Bosch investigation widens

What do Volkswagen, Porsche, Audi, Skoda, Seat, Mercedes-Benz, Renault, Nissan, Opel, Fiat and RAM have in common?

They have either been found guilty or they are under investigation for cheating to meet diesel emissions laws in either Europe or the USA. They have another thing in common: all their engines use engine management control systems from the same company, Robert Bosch.

That's no surprise, because Bosch is the biggest car industry supplier there is and it's hard to find a car or SUV today that doesn't run something from the German giant.

It makes more engine control systems for diesel engines than anybody else, too (it invented them in 1979) and was forced to pay US$327.5 million in compensation to US customers for its part in Dieselgate.

Bosch categorically denied it had done anything wrong over the Volkswagen scandal and that it simply made the engine control units (though not the ones for the 1.6-litre turbo-diesels, which were made by rival Continental) to Volkswagen's specifications. It was never asked to enter a plea of guilty or not guilty.

But while Bosch's management had hoped that would be the end of the controversy swirling around it, it's being investigated by German prosecutors for four other cars that have been found to be emitting far more NOx than they should.

After raiding 11 Daimler offices last week, Stuttgart's prosecutor insisted it is also investigating "a number" of Bosch employees for abetting both the Volkswagen Group and Daimler in their alleged fraud and false advertising related to illegally exceeding diesel emissions limits, according to German newspaper Handelsblatt.

"In the case of Daimler, we are also investigating Bosch employees we suspect were accomplices," a spokesperson for the prosecutor's office confirmed to the business newspaper over the Daimler raids, which were part of an investigation that began in March this year.

Prosecutors in Brunswick (Braunschweig), Stuttgart and Munich have scoured Volkswagen, Daimler and Audi offices, with the Munich prosecutor raiding Audi's HQ on the morning of its annual results presentation and even parking his BMW in the private parking space reserved for Audi Chairman, Rupert Stadler.

Pointedly, Germany's prosecutors have not raided a single Bosch office or facility, leading industry observers to believe the supply giant is talking freely with its tormentors.

Daimler is under investigation over its use of "thermal switching" controls, which shut down the majority of its NOx scrubbing systems when the ambient temperature fell below 10 degrees Celsius or rose above 26 degrees, in its Mercedes-Benz-branded diesels.

A successful fraud conviction by the Stuttgart prosecutor carries a jail sentence of between six months and 10 years and would hinge on whether the damage to property could be proven "beyond dispute".

Daimler has been playing a straight bat on the investigations, insisting the thermal switches were legal, but it is planning for the worst.

"It cannot be ruled out that the authorities might reach the conclusion that Mercedes-Benz diesel vehicles have similar functionalities [to the Volkswagen Group Dieselgate engines]," the company wrote in its annual report. "[The company] could be subject to significant monetary penalties, remediation requirements, vehicle recalls, process improvements and mitigation measures and additional litigations."

Bosch has also been mentioned critically in a recent US lawsuit concerning the NOx emissions of FCA's RAM pickups and there are class actions swirling around the giant supplier's US subsidiaries over the Daimler thermal switches. The switches are nominally covered in a loophole that's legal in Europe (but illegal in the US).

While Bosch insisted the switches were a legal loophole to protect the longevity of the NOx scrubbers, Germany's Federal Motor Transport Authority (KBA) forced Mercedes-Benz, Opel and Renault to recall 630,000 cars last year to remove the switches. All of the cars involved used Bosch engine control systems to emit NOx levels multiples higher than the allowable maximum.

Bosch has never admitted guilt for any of the troubles its clients are in, but that hasn't stopped it more than tripling the size of its litigation fund from €300 million to €1 billion.

There are other potential implications for Bosch though, with any major trend away from diesel cars likely to impact 50,000 staff within its global workforce of 390,000.

Based in the town of Gerlingen, near Stuttgart, Bosch is an astonishing company, especially in the age of "unlocking market value" in assets.

The company had €73 billion in revenue and €82 billion in assets in 2016 and made €2.3 billion in profit in the same year, but the share market isn't getting rich off it.

Instead, Robert Bosch Stiftung, a charitable foundation with no voting rights, owns 92 per cent of Bosch. Robert Bosch's heirs retain the remaining eight per cent of the shares and have seven per cent of the votes, while Robert Bosch Industrietreuhand, a trust of family, senior employees and business experts, has just 0.01 per cent of the shares but 93 per cent of the voting rights.

At its last published report, its dividend payout was only around four per cent of the company's profit, with 0.5 per cent going to the Bosch family and 3.5 per cent to its charitable foundation. The rest was poured back into the company, which invests between nine and 10 per cent of its turnover as research and development.

Historically, Robert Bosch made his reputation as an inventor by figuring out in 1897 how to make the first practical magneto (to create the essential spark to light the fuel) for cars and one of his engineers invented the first high-voltage spark plug.

More recently, Bosch invented electronic motor control units in 1979, electronic anti-lock braking (ABS) in 1978, electronic traction control in 1986, electronic stability control (ESC) in 1995 and direct fuel injection in 2000.

Picture courtesy of Christoph Hoffmann/Wikimedia Commons