WOLFSBURG, Germany — To understand why Germany doesn’t want greater EU oversight of its auto industry, look no further than Wolfsburg — home to the world’s largest carmaker, Volkswagen.

The northern German city is one of the most important engines of the country's automotive sector, which is worth around a quarter of national GDP. Hundreds of kilometers away in Brussels, EU ministers will meet later this month to consider a plan to ensure national governments and their agencies can’t cover up emissions cheating and to set up a punishment system for those that do — proposals that Germany alone opposes in the bloc.

Also to the annoyance of Volkswagen, European Commission President Jean-Claude Juncker is backing efforts to get the company to offer EU consumers compensation over the installation of the so-called “defeat devices” at the heart of the Dieselgate scandal that cheated emissions tests in millions of vehicles sold across the EU.

Within the ramparts of the sprawling 1930s complex that has served as the beating heart of Volkswagen since 1937, Ulrich Eichhorn, the carmaker’s chief technical officer, dismisses the case for compensation, arguing that simple software fixes to make affected vehicles compliant in Europe are sufficient.

“As far as we’re concerned, that’s the case closed,” Eichhorn said. A former managing director of the powerful national lobby group, the German Association of the Automotive Industry, Eichhorn is used to operating in the closely connected spheres of the German auto industry and politics.

He adds that any structure beyond the national regulator would simply replicate oversight and add an unnecessary burden.

His message for Brussels is stark: if VW is weakened, so too is the European economy. “The continued success of Volkswagen is very important to the German and European economy and societies,” he said.

“We are among Germany’s largest companies, among Germany’s largest employers and among Germany’s largest exporters,” said Eichhorn. He sees VW as the center of its “own industrial ecosystem” with suppliers across the country and the Continent dependent on its continued success.

Transferring power to oversee the automotive sector and punish transgressions beyond German borders would loosen Berlin’s control of a key industry. It could bring in a peer review system in which national agencies check up on how their counterparts oversee compliance. It could also set targets for how many vehicles should be checked.

Without Germany, the remaining EU countries have a big enough majority to get the draft proposal through at the ministers' meeting on May 29. But the EU likes to operate by consensus and it would be a bold move for other countries to force through the plan in the face of opposition from the bloc's biggest member.

Berlin is apparently hoping to postpone a decision. A source familiar with Germany’s position insisted the proposals aren’t yet ready to go before ministers for a vote and more time is needed to study the technicalities.

'Das Werk'

In a company town like Wolfsburg, how the automotive sector is regulated makes news. Some 70,000 of VW’s 624,000 worldwide workforce are employed at its complex in the city of 120,000 people. The factory is known simply as “Das Werk” ("the works”) by locals.

Robot-equipped production lines here churn out an average 3,500 vehicles a day; the company’s 44 millionth car recently rolled out of the factory. Shrapnel holes remain in roof girders from 1944 allied bombing but work grinds on 22 hours a day across three shifts.

Generations of families work in the factory and almost everything in the small city bears the carmaker’s imprint. There are Volkswagen subsidiaries for real estate management, loans and catering. The local top-division football team is sponsored by VW and plays at the Volkswagen Stadium. Volkswagen sausages are served in the company canteen and sold in local shops.

“VW goes broke, the city goes broke,” said Petra Ciracil, landlady at the Postschänke pub. “Everyone depends on VW, every place you go shopping, every hairdresser. Everyone.”

Despite insisting it won’t offer compensation for Dieselgate in Europe, Volkswagen has already offered more than $20 billion in fines and settlements in the U.S., where it sold half a million diesel-engine cars equipped with “defeat devices.”

The costs of compensation in Europe would be stratospheric because VW and its allied brands sold around 8.5 million such cars in the EU. The cost of future transgressions by any automaker would be even more severe under the new draft oversight plans, which foresee fines of €30,000 per vehicle.

Existential threat

In Wolfsburg, the risk of fines and forced compensation as a result of Dieselgate made the scandal an existential threat to the local economy. A municipal spending freeze was announced just after the scandal broke when U.S. authorities caught VW out in 2015, in anticipation of a collapse in tax takings.

“VW goes broke, the city goes broke” — Petra Ciracil, landlady at the Postschänke pub

“Whenever there is a crisis at VW, business taxes go down very sharply,” said Wolfsburg Mayor Klaus Mohrs from the center-left Social Democratic Party. Mohrs said the local administration had managed to put a few hundred million euros aside in brighter times that helped get the city through the rough months.

Regionally, the scandal made waves, too. The Lower Saxony state government in Hanover, some 90 kilometers to the west, holds a 12 percent interest in the company and also has seat on its supervisory board.

“The VW diesel scandal has caused the biggest crisis in the company’s history. Everybody has been profoundly affected by it,” said Olaf Lies, Lower Saxony’s minister for economy, labor and transport.

But the company has quickly bounced back. Whatever the reputational cost over Dieselgate, VW returned to profit in 2016. In the first three months of 2017, it posted bumper earnings of €4.4 billion, close to a 30 percent rise on the year before. The company has also regained its status as the world’s largest carmaker by sales volume, overtaking Japan’s Toyota.

Now Volkswagen is keen to focus not on the diesel-stained past but on rebuilding itself as a carmaker of the future — relying on self-driving technology and electric vehicles.

To do that, Eichhorn wants to avoid new regulations. He argues authorities should concentrate on “the uniform and consistent application of the regulations as they stand.”

As part of the forward-looking strategy, Eichhorn presented Sedric, VW’s autonomous prototype vehicle, at an industry show in Geneva this year. Meanwhile, Mohrs, the Wolfsburg mayor, wants his city to become a big test track for automated cars.

By scaling back on some models, VW aims to save €2.5 billion to use on an electric vehicle offensive in the years leading up to 2025.

That shift to automation and electrification poses risks to Wolfsburg, as traditional factories making “dumb” cars and fossil-fuel engines in the nearby city of Salzgitter are superseded by new technology. But the message from Wolfsburg is that the mobility revolution is coming one way or another — and it is best to handle it close to home.

“The realignment will change the entire automotive industry in Lower Saxony,” said Lies. “Jobs will be lost but others will be created. We need to prepare for that.”

Florian Müller contributed reporting.