After Dieselgate

The End of the Diesel Boom

e-car_getty
The e-car revolution is fundamentally changing the auto industry -- and with it Germany's most competitive export sector.
  • Why it matters

    Why it matters

    The demise of diesel cars, which are popular in Europe, could have a significant impact on German automakers and the country’s economy.

  • Facts

    Facts

    • The new rules will require that emissions testing be conducted on vehicles during drives on highways and in cities.
    • VW’s software was able to manipulate results of testing done in labs.
    • E.U. countries agreed to the new testing standards in late October, and the change takes effect in 2017.
  • Audio

    Audio

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If there are any clear winners in the emissions scandal at Volkswagen, it would be Germany-based electronics specialists Maha AIP and its Austrian competitor, AVL List.

The companies produce measuring devices that environmental agencies, automakers and other vehicle-related testing organizations plan to use for emissions testing on cars. The testing would be done in everyday situations on roads — and not in the laboratory.

The devices, which cost at least €80,000 ($87,040) each and are in bright yellow boxes attached to the outside of cars, are in demand more than ever before. The producers can hardly keep up with orders coming from testers.

“We are anxiously awaiting ours,” said Reinhard Kolke, head of the test and technology division of the German automobile club ADAC.

The requirement to conduct tests on cars under normal driving conditions is a defeat for automakers, who have opposed the RDE standard for years.

Until the deception was exposed in the emission numbers in VW’s diesel models, carmakers only had to verify fuel consumption and exhaust emissions under laboratory conditions. But now the European Union is making the test conditions stricter, and that’s where the measuring kits come into play.

Instead of lab measurements, test drives on highways and in cities will be obligatory. The change is scheduled to be introduced in 2017. European Union member states agreed to the new standard for testing – labeled Real Driving Emissions, or RDE – in late October.

The change means that in the future, diesel engines’ emissions will be measured more precisely. The motors are also likely to be far more costly and, compared to gas engines and electric motors, less economical.

Currently, diesel models are an important component of the German car industry.

The requirement to conduct tests on cars under normal driving conditions is a defeat for automakers, which have opposed the RDE standard for years. The tests on cars in everyday traffic, they say, doesn’t provide comparable figures because of a wide diversity of factors – from traffic jams to air temperature – that influence the measurements.

Such testing is also known to produce massively higher gas consumption and exhaust levels than when the measurements are taken under clinical conditions at testing facilities’ labs.

German weekly business news magazine WirtschaftsWoche commissioned consulting firm Accenture to estimate the consequences of the new testing procedures.

The required changes, the firm projected, will be profound for automakers and consumers alike. The technology necessary to reduce exhaust pollutants, Accenture argued, will significantly increase the cost of diesel models, causing a shift in the proportion of gas to diesel cars, and the cost disadvantage of electric cars will be considerably reduced. Also, cars with hybrid power systems will soon become less costly to maintain than those with diesel motors, which are particularly popular with European customers.

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New measuring methods are expected to make diesel-powered cars more expensive. Source: Patrick Pleul/DPA

 

The stricter limits and measuring methods will make diesel models enormously more expensive in cars of all sizes, according to Accenture. Diesels have little a chance of surviving, including the most popular German car class, the compact, which includes the VW Golf, the Opel Astra and the Ford Focus.

Accenture’s calculations show that over its lifetime, the hybrid drive is cheaper than a diesel by almost €5,000 ($5,371) and a gas engine by about €3,000. Electric models will become more competitive, too, only €1,500 more expensive than a diesel.

The E.U.’s executive branch  plans to introduce not only RDE tests, but also a new lab testing process that is closer to everyday driving conditions. The process is also supposed to replace the testing method criticized for having little relation to reality.

In the future, every new model will go through at least two testing procedures before the car goes on the market. The change is coming with the new emission standard that will apply to all new car models beginning in September 2017 and, beginning in 2019, for new registrations of older, already approved types of cars.

The German Association of the Automotive Industry, VDA, reckons that the new measuring method will raise the official fuel-consumption figures by up to 20 percent.

Association president Matthias Wissmann took a harsh view of the latest developments, speaking in an interview of “great technical and economic challenges for producers and suppliers.”

Jürgen Resch, head of the German Environmental Aid Association and the fiercest adversary of the automobile industry, complains that the European Union will be allowing four times the amount of nitrogen oxide emissions allowed in the United States. Nitrogen oxide poses a threat to human health.

Volker Noeske, head of the DEKRA Automobile Test Center in Germany, said of the new limits: “It could have been worse for the carmakers.”

The new regulations’ impact on automakers will vary. German producers of luxury cars, for example, might get off comparatively easy despite their high sales of diesel models.

“BMW, Audi and Mercedes-Benz are hardly affected by additional costs,” said Greg Archer of a Brussels-based non-governmental environmental organization named Transport & Environment. “Their margins are so high that a few hundred euros more makes no big difference,” he said. “It will be more difficult for producers with price-sensitive customers and models like in the Golf class.”

The competitive pressure for Renault, Ford, Opel and Fiat will be higher, since the decision for or against a brand is usually made according to price.

Renault, for example, will have to do expensive upgrades to the anti-pollution devises in its compact cars Mégane and Scénic, which are top-sellers in Germany.

Half of Ford’s top-seller Focus cars have diesel engines. The U.S. carmaker estimates considerable cost increases at its troubled European business, which in the third quarter lost around €166 million before tax.

One in every three cars that Opel sold in Europe during 2014 was a diesel.

On the other hand, PSA Peugeot Citroen, the French car manufacturer with the largest proportion of diesels after the German luxury car lineup, has been installing devices to reduce nitrogen oxide in even its smallest engines since 2013. “We don’t see an extra burden,” a spokesperson told Handelsblatt.

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Things look quite different at Volkswagen. About 55 percent of all of the vehicles it sold in Europe had diesel engines until now, and higher prices would put the company under pressure.

It’s still unclear what responsibility Martin Winterkorn, the now-ousted chairman of VW’s board of directors, actually had in what has become known as Dieselgate. But one of his decisions announced before the scandal became public could pay off for VW.

Mr. Winterkorn had announced that by 2020 his company would bring 20 new all-electric models or cars with combustion and electric hybrid drives onto the market.

 

The authors are writers at WirtschaftsWoche. To reach them: gastautor@handelsblatt.com

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