Filed under: Euro, Green, Autoline on Autoblog
Autoline on Autoblog with John McElroy
by John McElroy on Oct 2nd 2008 at 4:29PM 
I'M LOSING MY BET ON DIESELS
A few years back I made a bet with a former Director of Engineering at General Motors. I bet him five bucks that Americans would fall in love with modern diesel engines and would want them in their cars. Specifically, I predicted that diesel sales in passenger cars would reach 1 million units by 2012. He bet it wouldn't happen.
Last year I ran into him and he ruefully conceded he was probably going to lose the bet. But that was last year. Now I'm pretty sure I'm the one who's going to lose. What a difference a year makes!
John McElroy is host of the TV program "Autoline Detroit". Every week he brings his unique insights as an auto industry insider to Autoblog readers. Follow the jump to continue reading this week's editorial.
Today, a combination of emission standards, fuel prices and competing technologies are conspiring to put a dark cloud over the diesel's future.
Any enthusiast who's driven modern turbo-diesels like they offer in Europe immediately falls in love with them. What's not to like? Torquey, smooth and fuel-efficient – they are nothing like the slow, smoky, clatter-boxes of years past. Depending on the kind of driving you do, they can offer the same or better fuel economy than a hybrid. And at lower cost. European automakers love them because they offer the least expensive way to lower their CO2 footprint.
For nearly a decade now, over 50% of new cars sold in Europe are equipped with diesel engines. But this year that's running under 50% and automakers expect a long, slow decline in diesel sales. What's happening in Europe is probably a good predictor of how diesels will fare in the American market.
First off, in many European countries this year the price of diesel fuel has matched the price of gasoline. It used to be up to 20% cheaper in most markets. The same thing has happened in the U.S., only to a greater degree. In the last year here, diesel fuel shot substantially above the price of gasoline.
Like the U.S., Europe is cracking down on diesel emissions. The current Euro 5 standards are weaker than the EPA's Tier II Bin 5 bogey. But that's going to change. When they get to the Euro 6 standard in 2015, Europe is going to close the gap substantially. And that's when costs go through the roof.
Up to now European car buyers consciously paid a premium to buy a car with a diesel because they knew it would pay for itself over the life of the car. But thanks to higher diesel-fuel prices that's no longer the case. And thanks to upcoming emission controls, the premium they pay for a diesel engine is going to jump from roughly $1,600 to something more like $3,000 to $4,000. That could be the final nail in the coffin.
Or, I should say, the final nail in mass-market diesels. In the luxury segment, where buyers are far less concerned about the cost of fuel, they'll happily pay a premium to get the kind of performance that diesels provide. But in the middle and lower ends of the market, buyers are being lured away with direct-injection, turbo-charged gasoline engines. Soon they'll get stop-start technology (micro-hybrids) and other bits and pieces that will provide excellent fuel efficiency at a much lower cost.
Of course, all this is happening just as 50-state diesels are becoming available in the U.S. market. This shouldn't affect Mercedes-Benz or Volkswagen too badly since they already have a solid base of diesel customers. Remember, up until the mid-1980's nearly 75% of all the cars Mercedes sold in the U.S. were equipped with diesels. But other brands without that kind of owner base, like BMW and Audi, are likely going to find it harder to sell diesels. And the American and Japanese brands will probably have an ever harder time.
Of course, look how much the situation has changed in just one year. Who knows if it will change back by 2012? But at this snap-shot in time, it sure looks like I'm going to have to cough up five bucks, because the way things are going I'm on my way towards losing that bet.
Airs every Sunday at 10:30AM on Detroit Public Television.
Autoline Detroit Podcast
Click here to subscribe in iTunes
Last week's show: Mass Exodus
A few years back I made a bet with a former Director of Engineering at General Motors. I bet him five bucks that Americans would fall in love with modern diesel engines and would want them in their cars. Specifically, I predicted that diesel sales in passenger cars would reach 1 million units by 2012. He bet it wouldn't happen.Last year I ran into him and he ruefully conceded he was probably going to lose the bet. But that was last year. Now I'm pretty sure I'm the one who's going to lose. What a difference a year makes!
John McElroy is host of the TV program "Autoline Detroit". Every week he brings his unique insights as an auto industry insider to Autoblog readers. Follow the jump to continue reading this week's editorial.
Today, a combination of emission standards, fuel prices and competing technologies are conspiring to put a dark cloud over the diesel's future.
Any enthusiast who's driven modern turbo-diesels like they offer in Europe immediately falls in love with them. What's not to like? Torquey, smooth and fuel-efficient – they are nothing like the slow, smoky, clatter-boxes of years past. Depending on the kind of driving you do, they can offer the same or better fuel economy than a hybrid. And at lower cost. European automakers love them because they offer the least expensive way to lower their CO2 footprint.
For nearly a decade now, over 50% of new cars sold in Europe are equipped with diesel engines. But this year that's running under 50% and automakers expect a long, slow decline in diesel sales. What's happening in Europe is probably a good predictor of how diesels will fare in the American market.
First off, in many European countries this year the price of diesel fuel has matched the price of gasoline. It used to be up to 20% cheaper in most markets. The same thing has happened in the U.S., only to a greater degree. In the last year here, diesel fuel shot substantially above the price of gasoline.
Like the U.S., Europe is cracking down on diesel emissions. The current Euro 5 standards are weaker than the EPA's Tier II Bin 5 bogey. But that's going to change. When they get to the Euro 6 standard in 2015, Europe is going to close the gap substantially. And that's when costs go through the roof.
Up to now European car buyers consciously paid a premium to buy a car with a diesel because they knew it would pay for itself over the life of the car. But thanks to higher diesel-fuel prices that's no longer the case. And thanks to upcoming emission controls, the premium they pay for a diesel engine is going to jump from roughly $1,600 to something more like $3,000 to $4,000. That could be the final nail in the coffin.
Or, I should say, the final nail in mass-market diesels. In the luxury segment, where buyers are far less concerned about the cost of fuel, they'll happily pay a premium to get the kind of performance that diesels provide. But in the middle and lower ends of the market, buyers are being lured away with direct-injection, turbo-charged gasoline engines. Soon they'll get stop-start technology (micro-hybrids) and other bits and pieces that will provide excellent fuel efficiency at a much lower cost.
Of course, all this is happening just as 50-state diesels are becoming available in the U.S. market. This shouldn't affect Mercedes-Benz or Volkswagen too badly since they already have a solid base of diesel customers. Remember, up until the mid-1980's nearly 75% of all the cars Mercedes sold in the U.S. were equipped with diesels. But other brands without that kind of owner base, like BMW and Audi, are likely going to find it harder to sell diesels. And the American and Japanese brands will probably have an ever harder time.
Of course, look how much the situation has changed in just one year. Who knows if it will change back by 2012? But at this snap-shot in time, it sure looks like I'm going to have to cough up five bucks, because the way things are going I'm on my way towards losing that bet.
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Autoline DetroitAirs every Sunday at 10:30AM on Detroit Public Television.
Autoline Detroit Podcast
Click here to subscribe in iTunes
Last week's show: Mass Exodus
Reader Comments (Page 1 of 2)
Dude 4:39PM (10/02/2008)
Not surprised he lost this bet. This is the same guy who thought that the GM EV-1 was the coolest car he'd ever seen.
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Peter 4:43PM (10/02/2008)
Don't worry John, I will be a sale on your side of the 1 million come 2010 when hopefully subaru brings over their new diesel engine. No doubt about it, comparing their diesel engine to their gas in an impreza makes a huge difference in gas mileage even if I have to pay 50 cents more for diesel. Much better gas efficiency better performance, as long as the price premium isnt outrageous I am buying one.
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nataku83 4:46PM (10/02/2008)
It's still tough to call since there isn't really any decent availability of non-luxury diesels yet. As far as I can tell so far though, the few diesels that are out on the market aren't sitting around on dealer lots.
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montoym 6:27PM (10/02/2008)
Exactly. I think the only reason he would lose the bet is if automakers still don't have a supply of diesel-powered vehicles available here in the next couple of years, which seems quite unlikely.
Right now, the only ones are still the Jetta TDI, Jeep Grand Cherokee CRD, and the M-B CDI's(E, R, and GL classes I think). Not too many options there just yet and tough to get a million sales out of just those choices. There will be many more models available in the next couple of years.
Plus, I disagree with the $3K-4K price increase. With Euro VI moving to right about where the US is already with T2B5 means that the costs should be similar to ours. In fact, being the way technology is, I expect it to get cheaper as time goes by.
Right now, a T2B5 Jetta TDI runs $2K over the gas version and for the M-B models, it's only $1000 more. Granted, those are US prices and not European. But if they prices are significantly more over there, then they would seem to be getting screwed over pretty royally.
As it stands now though, it's hard to sell 1 million of soemthing that you can't even find on the shelves right now.
Will Design for Food 11:48PM (10/02/2008)
Aren't there tax incentives in place that effectively cancel out the extra cost of buying a diesel? I'm not sure if that's true or not, but it's what I've heard.
Level 4:50PM (10/02/2008)
a diesel hybrid would be the best of both worlds
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nataku83 5:11PM (10/02/2008)
I think a diesel hybrid would have diminishing returns that really wouldn't justify the additional costs of both the hybrid drivetrain and the diesel drivetrain. Most of the gasoline hybrids geard toward actually achieving good gas mileage (Escape, Prius) use an Atkinson cycle IC engine, which is almost as thermodynamically efficient as a diesel cycle engine. Diesel fuel does still contain more energy on a per volume basis though. Also, you get even more of a weight penalty since you are adding batteries, a heavy diesel engine and electric motors. Finally, diesels have a tendency to start and stop the IC engine fairly often - a diesel engine really isn't very good at doing this. Maybe Mercedes will make some progress with their diesotto engines - that would make more sense to me, even though it would still be very expensive.
BigMcLargeHuge 5:37PM (10/02/2008)
I agree the start/stop thing would be challenging.
But in the future, diesels won't be that heavy.
BMW's steel-sleeved aluminum-block 2.0 twin-turbo diesel is the one tuned by Alpina and sold in the 3-series.
http://www.autoblog.com/2008/08/05/alpina-reveals-new-d3-bi-turbo-coupe/
shirtman 4:58PM (10/02/2008)
Autonation took the #1 chevrolet dealership in the nation(Fox Chevrolet in Baltimore) and destroyed it.
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Drew 5:00PM (10/02/2008)
I think you'll lose on a technicality. American's can't love what they can't buy. GM has been promoting diesels in cars for a few years now, but where are they? Europe gets a 2.9 litre diesel CTS that has the same horsepower as the 1st gen CTS but with 400 ft/lbs of torque. I had a 1st gen CTS... I'd LOVE to have a car with those specs. Where is the small V8 diesel for the SUVs? Where are Honda's and Nissan's promised diesels?
So.. yeah you'll lose... but only because the manufacturers never even played the game.
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Paul P. 5:02PM (10/02/2008)
I like diesels, I own quite a few. I've also been waiting quite a while for GM to bring back their diesel suburban/tahoe.
The biggest problem I can think of right now is there just aren't many out there, the Mercedes and the VW are the only cars I can think of available stateside. Most people that want to try a diesel here don't really even have the opportunity to do so because there is so few.
It seems like by 2010 we'll get a few more options. I don't know how many will sell, but it will be nice to finally at least have a few options. I'm sure there are quite a few Americans that aren't buying diesel cars simply because they don't even know they exist stateside. The Merecedes and VW offerings don't stand out like current hybrid designs do, unless you're looking for them you don't know they're there.
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Lou 5:09PM (10/02/2008)
Maybe Americans would fall as in love with them as our European counterparts are if a) we had access to more of them and b) the American auto companies hadn't sold such crappy ones a few decades back and c) Americans as a whole weren't so closed-minded and maybe spent some time abroad once in a while.
At least a FEW more diesels are making their way here soon, but it should be much more than it is.
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Holden Miecranc 5:22PM (10/02/2008)
The number of consumers who actually want diesels account for about 2% of the buying public, so it is very hard to substantiate a case for manufacturers to offer them in the US. Given the current state of the economy, how many people are going to be willing to pay $2,000+ more for a sedan that has a diesel that requires fuel that costs 40+ cents more per gallon than gasoline. Most consumers are not going to calculate whether the additional initial investment, plus the higher fueling cost, plus the need to put additives in during cold weather months in some parts of the country, are worth the extra MPG. In addition, people still remember being stuck behind European diesels with black smoke billowing from the tailpipe. There were so few domestic diesels on the road, that very drivers today can recall one, with the exception of car aficianados.
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Rich 5:59PM (10/02/2008)
2% of the buying public want a diesel.
How many don't care? Probably around 20%, at least 5%. 1 in 14 isn't a market to be sniffed at, and I'd bet it could be as high as 1 in 3.
With the right incentives to offset the premium, he might just win his $5.
montoym 6:47PM (10/02/2008)
You may not be wrong with the 2% comment, but only for a couple of reasons.
If you just go up to 100 people and ask if they'd want a gas car or a diesel one, I don't doubt that 98 would probably say gas.
But, take those same 100 people and have them drive a modern diesel(like a blind taste test I guess), and I bet the numbers would change quite a bit.
The problem is that the typical American(i.e. not the ones who read Autoblog) thinks of large trucks, super slow cars, and black smoke when they think of diesels. I think their opinions will change as more and more modern diesel options are available and more and more people get some seat time in a diesel.
Plus, if most Americans don't do the math to determine if a diesel would save them money(many would), then that just signifies how economically inept most Americans are unfortuately. They just see higher diesel prices and make incorrect assumptions.
Not to mention that the difference in price isn't 40 cents in most parts of the country. The national average for diesel today is $3.96 and for Regular Unleaded it is $3.68, a difference of 28 cents and only 7 cents higher than the national average for Premium.
http://tonto.eia.doe.gov/dnav/pet/pet_pri_gnd_dcus_nus_w.htm
Adam Marcello 7:09PM (10/02/2008)
I wont consider a diesel until it can match the performance numbers of a gas powerplant. Im all for saving gas but Im not going to pay a premium at the dealer and the pump to go 2 sec slower to 60.
Drew 12:28PM (10/04/2008)
Then hold on to your butt because in Europe, GM is going to be selling the CTS with a 2.9 litre diesel with the same horsepower as the base gasser.. yet with 400ft/lbs of torque.
Harry Ariola 11:49AM (10/03/2008)
DI and other improvements to gasoline engines will help close the mileage gap between them and their gasoline counterparts.
With the upcoming implementation of the more stringent emissions standards for diesel, the cost to being these engines to market will increase the cost to purchase even more.
Many on autoblog cite that the additional cost of the diesel engine to the selling price is offset by its' better mileage. Using the Jetta Sport Wagen for comparisons' sake, the base gasoline model has a base price of $18999. The base diesel model has a base price of $23590, or $4591 more. (There may be some equipment differences between the two, but that is as close as you can get in an attempt for a quick apples to apples comparison.) That extra $4591 also means an additional $1044.44 in interest on a typical 72 month loan at 7% interest.
The Jetta diesel is rated 30/41 while the gasoline version is rated 21/29. Since this is all hypothetical, let's say each vehicle is driven equal parts city / highway for a total of 15,000 per year. The diesel would average 35.5 MPG, while the gas engine would average 25. Fuel costs for the diesel would be $468.07 a year less than the gasoline model, using a fixed cost of $3.59 gas / $3.99 diesel per gallon, as prices are now in the Chicago suburbs. That said, it will take 12 years for the diesel Jetta to recoup its additional cost over that of the gasoline model. Just for the record, if gasoline and diesel sold for the same price, it would still take 8.845 years to offset the increased cost of purchasing the diesel model.
Now, if one was to put the money saved from not purchasing the diesel into a standard savings account at ING, over the 8.845 years...
DT 9:17AM (10/06/2008)
A couple of flaws in the logic of post below:
First, for a straight-up comparison would be the gas SE model @ $21,349 vs. the TDI model @ $23,590. The TDI model has all the SE equipment, plus a couple of small adds. That gets the price difference down to $2,200. That would reduce the payback to 6 years.
Second, there is the $1,300 federal tax credit available for the TDI. Now we are down to $900 difference using your MPG/fuel cost.
BigMcLargeHuge 5:40PM (10/02/2008)
2% of a really big number is still a big number.
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