The scandal surfaced almost two years ago when Volkswagen admitted to falsifying US diesel emissions tests. German politicians and car company bosses agreed in August to overhaul the engine software on 5.3 million diesel cars to reduce pollution and try to repair the industry's battered reputation.

The car industry is Germany's biggest exporter, employs about 800,000 people and makes up 20% of Germany’s total industrial output. The future of the car industry has become a hot topic in the run up to the German Parliamentary election on September 24. German Chancellor Angela Merkel warned on Sunday against a swift abandonment of diesel cars because of the emissions scandals, saying diesel fuel is still needed if climate change targets are to be met. Merkel called on German carmakers to work to reestablish public trust in diesel.

With the emissions scandal still smoldering, German car makers were caught in another scandal last month. According to a Der Spiegel report, the biggest German car manufacturers — Daimler, BMW AG and Volkswagen AG, including VW’s Audi and Porsche brands —since the 1990s have been coordinating on vehicle technology, pricing, suppliers and strategy as well as emissions controls in diesel engines. The coordination has engaged more than 200 employees in 60 working groups involved with auto development, gasoline and diesel motors, brakes and transmissions. Talks may have involved the size of tanks for AdBlue fluid for diesel autos, the magazine reported, which is at the heart of the emissions case. The EU is investigating the allegations, which could result in fines with billions of euros for the companies.

The automobile industry and subsidiary sectors are the backbone of Germany’s economy. One of every five cars in the world is a German car. The diesel crisis is clouding the German growth outlook. Given the importance of the car industry, the diesel crisis must be classified in the medium term as a major risk to economic growth.