VW, others offer diesel buybacks to prop up powertrain
Volkswagen Group will allow its passenger car brands to buy back new diesels from customers if German cities ban them. The buybacks apply to new diesel cars bought starting April 1.
VW Group's program, which matches a similar offer made by BMW earlier this month, comes as automakers try to restore confidence in the flagging powertrain.
As part of its campaign to rehabilitate the diesel in Germany, epicenter of the crisis, VW Group will also extend its diesel trade-in incentive program in Germany by another three months to the end of June, the company said, following the example set by BMW and Daimler.
VW waited until Thursday morning to announced its diesel plans. German rival Opel countered a few hours later saying it would extend its diesel incentive program by a month to the end of April. Had Opel not made the move, it would have been one of the first automakers to end the offer as other major volume brands such as Ford and Fiat continue to advertise them.
While the diesel incentives have successful lifted overall car demand in Europe’s largest car market, which has reached sales highs not seen since 1999, the diesel trade-in offer has failed to resuscitate demand for the powertrain.
The share of diesels in the German new car fleet continues to fluctuate currently at about 33 percent, a level matched only once since 2000. Private car buyers in particular remain worried that it is only a matter of time before even the latest Euro 6 diesels are affected by driving bans, following a court ruling that legalized bans as an option to combat smog in city centers.
Underlining the risk, environmental advocates representing Germany’s DUH said on Thursday they launched 11 new cases against German cities for breaching EU air quality limits, bringing the total to 28 metropolitan areas in which they are pushing for diesel bans.
Rather than risk limitations on their mobility and a decline in vehicle resale values, car buyers are switching to gasoline cars. This puts upward pressure on manufacturers' CO2 fleet emission targets as only a small, albeit growing, number of people are buying more expensive electric cars and plug-in hybrids.
For that reason, VW has changed its trade-in offer to limit it to diesels only and introduced a new element with a guarantee to take back a diesel vehicle if it is affected by a city driving ban.
"It's just a diesel for a diesel," a company source said.
Previously, customers could trade in their old diesels with an emissions classifications of Euro 4 or lower for any new Euro 6 car.
VW brand, for example, previously offered an additional cash rebate on top of the trade-in incentive for those customers switching from diesel to compressed natural gas or electrified vehicles. In December it claimed the extra 2,380 euros off a battery-powered car triggered such high demand for the e-Golf electric car that it had to introduce a second production shift at its small Dresden factory, formerly home of the Phaeton.
While more limited now in the choice of powertrain, German private customers can take advantage of a new promise from both VW and its sibling brand, Skoda, to buy back their Euro 6 diesels at a fair and transparent price if their cars are affected by a ban and they exchange them for new ones from the same dealer.
"With the Germany Guarantee and the diesel [trade-in] incentive, we are offering our customers security when they choose a diesel,” Thomas Zahn, head of sales and marketing for the VW brand in Germany, said in a statement on Thursday.
The extension of the incentive program comes four weeks after a ruling from Germany's highest administrative court in Leipzig that driving bans could be used to help reduce diesel emissions in metropolitan areas failing to meet EU clean air laws. The courts said the bans could even affect the 5.9 million Euro 5 diesels currently registered in Germany, if done so after a “reasonable” period of time given they could be legally sold as new through the end of August 2015.
The impact of the discussion has hit customers German car retailers hard. Their main lobby association, the ZDK, said on Thursday that a third of the 1,817 dealers it polled reported having to offer discounts of 30 percent to 50 percent on Euro 5 diesels just to move them off lots.
Fiat Chrysler Automobiles recently extended its trade-in incentives through April to include Euro 5 diesels, for this reason, while BMW is advertising "The Diesel Return Promise" that allows drivers to bring back their vehicle if they are affected by a ban.
At BMW, the return option initially will only apply to leasing customers because it is easier for the brand to manage a fleet of cars that never left its balance sheet.
On Thursday, Audi said it, too, would extend its trade-in incentive until the end of June, like its rivals Mercedes and BMW.
The incentives were part of an agreement reached last August during the so-called "Diesel Summit," which was held to help reduce tailpipe emissions in Germany, restore confidence in the powertrain and prevent driving bans in major cities.
While unable to restore confidence thus far, they have proved highly popular. Propped up by rebates, the overall German market gained 9.5 percent to nearly 531,200 vehicles in the first two months. Not since 1999 have so many cars been sold over this period, according to the German auto industry association, VDA.
VW Group was the only carmaker to also commit to removing older diesels from the road. As part of its incentive campaign, the company said on Thursday it had successfully scrapped more than 170,000 cars classed Euro 4 or below.
But sources at the automaker argued that a second extension might not achieve very much since many of the customers who could take advantage of the offer most likely already had. Some even believe the worst appears to be over.
"For the moment we don't see any fluctuations in volume or price since the [German court's diesel ban] ruling," VW Financial Services Chief Financial Officer Frank Fiedler said this month. "As the investment bankers might say, It's already priced in."
The damage however has been done. Fiedler said his income statement took a 50 million euro impairment hit last year to reflect a 2 percentage point decline in the residual values of his German diesel leasing book. He forecast a similar charge for 2018.