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From Bad To Worse?

24 July 2017 by lberuti

The news came out on Friday, but it took the week-end to sink with credit investors. VW ( Volkswagen AG ), DAIGR ( Daimler AG ), and BMW ( Bayerische Motoren Werke AG ) may have colluded for decades to agree on technical standards, thereby impeding competition. German car makers seemed to have just turned the corner after the diesel emissions scandal, but in the process VW annoyed the European Commission. It refused to compensate the more than 8mln European customers affected by its diesel emission cheating, whereas it spent more than $20Bln in the US to atone for its wrongdoing. Anti-competitive practises fall in a completely different category though. And Brussels has plenty of tools to punish guilty parties. While the scope of any wrongdoing and potential fines are still unclear, in theory it can impose penalty of up to 10% of revenues on cartel members. Recently Google was fined €2.4Bln for abusing market dominance, and last year truck-markers had to cough-up €2.9Bln for price fixing. The German trio potentially faces a combined €50Bln bill. In an otherwise unremarkable session, the 3 German car makers were among the 4 worst performers of iTraxx Main constituents. The risk premia of VW, DAIGR and BMW were respectively 10bps (at 70bps), 6bps (at 57bps) and 4.5bps (at 48.5bps) wider.