Daimler recalls 3m cars in latest blow to beleaguered diesel sector

Daimler moved to head off a growing crisis over emissions concerns by voluntarily recalling more than 3 million Mercedes-Benz diesel vehicles in Europe, marking the latest blow to the technology since Volkswagen's cheating scandal erupted nearly two years ago.

The carmaker will extend an ongoing upgrade of 250,000 compacts and vans to nearly every modern Mercedes diesel on the road.

The plan, which involves a software patch and avoids complex component fixes, will cost about 220 million euros ($255 million), the Stuttgart, Germany-based company said on Tuesday. The move comes against a backdrop of the massive fines that beset VW, and as Mercedes continues to face investigations in Germany and the United States.

"This is about managing diesel's decline as gently as possible and to get a little bit of reprieve," said Arndt Ellinghorst, a London-based analyst with Evercore ISI.

"That's not going to change the fundamental direction of the shift in technology."

Diesel, which powers about half of the cars sold in Europe every year thanks to taxes that make the fuel cheaper at the pump, has been increasingly under attack since Volkswagen admitted to duping regulators in September 2015.

With the technology crucial to Daimler's strategy to meet targets for lower carbon-dioxide emissions, the automaker can ill afford to have diesel further sullied by doubts and allegations.

Germany's Transport Ministry, which said it will check additional Mercedes models for possible emissions violations, said the decision sent a good signal ahead of an Aug 2 national task force meeting on diesel in Berlin.

The ministry will push forward with a review of Mercedes cars announced recently with the German motor transport authority, ministry spokesman Sebastian Hille told reporters on Wednesday.

As well as recalling diesels with Euro-5 and -6 emissions standards, the manufacturer also plans a "rapid" rollout of a completely new diesel engine family, the carmaker said.

The plan marks a conciliatory step after Daimler vowed to fight accusations of cheating by "all legal means" following a meeting with government officials in Berlin. The crisis has clouded Daimler for months, with hundreds of police officers and prosecutors searching company sites in May.

German authorities have been scrutinizing the carmaker for possible emissions cheating involving two engines used by Mercedes, and Daimler is also the subject of a US probe into allegedly excessive diesel emissions.

"This is finally a proactive move to put something on the table and a solid attempt at getting out in front of the debate," said Juergen Pieper, a Frankfurt-based analyst with Bankhaus Metzler.

Daimler's estimation for the cost of the recall, at about 70 euros per car, is "extraordinarily low" and could rise, he said.

Unlike Volkswagen, which admitted it deceived regulators, Daimler said it adhered to regulations that allow vehicles to reduce emissions controls to protect a car's engine.

Still, ongoing concerns about diesel in the aftermath of the Volkswagen scandal have prompted the home states of Daimler, BMW and Audi to push for fixes on older models to cut air pollution.

The emissions crackdown extends beyond Germany, with France's Energy Ministry earlier this month saying the country would end the sale of gasoline- and diesel-powered vehicles by 2040.

Paris, Madrid, Athens and Mexico City have all said they will ban diesel vehicles from their roads by 2025.

One of Daimler's peers is preempting these stricter rules.

Volvo Car Group said this month it will phase out vehicles powered solely by fossil fuels and offer only hybrid or full-electric motors on every new model launched in 2019 or later.

Agencies