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Frankfurt Auto Show May Perform the Last Rites For Diesel

Frankfurt Auto Show May Perform the Last Rites For Diesel.

“There is currently no death of diesel. We still need diesel technology.

While the Frankfurt Auto Show will hail the dawn of the electric car, again, conventional wisdom sees the death knell for diesels being sounded next week too.

But like electric cars in reverse, has the death of diesel been falsely heralded, as politics races ahead of economics in condemning this technology, which until recently was seen as the essential, core tool in Europe for meeting ever tighter rules on fuel consumption?

It wasn’t so long ago that diesel was seen as the way to improve fuel consumption as politicians grandstanded their love of the planet and opposition to global warming. Because a diesel engine could develop up to 30% more power than a gasoline engine, fuel could be saved and less carbon dioxide (CO2) would be emitted; result: planet saved. Across Europe, politicians offered tax breaks and other incentives to persuade voters to invest in diesel.

But now, a combination of dieselgate, where leading manufacturers led by Volkswagen, conspired to thwart clean air laws, and deepening fears about the poison diesels spew into the atmosphere in towns and cities, these so-called oil-burners have become public enemy number 1. 

Sales of diesel powered cars and SUVs were as high as 55.7% of Western European sales in 2011, hovered around 50% until 2015, but are now on the slide, with some experts saying by 2025 market share could collapse to about 15%.

It is worth remembering that Europeans loved diesel because fuel costs up to three times as much as in the U.S. because of a tax gouge by governments. In the U.K. there is not only a tax rate on gasoline of about 60%, but another levy on top of that brings it to over 70%. The huge improvement in diesel fuel economy was a big bonus at the pump.

Health panic
The panic about the health consequences of diesels has shattered residual values and become a major issue in the current German general election campaign, which ends September 24. A huge swathe of car buyers will be seeking assurances that the value of their cars won’t be slashed, but that also brings in the argument that diesels in cities and town centres are a mortal threat to the populace. Many big cities like Stuttgart, home of Mercedes-Benz, Munich, Paris and London have all sworn to ban diesels from city centres. Many other towns across Germany face a similar threat and party politicians are using the court system to impose bans. Next year, expect scores of law suits across the country.

So diesel is about to die, right?

Not so says Peter Fuss, automotive expert at the Ernst & Young GmbH (EY) consultancy in Germany.

“There is currently no death of diesel. We still need diesel technology – not only for trucks – but also for cars in order to achieve our climate goals. We will see improved (cleaner) diesel technology soon. But consumers need to be confident that their diesel car will not be banned by City governments due to insufficient clean technology. This is a common goal between all stakeholders either politicians, automotive industry and consumers,” Fuss said.

Citi Research isn’t so sure.

“It might be too late for the truth to save diesel,” said Citi Research analyst Michael Tyndall.

“Despite its chequered recent history, it seems diesel can be made clean, perhaps even cleaner than gasoline by 2020. The problem is largely a perception issue,” Tyndall said.

“Given recent falls in residuals it certainly seems car buyers are not willing to take the risk. We would argue without concerted effort from the carmakers to win back the trust of consumers and authorities, diesel might be on a path to obscurity. Bad news for CO2 targets it seems because EVs appear to be a long way from technical maturity or cost equivalence with ICE. As such the adoption rate is unlikely to spike in a meaningful way without significant subsidization,” Tyndall said.

Pessimists
Professor David Bailey of the Aston Business School in Birmingham, England is in the pessimist camp too.

“We will see more action in German regional courts to impose diesel bans in cities. There is huge scope for mayors to engage in that sort of intervention. We will see uneven results with some cities restricting the use of diesels. That will have a big impact on diesel sales and residual values of diesel cars. By 2025 there will be a significant move away from diesel to about 14% market share,” Bailey said.

As with the fashionable apparent surge to electric cars, it is the supplier side of the industry that feels the real pulse of demand. Frederic Lissalde, Vice President of BorgWarner Inc, said indeed the market share of diesels in Europe is going down by about 2 percentage points a year, but there are some positives.

“Small diesels are going down and being replaced by small gasoline engines, but above 2 liters I don’t see a drop,” Lissalde said.

Regulations are making it increasingly expensive to justify improving diesel’s poisonous emissions for small, cheap cars, but for the premium makers who monopolize the market for diesels over 2 liters, that is life-saving, or rather bottom line rescuing, news.

So will diesel power quickly dive to oblivion, or will its ability to provide economic motoring keep it alive. Its biggest obstacle is the power of governments to force choices by use of tax policy.   Governments could quickly destroy the economic benefits of diesel, just as quickly as they manufactured it in the first place, while local politicians’ ability to enforce city centre bans might be the straw that breaks the camel’s back.

Hard to reverse
Citi Research’s Tyndall believes it will be hard to reverse the wave of hostility generated by politicians and the media, even if it isn’t true.

“For larger vehicles and SUVs, especially in high mileage use, it will remain the cleaner alternative – even more so than gasoline, which is a surprise. How this message is “sold” to and adopted by consumers and authorities alike is unknown. We simply can’t see the mainstream media being open to changing its message on diesel and we think the public will struggle to believe the carmakers – fool me twice as it were,” Tyndall said.

The show opens to the public from September 14 through September 24 at the Messe Frankfurt.


   

  

  

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