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Merkel offers to help Germany's carmakers with ‘Herculean Task'

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German Chancellor Angela Merkel (C) gets out of the VW ID.3 electric car as she visits the Volkswagen booth at the International Motor Show (IAA) in Frankfurt, Germany, 12 September 2019.

[FRANKFURT] Chancellor Angela Merkel wants to help offset the higher costs of cleaner vehicles by putting a price on carbon-dioxide emissions, potentially offering a lift to Germany's vital auto industry as it grapples with the high-risk transition away from the combustion engine.

Germany and its automakers are facing a "Herculean task," Mrs Merkel said Thursday at a ceremony opening the Frankfurt car show to the public. While short on specifics, the German leader backed efforts to encourage consumers to buy more environmentally friendly products such as battery-powered cars fueled by renewable power.

"We want to direct the behavior of people in a certain direction," she said. "The pricing of CO2 is the right way to make clear that all innovations should follow the goal of emitting less CO2. If we do this in a long-term and accountable way, there will be the incentives to move innovation in the right direction."

Volkswagen AG, Daimler AG and BMW AG are facing tough times. Pollution concerns - intensified by VW's 2015 diesel-cheating scandal - have tarnished the industry's image and triggered massive investment in electric vehicles. Those costs had already started squeezing earnings when almost a decade of uninterrupted industry growth led by China came to a halt. The consequence is Germany's car production slumping to the lowest level since at least 2010.

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The looming end of the combustion-engine era and the dramatically-increasing importance of digital technologies in cars, pose an unprecedented threat to the industry's traditional business model. A slew of profit warnings from manufacturers like Mercedes-Benz maker Daimler to parts makers like Continental AG provided fresh evidence that times have become rough.

Mrs Merkel spoke after John Krafcik, the chief executive officer of Waymo. The Alphabet Inc unit is widely regarded as the global leader in self-driving technology and represents a risk to the country's car brands, which are largely focused on motoring thrills. Mr Krafcik offered a cooperative tone, even though German manufacturers are wary of allowing the Google parent access to sensitive customer data.

"It's not about competing with car companies. It's to enable, not disrupt companies in the automotive space," said Mr Krafcik. "Developing self-driving technology takes a lot of time. There are no shortcuts. We can't do this on our own."

Germany is teetering on the brink of recession, and the auto industry is pivotal to the economy's health. Carmakers such as Volkswagen, Daimler and BMW as well as parts suppliers like Robert Bosch GmbH and Continental employ about 830,000 people in the country and support everything from machine makers to advertising agencies and cleaning services.

Germany's auto industry is trying to respond. Electric cars, such as the flashy Porsche Taycan and more affordable VW ID.3, dominated media presentations this week at the Frankfurt trade fair and more models are in the pipeline.

Daimler CEO Ola Kallenius backed Mrs Merkel's CO2 pricing plan, saying at panel discussion in Frankfurt that there are costs related to fossil-fuels and it would make sense for a global plan to help fight climate change.

For the auto industry, any signs of support would be welcome. Demand for electric cars has been sluggish, and Mrs Merkel had to surrender her goal to have 1 million electric cars on German roads by 2020. Sales of hybrid and electric cars in the country last year totaled a mere 55,000 vehicles, or 1.6 per cent of the market.

In addition to boosting efficient technologies, the country needs to accelerate the roll-out of charging stations to ease consumer concerns, she said.

"If one believes that climate protection is a task for mankind, and I believe it is, then we must pay this price because otherwise we will have to pay a totally different price," Mrs Merkel said.

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