Surprise Comeback

SUV boom drags diesel out of the doldrums

VW SUV imago 1800px 84893603
Big and popular, but not electric – yet. Source: Imago

Reports of the death of diesel may, in the words of Mark Twain, have been greatly exaggerated. New figures point to a rise in sales of the technology tainted by the VW emissions-cheating scandal and the threat of driving bans in German cities.

VW’s new car orders surged in the second quarter, with the share of diesel cars rising to 38 percent of the total, well above diesel’s 32-percent take of new registrations in the first half of the year. That suggests diesel’s share of new registrations, which typically happen a few months after the car is ordered, could rise above 35 percent in the fall. It would be the first increase after two years of steady declines.

“We’re seeing a trend. The new models are helping us a lot,” Thomas Zahn, head of German sales for the VW brand, told Handelsblatt.

It’s likely to be a similar story at BMW and Daimler, due to release their second-quarter results in the next few days.

17 p14 Diesel-01

Diesel has been in decline ever since VW admitted using illegal software to cheat diesel emissions tests in September 2015, triggering a global scandal that has ensnared other German carmakers. Its share of new car sales in Germany fell from more than 50 percent to 45 percent in 2017 and just a third now.

But customers are now returning, especially for big and heavy vehicles such as SUVs, where diesel remains 10-15 percent more fuel efficient than gasoline. SUVs are now the fastest-growing model segment in Germany, with sales up 42 percent in the first six months of 2018 from the same period a year earlier. Big corporate fleets also remain keen on diesel because it enables them to meet EU emissions limits.

Besides, the specter of driving bans in German cities has waned in recent months. So far, only one city has imposed curbs: Hamburg, for just two streets and on old diesel vehicles. Next year, the southern city of Stuttgart intends to ban 30,000 aging cars classified as Euro 4, a basic EU emissions standard that critics say is inadequate. Automakers have also been at pains to eradicate lingering doubts by offering price discounts for new diesels and a guarantee that they’ll take back newly-purchased cars if they fall under future driving bans.

Retrofits boost confidence

Daimler is growing more confident about diesel as the carmaker says it has succeeded in implementing tougher emissions standards. A spokesman said more than 80 percent of its model portfolio already meets the new Euro 6d-temp standard that takes effect in September 2019, meaning powertrains have been adapted to stay within nitrogen oxide limits under real driving conditions as well as laboratory tests.

Daimler has fitted selective catalytic reduction (SCR) filters to cut emissions in its entire model range from the A-class compact car upwards. The filter costs up to €1,500 ($1,756) per car, which is why many automakers are quietly ditching diesel engines from their smaller models, said industry experts.

That suggests diesel won’t rise above 50 percent of new registrations again – but automakers will likely try to keep the technology as their preferred option for SUVs and large limousines for a long time to come.

Some analysts say it’s too soon to sound the all-clear on diesel, though. Stefan Bratzel, head of the Center of Automotive Management at the University of Bergisch Gladbach, said the recent rise in orders shouldn’t be overrated. “We need to wait and see whether this will evolve into a broader trend,” he added.

Playing e-car catch-up

The technology remains crucial because German automakers still lack electric models. Automakers say that without diesel, it will be impossible to meet the EU’s CO2 ceiling coming into force in 2021, when the maximum average emission of newly registered vehicles will be 95 grams per kilometer, down from 130 grams now.

The only mass-produced purely electric vehicle on the market is BMW’s “i3” launched in 2013. Audi plans to follow in late 2018 with the “Etron,” followed by Mercedes with “EQ” in 2019 and VW with “i.D.” from 2020.

Nevertheless, flexibility is the new priority — automakers want to be avoid being as dependent on any one technology as they have been on diesel in the past. BMW plans to adapt its factories to manufacture every model with gasoline, diesel, hybrid or electric powertrains from 2021. Audi, the luxury car unit of VW, wants electric and hybrid cars to account for one-third of its sales from 2025, equivalent to the current diesel share of its new car fleet.

Markus Fasse reports on aviation and the automobile industry from Munich. Stefan Menzel covers the auto industry from Düsseldorf, focusing on Volkswagen. David Crossland adapted this story into English for Handelsblatt Global. To contact the authors: fasse@handelsblatt.com and menzel@handelsblatt.com

We hope you enjoyed this article

Make sure to sign up for our free newsletters too!