GERARD SCIMECA – CHAIRMAN, CASE
April 27, 2018 – https://bit.ly/2HUY75B
Americans have long likened politicians to used car salesman, without it being entirely decided which profession comes out worse by comparison. With German Chancellor Angela Merkel paying a visit to President Donald Trump this week, the comparison brings more than a little irony.
As head of the German government which owns a 20 percent stake in automaker Volkswagen, Merkel is sure to press Trump about the over 300,000 idle Volkswagens currently biding time at 37 facilities across our nation. Volkswagen isn’t hiding its intentions regarding the future of these vehicles. According to a spokesman, “These vehicles are being stored on an interim basis and routinely maintained in a manner to ensure their long-term operability and quality, so that they may be returned to commerce or exported once US regulators approve appropriate emissions modifications.” Among Merkel’s goals for this visit will be to see what she can do to empty those lots, and what kind of deal she can offer Trump to put a couple hundred thousand Americans in a VW today.
Once upon a time these vehicles were sold to U.S. consumers, but returned to VW when it was caught having manipulated emissions readings of its TDI diesel engine. This was done deliberately to defeat EPA guidelines for fuel efficiency, and of course gave rise to the not-too-obviously named “dieselgate” scandal. While our organization is no fan of CAFE standards or auto emission dictates from Washington, you can’t have 30 automakers following one set of rules while one lone company makes its own.
Rightfully, Volkswagen was caught and punished, pleading guilty to fraud and numerous other trade violations, and was compelled to settle with its buyers (and leasers). While some took a cash payment to modify their cars to meet EPA standards, hundreds of thousands of others sold them back to Volkswagen, leaving Merkel in the awkward position of having a lot of product to move. Germany right now is the ultimate motivated seller.
The scandal cost VW $7.4 billion in lost sales, buy backs and fixes, and it is desperate to recoup some of its losses by selling these cars at a heavy discount. Even if the autos have been updated to comply with current emissions standards, President Trump shouldn’t let Merkel dump them on the U.S. market.
At first glance this would seem to be a great deal for consumers to nab a low mileage vehicle at a rock bottom price. But just like with President Obama’s failed “cash for clunkers” stimulus of 2009, the short-term boom of any market manipulation always gives rise to a long-term hangover.
Volkswagen typically sells about 340,000 vehicles a year in the U.S., which amounts to less than 2 percent of our domestic auto market. Opening the dam to hundreds of thousands of lightly used cars would be a major disruption not only to domestic automakers, but also the foreign companies who have invested billions in U.S. facilities and hired tens of thousands of workers. Toyota, for example, will invest $10 billion in the U.S. over the next five years, while Ford announced $11 billion in domestic investment. VW’s fire sale is certain to cost its competitors, hurting jobs and direct investment in new plants, equipment and technology.
It would be a repeat of cash for clunkers, but in reverse. While that Obama program took used cars off the road making it more difficult for less affluent car buyers to purchase a vehicle they could afford, the Volkswagen auto glut will likely adversely affect trade-in values for consumers looking to buy new. Faced with low-ball offers from salesmen with flush lots, many will choose to delay purchasing a new vehicle, dealing a further blow to automakers who weren’t caught cheating.
It’s been proven time and again, whether through government stimulus or corporate subsidies, that giveaways to incentivize purchases undermine the free-market and ultimately consumer choice. A deal that seems too good to be true is typically just a bad deal hidden by new car smell. In ways both predictable and unforeseen, it will always end with buyer’s remorse.
Americans should also remember that Volkswagen cheated. VW our government and its American customers. Allowing them to dangle the keys and sell its way out of a fix of its own doing is good for Germany, not America. When Merkel makes her sales pitch to Trump this weekend to get VW off the hook, he should walk off the lot.
