Should diesels be saved?
While the diesel could theoretically be saved if its on-road emissions are cleaned up, the more important question is: Should it? After all, the diesel rise is a relatively recent phenomenon. In 1990, its share of western European car sales was less than 14 percent. Following the signing of Kyoto climate accords, EU governments looked for a technology that could quickly reduce CO2 emissions in their vehicles. Diesel was the answer.
The problem is that an enormous amount of money has gone into perfecting the technology over the last few decades. It's not just potential writedowns on these investments that worry industry executives. Entire value chains are built around the technology.
"About 20 percent of the 800,000-automotive industry-related jobs in Germany depend on diesel. We will fight for them," Volkswagen’s labor boss, Karlheinz Blessing, said in a release last month.
As regulators crack down on combustion engine emissions in general, the diesel also suffers because it is a non-factor in key markets such as the U.S. and China. Factor in additional costs related to cleaning up diesels and the economics for the powertrain begin to break down rapidly.
Meanwhile, gasoline engines are closing the gap in terms of consumption. VW is introducing a new 1.5-liter TSI engine that uses a leaner combustion cycle and can deactivate two cylinders when they are not needed or even all four in a further developed form of coasting called "sailing." On the Golf model, the new gasoline engine delivers the same 150 hp and emits the same 114g/km of CO2 as a 2.0-liter diesel, but costs 2,750 euros less in Germany.
More importantly, the European Commission plans to push zero-emissions cars to fulfill the EU's Paris climate commitments. Full-electric vehicles also have the benefit that they lend themselves perfectly to highly and fully autonomous vehicles, which require complex electrical architectures already found on EVs but not necessarily on cars with combustion engines. Automakers have already responded, placing the bulk of their r&d budget in zero-emissions vehicles.
At the Frankfurt show, manufacturers fought an arms race over which would promise the most electrified vehicles for 2020 and beyond, despite EVs currently comprising roughly 1 percent of the European market.
BMW's Krueger, whose company saw its diesel share in Europe drop by 5 percentage points to 69 percent, this year, said rolling out new electric versions of popular models such as the BMW X3 has the "utmost priority" for the group. "There will be a change in mobility and I am behind it personally, because it's fun to drive an electric car," he said in Frankfurt.
VW Group boss Mueller envisions electrifying every model in every market by 2030. He now refers to all combustion engines as a "bridge to an emissions-free era," a polite way of saying the clock is running out on them. As part of his Roadmap E, the VW brand alone is investing 6 billion euros in electric drivetrains in the coming five years, almost twice the 3.5 billion euros it will pour into optimizing gasoline, diesel and natural gas combustion engines combined.
Going forward, it will be more a matter of managing a controlled and orderly decline of the diesel, for manufacturers, suppliers and dealers. Porsche, for example, decided against axing the technology because some of its retail partners depend entirely on models such as the diesel-powered Cayenne SUV.
Dealers are under even more acute pressure because used-car sales are crucial to their success. Registrations of 1-year-old Euro 6 diesels in Germany are performing even worse than their new cousins, according to market researcher Dataforce. Domestic dealer association ZDK estimated roughly 300,000 Euro 5 diesels are collecting dust on their lots, equivalent to an overall economic exposure of roughly 4.5 billion euros that could be impaired. "These vehicles can only be sold with great difficulty," ZDK Vice President Thomas Peckruhn said.
Making matters worse, more than 80 percent of people surveyed viewed leasing returns as an "existential risk," since a peculiarity of Germany is that residual value exposures stay on a dealer's balance sheet rather than a manufacturer's. A VW manager who closely follows used-car prices had some frank advice for all those with Euro 5 diesel vehicles, which were sold until September 2015: "Either drive it until it's scrap, or take it to the Ukraine and leave the keys in the ignition."
To deflect from the problem, executives have tried to explain away the scale of the pollution in Stuttgart. Measure the air only 100 meters away from Stuttgart's Neckartor station, the smoggiest place in Germany, and the level is not critical, they say. Meanwhile, Germany's Daimler, Volkswagen Group and BMW all agreed to offer a quick and affordable solution to reduce real-life NO2 emissions in German cities at a hastily arranged national summit in Berlin in August.
The three estimate ambient concentrations of the acrid gas could be cut by as much as 14 percent by 2019 if they offered car buyers incentives to trade in their Euro 4 and older diesels, while updating emissions control software on 2.8 million newer ones already on the road at no cost to the customer. This would be more than what a ban might achieve, they argue.
"That may suffice for other cities, but for Stuttgart, that's nowhere near enough," shot back an official from the state's transport ministry.
Unfortunately, there is no way to compel customers to act anyway, as they are under no obligation. Beyond the hassle involved, suspicions remain as to whether software updates might harm the car’s fuel consumption or performance, and there's no guarantee the ban may not come anyway.
So now the three automakers plan to pay into a new 1-billion-euro mobility fund to improve public transportation, financed in part by the German taxpayer and designed to prevent the kind of checkpoints that threaten Stuttgart. Speaking on behalf of his fellow mayors, Frankfurt's Peter Feldmann told industry executives at the show his city hosted last month: "I can tell you now, it won't suffice."
Douglas A. Bolduc contributed to this report