Volkswagen AG (VWAGY Quick QuoteVWAGY - Free Report) and BMW AG (BAMXF Quick QuoteBAMXF - Free Report) have been slapped a fine of 875 million euros ($1.036 billion) cumulatively by the European Commission (“EC”) for collaborating to limit the use of emission-cleaning technology in the development and rollout of diesel cars.
 
The European Union's (EU) antitrust authority discovered that the three German automakers—Daimler , BMW and Volkswagen, along with Volkswagen subsidiaries Audi and Porsche — breached EU antitrust rules by colluding to make illegal agreements.

Per the EC findings, between June 2009 and October 2014, these carmakers held regular technical meetings to discuss the development of technology that eliminates harmful nitrogen-oxide emissions from diesel passenger cars through the injection of AdBlue into the exhaust gas stream.

The penalty is related to the cartel formed by these companies to avoid competing on the technology to restrict pollution from gasoline and diesel passenger cars. Per the deal, the companies were to restrict the size of AdBlue tanks— a urea-based additive used to cleanse nitrogen oxide from the exhaust gases produced by diesel-fuelled cars— thereby reducing the additive’s effectiveness to produce cleaner emissions.

Reportedly, these German automakers possessed the AdBlue technology beyond what was legally required under EU emission standards. But they entered into an agreement to avoid competition on using this technology's full capacity to reduce emissions.

With concerns toward climate change rising, there is an emphasis by governments around the globe to restrict carbon emissions from cars and trucks. This is contributing to the development of green transportation solutions that restrict the amount of carbon emissions.  Amid the surging importance for reducing environmental pollution, this cartel aspired to restrict competition on this key parameter.

Volkswagen, including its Audi and Porsche marques, received a 45% waiver in the fine for helping the EC prove the existence of the cartel. It was fined 502.3 million euros ($595 million), while BMW was fined 372.8 million euros ($442 million).

Truck maker Daimler, which had revealed the cartel to the EC, was spared a fine of around 727 million euros.

This is a first time the EC has witnessed a cartel whose purpose was to restrict the use of novel technology. With the fine imposed, EC made it crystal clear that it will not tolerate companies resorting to unethical agreements. Competition and innovation on managing car pollution are vital for Europe to achieve the ambitious Green Deal objectives. This decision by the EC showcases that they will not be skeptical to take action against all forms of cartel conduct putting the goal at risk.

All of the parties involved have acknowledged their role in this cartel.

However, Volkswagen is considering whether to appeal the ruling of the EC, which according to the automaker has set a questionable precedent.

Per Volkswagen, the EC has for the first time treated a technical cooperation as an antitrust violation. In fact, the EC also charged fines even though the contents of the agreements were never actually implemented and no customers suffered any harm.

The carmaker’s plea comes down to whether setting common technical standards amounts to anti-competitive behavior— or whether it actually makes it easier for the auto industry to smoothly transit to a new technology.

To shield itself, BMW noted that EU had dropped allegations of the use of illegal defeat devices to manipulate emissions tests, demonstrating that the automaker has been cleared of suspicion on unlawful manipulation of emission control systems. This justifies the lower fine charged to the BMW Group.

This case marks the latest regulatory scandal in an industry that has many a times faced emissions issues. In 2015, Volkswagen was involved in the dieselgate scandal wherein it had admitted that about 11 million of its diesel vehicles worldwide were fitted with the deceptive software to make their emissions appear less toxic in tests than they actually were. This had tainted the automaker’s reputation and had triggered years of investigation costing it more than $38 billion of fine.

Volkswagen currently carries a Zacks Rank of 3 (Hold), while Daimler and BMW carry a Zacks Rank of 2 (Buy) at present. A top-ranked stock in the same sector is CNH Industrial , currently flaunting a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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