Otto and diesel engines always a little bit better and better.
If these engines are not compatible with the environmental expectations, then what is the situation with the cars of the broad competition in the automotive industry? The independent tests, carried out by different institutions or specialised journals, being very different from the standardised laboratory test, which have nothing to do with reality due to their artificial model specifications, were not only failed by VW with the 1.6 and 2.0 TDI, engines but also other manufacturers ranging from Volvo to Mazda.
These tests were carried out in normal street traffic, where all of us have gathered experiences with smoky diesel cars – and not even only old-timer vehicles. However, now that models of individual producers are failing, are we going to stick to setting an example with a scapegoat, or is it going to go the full round?
Do we need to bury the diesel, which has been described by the Hungarian minister of national economy as “much more efficient” than the gasoline engine, in his efforts to protect the jobs at Audi Hungaria? What happens with the other brands if VW fails at the International Council on Clean Transportation, how is BMW doing, although the Bavarians are calculated by British testers?
How can the client trust the tests, which appear plausible but (due to the missing standards, of course) provide contradictory results? And what about the buses and the truck fleets – does anyone think that these, similarly as the American monster cars with their gasoline-devouring engines, are really more environmentally friendly than the just recently produced turbocharged direct injection? With this background it’s quite strange how the Germans’ self-flagellation is blossoming at the moment.
Doubtful glory of the global leader
The fact that VW resorted to a manipulating software, since they were not able to meet the stricter and stricter environmental requirements (at least temporarily) by means of engineering, may indeed be explained with the arrogance and impatience of the business leaders spoiled by success. If you investigate the industry a little bit, you could discover enough cases when the engineers are desperately trying to fix the attributes, which have already been sold by marketing as working for a long time.
However, the conclusion that the Germans were only serving the US market with these tricks and that they wanted to be celebrated as heroes thanks to introducing “Clean Diesel”, is quite questionable and lacks a certain sense of reality.
The adventure in the USA has already cost billions to the Volkswagen Group, which only held the dubious title of global leader for five months. As a European citizen you might wonder whether the money invested in the over-subsidised sales policy could have been invested in a better place in other regions of the world – for example in generous rebates for American car buyers.