Auto makers and their suppliers have benefited from more than €115 billion in German government assistance. If that isn't enough, an ally of Angela Merkel is calling for a diesel subsidy.

It is no secret that Germany’s powerful carmakers are cozy with the political establishment in Berlin, but now there are numbers to show just how much the industry has received in public largesse over the years.

Over the past decade, German automakers and parts suppliers have received more than €115 billion ($128 billion) in various forms of state assistance, according to a government answer, obtained by Handelsblatt, to an inquiry by the socialist Left Party.

Since 2007, the automobile industry could count on €11.5 billion a year of indirect assistance from Berlin in the form of tax benefits and premiums for the disposal of old cars and the purchase of new cars. The industry, which makes billions of euro in profit per year, has received €1 billion in direct assistance for research and development and €181 million in investment assistance the past ten years.

Daimler, the maker of Mercedes, benefited the most from the R&D and investment assistance, receiving €191 million ($213 million) from 2007 to 2017. Volkswagen, Germany’s largest employer, received €110 million and luxury automaker BMW received €107 million.

Ms. Merkel admitted last week that Germany will likely miss the government's target of bringing 1 million electric cars onto the roads by the end of the decade.

In addition, the government also supports the auto industry through procurement. Berlin has spent nearly €800 million on 25,000 vehicles over the past decade. Volkswagen delivered 15,499 vehicles, followed by Daimler with 3,107, Opel with 3,044 and Ford with 1,562.

More than 800,000 people work in the automotive industry in Germany and governments have been keen to do what they can to preserve these jobs. The direct and indirect support hasn’t always had the desired effect. “Billions in tax money have been put in dead-end technological developments which resulted in the emissions scandal,” said Left party lawmaker Herbert Behrens, referring to VW’s diesel emissions-cheating that came to light in 2015.

“The government is serving the short-term interests of the auto industry,” he said, adding that in doing so, it was obstructing the changeover to electric cars.

Despite the money flowing to the industry, German carmakers and their suppliers have been slow in developing and selling electric cars, which are seen as one of the growth drivers. The German sector now faces serious competition from Californian electric carmaker Tesla and Asian rivals. Silicon Valley-based software firms, such as Google, are also entering the territory, offering technology for self-driving cars.

23 p07 Car Industry - Subsidies and Aid from the German Government-01

Ms. Merkel admitted last week that Germany will likely miss the government’s target of bringing 1 million electric cars onto the roads by the end of the decade. In 2016, there were fewer than 80,000 electric cars on German roads.

The electric car strategy would not only have helped to develop a sizeable market in Germany, it would have reduced emissions. It’s becoming increasingly difficult for the auto industry to meet ever tighter environmental standards. The government wants to cut emissions from road traffic by 40 percent by 2030 and to zero by 2050 — a tall order for an industry whose success hinges on global sales of limousines and SUVs fitted with high-performance combustion engines.

Given the slow sales of electric cars, German automakers had been banking on advancements in diesel to meet the emissions goals. But the VW scandal and subsequent revelations of inadequate emissions testing by national authorities have put a massive question mark over the future of diesel.

The sale of diesel cars is already falling. In Germany, new registrations of diesel vehicles have fallen by 8.1 percent since the start of 2017. Management consultancy Roland Berger has predicted that diesel cars as a proportion of middle-class and premium cars will fall to just a third in Europe by 2030 and to zero for small cars.

Whether it is a coincidence or not, the Bavarian state governor Horst Seehofer has recently proposed introducing a purchase subsidy for diesel cars to help boost sales and reduce pollution.

23 p07 Car Industry - Who gets the most for Research Development and Investment-01

Mr. Seehofer, a conservative ally of Chancellor Angela Merkel, argued that an increase in modern, efficient diesel vehicles on the roads will keep pollution down. Of course, the move would also help vehicle sales that have fallen in the wake of the Volkswagen Dieselgate scandal.

The proposal comes just four months ahead of the September election and will please premium automaker BMW, which is based in Munich, the Bavarian state capital.

BMW Chief Executive Harald Krüger was instrumental in persuading the federal government to introduce a purchase subsidy last year to kick-start sluggish sales of electric cars.

A diesel subsidy would greatly benefit BMW. It’s investing heavily in electric vehicles but its fleet still has the highest proportion of diesel cars of all the big automakers, both in Europe with 71 percent and in Germany with 64 percent. Audi, the luxury unit of VW, is in second place.

A subsidy to promote the sale of the newest diesel engines, which pollute less than older models, would be a welcome gift as opposition to the technology mounts. Stuttgart, which suffers some of Germany’s worst traffic-related air pollution, plans to ban all but the most modern diesel vehicles from the city’s roads on particularly bad days from 2018. That’s a big step because Stuttgart is the home of Daimler and Porsche. Other cities including Munich are considering following suit to meet air quality standards set by the EU. Evidently, Germany is falling out of love with diesel.

Management boards have taken note, say industry insiders. But it’s going to be slow progress. Daimler has just invested €3 billion in the development of a new generation of diesel engines. It plans to increase its sales of purely electric vehicles to 25 percent of total sales by 2025. But that means three quarters of its cars will still be internal combustion vehicles.

Daniel Delhaes reports on politics, transport and airlines from Handelsblatt's Berlin office. Dietmar Neuerer covers domestic politics for Handelsblatt from Berlin. To contact the authors: [email protected] and [email protected]