Ratings agency Moody's said last month that the threat of diesel bans in some German cities will further diminish second-hand values and cause inventory levels of used vehicles to rise. "Falling demand for diesel vehicles will mean that residual values may fall substantially short of initial expectations," Moody's said in a note. Under most leasing and financing contracts, automotive banks and dealerships guarantee the residual value of the used car when customers return the vehicle upon contract expiry. About 75 percent of German new registrations are supported by a financing contract, Moody’s said.
The fall in diesel sales also affects manufacturing. "I care passionately [about falling sales] because I have a very large diesel plant," Ford of Britain Managing Director Andy Barratt said.
Ford's plant in Dagenham, England, specializes in diesels for light commercial vehicles, which has shielded it from diesel declines, but the factory is about to add production of diesels for Ford's passenger cars. The country's biggest manufacturing union, Unite, is so worried about the diesel decline that it called on Ford to switch production at the plant to either electric cars or battery packs.
Automakers have also been spending cash to increase gasoline engine capacity as quickly as possible to meet rising demand. "All the investment decisions to increase the capacity of our gasoline engines have been made over the last 18 months. You didn't hear about it, but we did it," PSA Group CEO Carlos Tavares said. "Is it easy? No, it's hell. Our manufacturing guys are working day and night to make this happen."
Although VW Group has been at the center of the diesel crisis since it admitted in 2015 to cheating emissions tests to make the powertrain appear cleaner than it was -- sparking was has become widely known as Dieselgate -- the automaker remains the most bullish about diesel's future. "We have falling sales now, but I expect a renaissance in diesel in the next few years and volumes will increase," VW Group CEO Matthias Mueller said at this year's Geneva auto show.
VW will launch an all-new diesel engine next year and foresees the fuel remaining popular, particularly in larger cars. "I think on heavier cars such as SUVs we will see diesel in the future," said Matthias Rabe, who is r&d boss at VW Group's Spanish subsidiary, Seat. He points to Euro 7 emissions standards, which take effect in 2023, that bring parity to diesel and gasoline in terms of allowable pollutants. "If we have the same standards for both, and we have real-driving emissions, why not continue with the diesel, which, from an efficiency point of view, is better than gasoline?" he said.
VW is right, argues Christoph Stuermer, global lead analyst for PwC Autofacts. "The decline we currently see is an expression of panic. It won't be sustained." Sales will continue to fall, just not as fast. "It's going to come back to the decline slope it's been following for the last three years," he said.
Some markets aren't shedding diesel sales at the same rate. Italy, for example, saw diesel demand rise in 2017, resulting in a 57 percent share. In addition, automakers with a high percentage of light commercial vehicle sales, such as Ford and PSA, will be able use the scale afforded by its LCV production to continue to offer the same or similar engines for a declining car market without too much additional expense. At the moment, there's no good alternative to diesel for LCVs, something that governments and cities currently recognize. The German court's decision to allow diesel car bans exempted diesel-powered commercial vehicles, for example.
It is clear, however, that diesel-powered cars will largely become an expensive luxury. Audi has already introduced diesels that comply with the tough new Euro 6d emissions standards, which take effect in September, on its new A8, A7 and A6 cars. But this comes at a price. "It's a real expensive technology – sensors, catalysts, etc. It costs a lot," Audi's Glaser said.
It will take a lot of hard work to persuade car buyers and elected officials in Europe's cities that diesels are clean. However, LMC Automotive global powertrain analyst Al Bedwell said there could be some good that comes from this period of crisis. "Dieselgate might one day be seen as the savior of diesel, having prompted legislation that finally makes diesel truly clean," Bedwell said. "Time will tell."