Volkswagen's CEO Wants You To Know He's Worried

Germany relies on Russia for most of its gas, and Volkswagen happens to be a German car company.

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The guy in charge of the world’s second-largest car company is a little shaken, BMW’s got a big re-recall, and California is officially doing its own thing again. All that and more in The Morning Shift for Thursday, March 10, 2022.

1st Gear: War Will Hit European Economy Harder Than COVID, VW CEO Says

Volkswagen Group CEO Herbert Diess recently had a chat with Financial Times where he discussed the ongoing crisis in Ukraine and the impact it could have on European markets, which is probably the chief concern for him in all of this as he runs a big car company based in Europe. Also, this is less of a theoretical situation and more like the kind that is beginning to play out right now, in real time. From the article:

The head of Volkswagen, Europe’s largest carmaker, has warned that a prolonged war in Ukraine risks being “very much worse” for the region’s economy than the coronavirus pandemic.

The interruption to global supply chains “could lead to huge price increases, scarcity of energy and inflation”, Herbert Diess, chief executive of the German carmaker, told the Financial Times. “It could be very risky for the European and German economies.”


The key here is that Europe — and, more precisely, Germany — is heavily dependent on Russian oil. While the U.S. government was able to get away with banning Russian imports this week, Germany’s been more hesitant. This is why:

Europe’s greater reliance on Russia for its energy needs has already led to a divergence over energy sanctions, with Germany opting not to follow the US this week in imposing a full oil and gas embargo. Russia supplies 45 per cent of Europe’s gas imports that both heat homes and help power the continent’s manufacturing sector.

“For a society like Germany, depending on Russian energy, raw materials . . . if you imagine a scenario where we cut off business relations with Russia, which we probably would have to do if this conflict [does not cease], you could not buy energy any more and this would lead to a situation that might impact Europe and Germany considerably,” Diess said.


Germany imports “more than half its gas and coal and about a third of its oil from Russia,” according to news agency France24. Still, many economists agree Germany could wean itself off Russian gas if it really wanted to. A little more than half of the country’s citizens have expressed support for a boycott, even though one would certainly cost them more at the pump. From France24:

If Russian gas cannot be fully compensated for by other suppliers, households and businesses “would have to accept a 30 percent drop in supply”, and Germany’s total energy consumption would dip by around eight percent, the study said.

According to the economists, GDP could fall by 0.2 to 3 percent and the sanctions could cost each German between 80 and 1,000 euros a year, depending on how much Russian gas can be replaced.


As it pertains to Volkswagen, there’s also the dilemma that China is very much aligned with Russia, and Volkswagen does a lot of business in China. There’s no convenient solution that’s going to stop Putin in his tracks immediately, certainly not without sacrifice. That’s just how war works. However there is a pretty obvious right thing to do, and perhaps Diess should focus on that.

2nd Gear: BMW Just Recalled Nearly 1 Million Cars In North America, Many Of Which Were Already Recalled Before

The culprit? Defective valve heaters that pose a fire risk on older vehicles dating back to model year 2006. From Automotive News:

BMW of North America is recalling more than 917,000 U.S. vehicles for potential issues with the valve heater that could cause the part to overheat, increasing the risk of a fire while driving or soon after when parked.

The recall supersedes and expands two recalls in 2017 and 2019 by the German automaker that affected more than 740,000 vehicles from the 2007-11 model years and about 184,500 vehicles from the 2006 model year, respectively.


BMW issued recalls for this problem beginning five years ago, but those fixes have unfortunately been deemed insufficient. The models recently added to the recall include “certain 2008-13 128i vehicles; 2006-12 3 Series models; 2006-10 5 Series vehicles; 2007-10 X3 SAV models; 2007-10 X5 SAV models; and 2006-11 Z4 vehicles.”

Still, BMW considers the “likelihood of failure” “extraordinarily remote,” so if you happen to own one of these cars, the manufacturer says you can keep driving it. Which, you’ll have to, because parts supposedly won’t be available for a few more months anyway.


3rd Gear: Lada Can’t Make Cars

Russian carmaker AvtoVAZ, which operates the Lada brand, essentially shut down all production on Wednesday, placing “thousands of workers on leave,” per the Wall Street Journal. The flow of parts and resources it needs from the West have been choked out by sanctions. As Renault owns a 67 percent controlling stake in AvtoVAZ, it can’t continue operating alone. From the article:

Such a stoppage was once unthinkable. During Soviet times, Lada’s parent company AvtoVAZ erected a giant factory on the banks of the Volga River, capable of nurturing a homegrown supply chain.

Today, however, AvtoVAZ is owned by French car maker Renault SA and the Togliatti plant relies on a Renault factory in Romania for subassembly and components. More than 20% of AvtoVAZ’s parts—from connectors to key electronics—come from outside Russia, people familiar with the matter said.

“If trade stops, AvtoVAZ stops,” said one former AvtoVAZ board member. “Putin knows that he can’t do it by himself.” It would take months or even years to get production up and running again without the support of Renault, the former board member added.


The story dives into a bit of AvtoVAZ history, including this interesting nugget recounting what Renault found when it decided to purchase the automaker:

By the mid-2000s, however, AvtoVAZ was struggling with issues familiar to many of Russia’s big firms: rampant corruption and a lack of productivity and investment. In 2007, Russia put a stake in AvtoVAZ up for sale, which was acquired by the French car maker Renault.

When Renault executives first visited the huge AvtoVAZ plant in Togliatti, they were surprised by what they saw.

“The machinery was like Detroit in the 1920s,” said a former Renault executive who was on the AvtoVAZ board. “Everything was manual. There were no robots.”

The production lines—rather than being arranged in a serpentine pattern like in European and Asian plants—were straight and long, the former executive recalled. “If you stood at one end of the line, you could see the curvature of the earth,” he said.


Today, Renault’s stock is unsurprisingly flailing as a result of the current conflict. And as for the 33 percent of AvtoVAZ that the French carmaker doesn’t own? That belongs to a Russian defense company, run by “a close friend” of Vladimir Putin.

4th Gear: California Can Officially Go Its Own Way Again

This is the culmination of a story that’s been brewing for a little while now, and an effort to give control back to California to set its own fuel economy standards. From Reuters:

The U.S. Environmental Protection Agency (EPA) on Wednesday restored California’s ability to set its own zero-emission vehicle sales mandate and tailpipe emissions limits, reversing a 2019 decision by then-President Donald Trump.

The agency said it was finalizing a decision to reinstate a waiver under the Clear Air Act to California that was first awarded in 2013.

“With today’s action, we reinstate an approach that for years has helped advance clean technologies and cut air pollution for people not just in California, but for the U.S. as a whole,” EPA Administrator Michael Regan said.

The EPA is also rejecting a Trump-era decision to prohibit other states from adopting the California tailpipe emission standards.


GM originally supported the Trump administration’s action to bar California from making its own rules, then more recently came around. Reuters notes that “16 states, including New York, Pennsylvania and New Jersey, as well as the District of Columbia, have adopted California’s tailpipe emissions rules and 13 are following its zero-emission vehicle rules.” Personally I’m curious to see how this all goes upside down again when Biden loses reelection.

5th Gear: The Mazepins Are On The List

Both ex-Haas F1 driver Nikita Mazepin and his father Dmitry Mazepin have been added to a list of Russian individuals subject to European Union sanctions, reports:

Mazepin was listed as the 732nd Russian to be sanctioned by the EU, while his father was number 723.

In explaining the decision the EU noted that as the head of Uralkali Mazepin Sr “is involved in economic sectors providing a substantial source of revenue to the Government of the Russian Federation, which is responsible for the annexation of Crimea and the destabilisation of Ukraine”.


True though that may be, this part would appear to be the more flagrant association with the Russian president:

It also referenced the fact that along with 36 other business people he met with Vladimir Putin on February 24, the day that the Russian invasion of Ukraine began, to discuss its likely impact.

The EU notes that “the fact that he was invited to attend this meeting shows that he is a member of the closest circle of Vladimir Putin and that he is supporting or implementing actions or policies which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine, as well as stability and security in Ukraine.


Probably, that all tracks! And as for his son, who finished stone last in the 2021 World Drivers’ Championship standings with the most retirements, at seven:

With regard to Nikita Mazepin, the EU flagged his now cancelled F1 involvement and noted that “he is a natural person associated with a leading businessperson (his father) involved in economic sectors providing a substantial source of revenue to the Government of the Russian Federation, which is responsible for the annexation of Crimea and the destabilisation of Ukraine”.


The younger Mazepin is also actively trying to rebrand himself as a martyr for “neutrality in sports” or something, despite the fact that, for all the reasons stated above, he’s very much not neutral.

Reverse: Let’s Bring Roman Numerals Back To Cars

The Ford Bronco II turns 39 today, as it first went on sale on March 10, 1983. Here’s a delightful review from the Washington Post dated March 10, 1989. This is a charming excerpt:

I adored the thing on lowland highways. It gobbled up miles and overtook competitors with nary a whimper. Such gusto! Such a ravenous appetite for road! I thought I could live with it forever. Ah, but the Pennsylvania Turnpike was another story. That forever-under-repair thoroughfare is pitted, cracked, rippled and twisted. Its lanes are ridiculously narrow and its shoulders often nonexistent. The Bronco II didn’t like that mess of a highway.


Sure, our language is a little less whimsical today, but that part about the Pennsylvania Turnpike reminds us some things just never change.

Neutral: Are You Watching?

Season four of Formula 1: Drive To Survive releases tomorrow. Will it be on your television? Or phone, or tablet or whatever it is you use to access Netflix? Kudos to anyone who still has their Netflix software disc for the Nintendo Wii or PlayStation 3. Know that you’re seen and I respect you.