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Germans are falling out of love with their carmakers. Angela Merkel knows it

Germany’s most important industry has a tough new critic: Chancellor Angela Merkel.
Campaigning to win a fourth term in elections on Sunday, Merkel has turned her fire on German automakers who once could do no wrong. REported on CNN.
Speaking at last week’s Frankfurt auto show, she took executives to task for an emissions scandal that rocked Volkswagen (VLKAY) in 2015 and could spell the end of the diesel car.

“A lot of trust has been destroyed,” Merkel said. “That is why the industry must do everything to win back credibility and trust, in its own interest and that of employees and German industry.”
Criticism from Merkel reflects a huge shift in popular sentiment that has made cozy relations with German automakers a political liability. An opinion poll last month found that 57% of Germans had lost trust in the industry, and two-thirds felt that politicians were still too close to the carmakers.
Long celebrated for its starring role in the German economy, revelations of emissions cheating at Volkswagen (and exploitation of loopholes by others) has exposed the industry to charges that dirty diesel engines are to blame for the country’s air pollution problem.
Diesel sales slump, foreign brands advance
Sales of diesel cars have slumped this year and foreign brands are taking market share from their German rivals.
In some major cities, calls to ban diesel cars entirely are gathering strength. Munich, the home of BMW (BMWYY), is considering such a ban. So is Stuttgart, where Daimler’s (DMLRY) Mercedes-Benz is based.

Merkel has indicated that it’s only a matter of time before Germany follows France, Britain, India and other countries in setting an expiration date for the sale of cars that use only fossil fuels.
It’s a remarkable reversal of fortune for an industry that employs over 800,000 Germans — 2% of the country’s workers — and has enjoyed close ties with the political establishment. The German state of Lower Saxony owns 20% of Volkswagen (VLKAF), for example, and elected leaders have a reputation for lobbying hard for the industry in Europe, and elsewhere.
“There is no other industry as important, and it’s clear that there is a close relationship between the government and the industry,” said Arndt Ellinghorst, head of Global Automotive Research at Evercore. “The government has always been lobbying for the industry.”

Merkel got her hands dirty too, and not just in lobbying European officials.
Mary Nichols, chair of the California Air Resources Board, testified before the German parliament earlier this year that Merkel had complained about the state’s tough emissions standards during a 2010 meeting with former Gov. Arnold Schwarzenegger.
Nichols said she had never before experienced such an intervention.

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