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PP RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHMZ #0100/01 0671134
ZNR UUUUU ZZH
P 071134Z MAR 08
FM AMCONSUL MUNICH
TO RUEHC/SECSTATE WASHDC PRIORITY 4320
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUCPDOC/USDOC WASHDC
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCNMEU/EU INTEREST COLLECTIVE
RUCNFRG/FRG COLLECTIVE

UNCLAS SECTION 01 OF 03 MUNICH 000100 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD PGOV EINV PREL FR GM
SUBJECT: BMW ON EU CO2 RULES, FRENCH INFLUENCE, AND FUTURE OF THE 
AUTOMOBILE 
 
SENSITIVE BUT UNCLASSIFIED.  NOT FOR INTERNET DISTRIBUTION. 
 
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SUMMARY 
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¶1.  (SBU) A senior BMW official told ConGen Munich that proposed EU 
rules on auto carbon emissions would not only be ineffective, but 
represent French "industrial policy," rewarding manufacturers of 
low-tech small cars and punishing Germany's manufacturers of larger, 
more carbon-efficient, vehicles.  To meet stricter regulations, BMW 
has made substantial investments in a mix of technologies the firm 
says will allow it continue producing high-performance vehicles 
customers demand while reducing carbon output.  BMW sees a future 
that includes a place for multiple fuel sources, ranging from diesel 
to hydrogen.  Regardless of the outcome of the EU policy debate, 
BMW's aggressive investment in clean technology, in-part driven by 
the threat of EU regulation, is already allowing the firm to market 
its "green" attributes, helping ensure the survival of the 
automobile, and BMW, in the future. 
 
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EU RULES REPRESENT FRENCH "INDUSTRIAL POLICY" 
--------------------------------------------- 
 
¶2.  (SBU) ConGen Munich met with Dr. Thomas Becker, BMW's V.P. for 
Intergovernmental Affairs to discuss BMW's view of EU environmental 
regulations, and the company's strategy to meet increasingly 
stringent emissions rules.  When asked about BMW's view of proposed 
EU regulations that aim to set a manufacturers' fleet-average limit 
of 120 g/km of CO2 by 2012, Becker did not mince words.  He told us 
the rule reflected misguided EU policy that would reward the auto 
industries of France and Italy for building small and light, but 
technologically inferior, automobiles, while punishing German 
manufacturers for building larger, but more advanced vehicles. 
Becker added that the current proposal was a result of heavy-handed 
lobbying in Brussels by the countries that manufacture primarily 
small cars -- France, and to a lesser extent, Italy, Slovenia and 
Romania.  The proposal represented nothing less than "French 
industrial policy" being carried out by the EU. 
 
¶3.  (SBU) Becker said French officials did not even attempt to 
disguise their proposals as environmental measures.  Rather, they 
were very open about the rules being designed to weaken German car 
manufacturers to benefit French companies like PSA (manufacturer of 
Peugeot and Citroen).  Becker said the French were even going so far 
as to present  their industrial policy as egalitarian social policy, 
quoting PSA CEO Christian Streiff saying in a press interview "The 
European government can't accept that the rich damage the 
environment more than the less affluent...one gram CO2 must be one 
gram for each citizen.  There must be no discrimination." 
 
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EU'S METHODOLOGY FLAWED 
----------------------- 
 
¶4.  (U) Becker said BMW supported in principle the EU's attempt to 
introduce mandatory limits for vehicle emissions.  The current 
draft, however, was not only unfair, but would not lead to a 
substantial reduction in CO2 emissions.  Instead of using the 
average CO2 output of a manufacturer's entire product-line, as 
called for under the current EU proposal, BMW would rather see a 
system that would set ambitious but achievable goals for different 
weight classes of vehicles.  Becker observed that the current 
fleet-average proposal would treat equally the worst-polluting small 
car and the best performing large luxury sedan, even though the 
larger car was actually much more CO2 efficient due to the 
manufacturer's investment in cutting-edge technology.  However, a 
weight-class based system would pit small cars against small cars, 
and larger cars against similarly large vehicles, thus exposing a 
manufacturers' real CO2 efficiency.  For example, if BMW could get 
the CO2 output of a relatively large 5-Series sedan down to even the 
vicinity of that of a small Renault Twingo, it would reveal which 
manufacturer had really made strides to cut CO2 output (read BMW). 
Additionally a weight-class based system would help ensure the 
preservation of customer choice, given that not everyone wants to be 
forced to buy a Renault Twingo-sized car in order to reduce carbon 
output. 
 
¶5.  (U) Becker explained the EU's method of measuring CO2 output is 
also flawed.  Tests are performed with vehicle accessories, such as 
air conditioning, radio, lights, and windshield wipers, turned-off, 
which is not a "real world" scenario.  The problem, Becker noted, is 
there is little incentive for manufactures to improve efficiency of 
the various systems in the car, as their impact is not measured. 
Furthermore, EU testing guidelines ignore manufacturers' 
recommendations for shifting points - arbitrarily requiring shifting 
 
MUNICH 00000100  002 OF 003 
 
 
to a higher gear at a set RPM, even if the manufacturer called for 
shifting-up at a lower RPM.  Another problem was the lack of 
synchronization of the regulatory framework with manufacturers' 
development cycles, as the proposed CO2 requirements would not be 
phased-in, but would apply equally to "state of the art" cars on the 
market in 2012 and older designs nearing the end of their product 
life-cycle. 
 
¶6.  (U) Becker was also highly critical of the penalties proposed by 
the EU, saying they were too high.  Starting in 2012, if a 
manufacturer exceeded the 120 g/km limit of CO2 it would face a 
penalty of 20 Euros per gram over the limit, multiplied by the 
number of cars it sold in the EU that year.  By 2015 that penalty 
would increase to 95 Euros -- a company with unit sales of 1,000,000 
vehicles in Europe whose fleet exceeded the limit by 10 grams would 
face a fine of nearly 1 billion Euros.  Becker said it made no sense 
to penalize the automotive industry with a price of 95 Euros per 
gram, when the "market price" for carbon for other industries, such 
as electricity generation, was 20 Euros per gram, based on carbon 
trading. 
 
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BERLIN STANDING UP FOR GERMAN INDUSTRY 
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¶7.  (SBU) When asked if BMW thought the German government was doing 
enough to defend German manufacturers from this alleged 
French-inspired "industrial policy," Becker said he thought it was. 
He said it had come as a surprise to French officials that the 
German government was standing behind domestic car manufacturers, 
and that this support cut across party affiliations and ministries. 
Nevertheless, Becker said a viable compromise was unlikely this year 
as France would take over the EU Presidency July 1 and could be 
expected to manipulate the outcome of any discussions.  Becker said 
that as much as BMW would like to see the EU policy made more 
rational, it would not want to see wrangling over the legislation 
dragged-out until the last minute, as the company prefers regulatory 
certainty to the unknown.  If given clear regulations, even bad 
regulations, BMW engineers would at least have something to go to 
work on leading up to 2012. 
 
--------------------------------------------- - 
TOMORROW'S CAR -- SALVATION THROUGH TECHNOLOGY 
--------------------------------------------- - 
 
¶8.  (U) Becker repeatedly made the point that BMW was not opposed to 
building cleaner cars, adding that BMW's view is that customers 
should not have to compromise between an environmentally sound 
product and one that offers high-performance and comfort - a concept 
BMW calls "EfficientDynamics."  To illustrate the benefits of 
EfficientDynamics, Becker used the example of the BMW X5 "Vision" 
SUV hybrid concept vehicle, unveiled at the Geneva Auto Show on 
March 6.  BMW claims the SUV is the most efficient vehicle of its 
size in the world, with virtually the same performance as a normal 
X5, but achieving 43.5 MPG and just 172g/km of CO2 emissions.  In 
contrast, a normal gasoline-powered X5 with a 3.0 liter engine gets 
just 18 mpg (according to EPA estimates), and emits 244g/km of CO2. 
 
¶9.  (U) BMW achieved this efficiency with electric-hybrid technology 
combined with a twin-turbocharged four-cylinder diesel engine, an 
eight-speed automatic gearbox and roof-mounted solar panels.  In 
addition, BMW used "Brake Energy Regeneration," generating 
electricity from the kinetic energy that would normally be converted 
into heat during braking.  BMW says all of these technologies will 
start appearing in its production cars as early as 2010.  As a 
result of the company's research into CO2 reduction, BMW says it was 
able to reduce the CO2 emissions of its fleet by seven percent in 
2007, and by the end of 2008 will have cut fleet CO2 emissions by 25 
percent from 1995 levels. 
 
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FUTURE WILL REQUIRE A MIX OF FUEL SOURCES 
----------------------------------------- 
 
¶10.  (U) Becker said BMW foresees a future in which no single 
propulsion technology will replace today's internal-combustion 
engine.  The company is particularly bullish on diesel technology -- 
already used in 67 percent of the cars BMW sells in Europe.  Becker 
said BMW's latest generation of diesels offer the performance of a 
gasoline engine, but with dramatically improved fuel-economy and 
lower CO2 output.  Becker said a key element of BMW's U.S. strategy 
is to promote the advantages of diesels now that cleaner low-sulfur 
diesel fuel is widely available in the U.S.  Becker related how BMW 
currently produces diesel engines in Austria, ships them to 
Spartanburg, South Carolina where they are integrated into X5 SUVs, 
which are then shipped back to Europe - none of the diesels remain 
in the U.S. 
 
MUNICH 00000100  003 OF 003 
 
 
 
¶11.  (U) Becker said BMW would like to see common standards between 
the U.S. and EU on biofuels, and strongly supports the Transatlantic 
Economic Council's (TEC) efforts in this regard.  Becker said BMW 
would also like to see minimum sustainability standards worldwide 
for biofuel production, specifically mentioning Brazil.  While BMW 
believes the current crop of hybrids, such as the Toyota Prius, 
doesn't offer significant advantages over the newest clean diesels, 
the company is exploring ways to integrate hybrid technology in new 
ways, as with the diesel-hybrid X5 Vision, and even a steam-hybrid 
concept that recaptures exhaust heat and uses it to provide 
additional boost to the engine. 
 
¶12.  (U) Becker said BMW's fleet of 100 "CleanEnergy" 
hydrogen-powered 7-Series sedans, about 25 of which are in the U.S., 
is an attempt to demonstrate that hydrogen fuel-cell technology is 
viable from the manufacturer's perspective.  Another objective is to 
promote investment in a hydrogen infrastructure, such as production 
facilities and fueling stations.  While hydrogen remains very 
energy-intensive to produce at present, BMW foresees the possibility 
of large-scale hydrogen production from renewable sources such as 
wind and solar in the future. 
 
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COMMENT 
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¶13.  (SBU) We were not expecting an endorsement of the EU's 
carbon-reduction proposals from BMW.  We were, however, a little 
surprised by the extent to which BMW believes France manipulates EU 
environmental policy to the benefit of its own industry.  We also 
found it notable that BMW feels the Merkel government in Berlin is 
"going to bat" in the EU for the auto manufacturers, apparently 
viewing the proposed regulations from Brussels as an existential 
threat to Germany's most important industry.  We were impressed by 
the breadth of BMW's research across the spectrum of clean 
technologies - clearly the company is preparing for the "worst" from 
Brussels.  France's nationalistic intentions aside, it would appear 
the threat of harsh regulations from the EU is driving auto 
manufacturers to push the technological envelope - something that, 
ironically, may ensure that the automobile, and companies like BMW, 
remain viable components of the transportation mix of the 
carbon-conscious years ahead. 
 
¶14.  (U) This report has been coordinated with Embassy Berlin. 
 
¶15.  (U) Previous reporting from Munich is available on our SIPRNET 
website at www.state.sgov.gov/p/eur/munich/ . 
 
NELSON