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O 190537Z MAY 08
FM AMCONSUL FRANKFURT
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6456
INFO RUCNFRG/FRG COLLECTIVE IMMEDIATE
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC
RUEHBS/USEU BRUSSELS
RUCNMEM/EU MEMBER STATES COLLECTIVE

UNCLAS SECTION 01 OF 02 FRANKFURT 001515 
 
DEPARTMENT FOR EUR/AGS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EIND ENRG PGOV SENV GM
SUBJECT:  Daimler and Porsche: Differing Challenges in Reducing CO2 
Emissions 
 
REF:  A. Munich 0175 
 ¶B. Berlin 0560 
 ¶C. Munich 0100 
 
¶1. SUMMARY: The proposed European Union directive requiring car 
manufacturers to lower CO2 emissions significantly by 2012 presents 
major challenges to Daimler and Porsche, both German manufacturers 
of high-end, high-powered automobiles.  Neither firm has expressed 
confidence that it will reach the required goal in time, but Porsche 
appears to be impossibly far away from reaching it and resigned to 
its fate.  Both firms will look to the German government to lobby 
the EU for more lenient restrictions, while Porsche likely will also 
try to acquire a majority stake in Volkswagen, thereby pooling the 
fleets and lowering the overall CO2 emissions average.  END 
SUMMARY. 
 
Daimler: Confident of Meeting Target, But Not in Time 
--------------------------------------------- ------ 
 
¶2.  Senior Daimler executives told ConGen Econ Officer and Econ 
Specialist that their company had long ago realized the importance 
of reducing CO2 emissions and increasing energy efficiency to the 
auto industry's future.  They expected their fleet would have an 
average CO2 emission of 136 g/km in 2012, and would not meet the EU 
requirement of 130 g/km until 2015.  Therefore, the company is 
currently lobbying the German government and the EU for a three-year 
extension of the phase-in period to 2015, arguing that nearly 90% of 
all models to be sold in 2012 can no longer be modified since they 
are already in the advanced engineering or production phase. 
Daimler has succeeded in lowering its emissions average in recent 
years by developing new technology, but is also helped by its 
light-weight, more fuel-efficient Mercedes A-class Smart cars. 
 
¶3.  The executives expressed doubt that certain high-powered 
automobiles, such as the Mercedes S-class, would ever comply with 
the proposed 60% maximum overrun of the average and are therefore 
lobbying for an overrun of 80%.  They also criticized the current EU 
draft, which Daimler believes ignores innovations that have reduced 
CO2 emissions, such as energy-efficient lights, solar-paneled glass 
roofs and gear shift indicators.  Daimler expressed dissatisfaction 
with the level of the fines for non-compliance.  These will begin in 
2012 and reach 95 euros per gram by 2015.  According to Daimler's 
calculations, the fines are around twenty times greater than those 
that apply to energy providers in the CO2 emission trading system. 
 
 
¶4.  Daimler executives maintained that the German government 
understood Daimler's concerns and is an honest broker in making its 
case to the EU.  They expected less understanding for their plight 
in the EU Council, where positions were already fixed, and in the EU 
parliament, where many members vote along national lines on the 
issue.  Should no compromise be achieved, the company expects the 
German representation in the EU Parliament to organize a blocking 
vote along with the United Kingdom, the Scandinavian countries and 
several East European partners, against a tightening of restrictions 
to 120 g/km. 
 
Porsche: CO2 Emissions an Existential Threat 
-------------------------------------------- 
 
¶5.  A senior executive at Porsche called EU CO2 regulations a direct 
threat to its very existence.  At present, Porsche's fleet has an 
average emission of 290 g/km, impossibly far away from the target of 
130 g/km.  Although Porsche is designing a hybrid car and a 
diesel-powered SUV, technology simply does not exist to make its 
fleet comply while maintaining the high performance standards that 
distinguish Porsche.  The executive echoed Daimler's criticism of 
the anticipated non-compliance fines, which Porsche would have to 
pass on to the consumer and which, in turn, could dramatically 
affect sales. 
 
¶6.  Speaking candidly, the executive described the legislation as a 
deliberate attack on this segment of the German automotive industry, 
supported by France and Italy, whose car industries produce smaller, 
more energy-efficient vehicles.  Porsche's biggest competitor, 
Ferrari, has the advantage of pooling its fleet with Fiat, making 
its high-emitting cars statistically insignificant.  Porsche hopes 
to pursue a similar arrangement by increasing its ownership share in 
Volkswagen (VW) from 30.9% to over 50% and pooling the two fleets. 
 
 
¶7.  Pooling Porsche and VW may prove difficult as the government of 
VW's home state of Lower Saxony owns 20.8% of the company, and local 
political leaders fear losing control of an economic force in their 
region.  Moreover, Chancellor Merkel has expressed support for 
redrafting a "VW Law" in Germany, which would limit voting rights in 
the company to 20%.  The EU struck down Germany's "VW Law" only last 
 
FRANKFURT 00001515  002 OF 002 
 
 
year, saying that it violated free movement of capital.  The 
executive said Porsche's relationship with the federal chancellery 
was not as good as under former Chancellor Gerhard Schroeder, who, 
coming from Lower Saxony, had a solid understanding of the German 
automobile sector. 
 
Comment 
------- 
 
¶8.  Like most car manufacturers in Germany, Daimler and Porsche will 
lobby hard to change EU CO2 regulations, which pose severe 
challenges for the premium car market.  Though both companies would 
be hit hard, Daimler is better positioned for eventual compliance 
and may even benefit, should Porsche's losses in business translate 
to Daimler's gain.  Porsche faces the greater crisis, since it has 
little hope of bringing its CO2 emissions down far enough and may 
face political opposition in its attempt to acquire a majority stake 
of Volkswagen to pool its fleet.  The challenge for the German 
federal government is to lobby for the domestic car industry in the 
EU while also balancing the competing interests of the various 
German manufacturers.  END COMMENT. 
 
¶9.  This cable was coordinated with Embassy Berlin and ConGen 
Hamburg. 
POWELL