What's going on?
BMW acknowledged on Friday that its headquarters were raided by European Union (EU) officials as part of an investigation into illegal collusion among German carmakers.
What does this mean?
The EU’s competition watchdog said it would investigate collusion among German carmakers back in July, after a German news magazine reported that BMW, Daimler, Volkswagen and Audi had conspired to fix prices in certain technologies for decades. This included allegations like they had agreed on how much they would pay suppliers for certain components, which would have meant that the carmakers didn’t have to spend as much money competing with each other. The raid on BMW’s headquarters last week appears to be part of this investigation.
Why should I care?
For markets: Collusion would imply other culprits, but only BMW was raided…
While Daimler says it has not set aside funds for a possible fine (suggesting it is confident it won’t be fined) and there is no indication that the offices of Volkswagen or Audi have been raided, the raid on BMW suggests it may not have been cooperating with the EU investigation while its competitors were. Once news of the investigation broke this summer, each of the car companies had an incentive to speak out first to get a more lenient punishment – and BMW may have been too slow. (This episode is similar to a concept called “prisoner’s dilemma” in economics: read more)
The bigger picture: The German car industry is losing its shine.
The German car industry has been hit with big fines in recent years. Most recently, Volkswagen’s diesel emission scandal cost the company tens of billions of euros. This is the latest blow to an industry trying to improve its image. However, the investigation may take years to complete and concerns could be overblown – for example, the EU’s Competition Commissioner said in September that officials were checking whether “completely legal cooperation” is being confused with an illegal cartel.