Tuesday, 24 April 2018

Auto brands brace for diesel bans in Europe


Almost 30 years ago, Volkswagen ads introduced the German term fahrvergnuegen to communicate driving enjoyment. But now, because of its cheating on diesel emissions tests, VW has unwittingly helped introduce a new, less flattering term: fahrverbote, or driving ban.

Driving bans loom in Europe as governments in Germany, France and the U.K. crack down on toxic nitrogen oxide emissions from diesels, leaving brands such as VW, Mercedes-Benz and Volvo at risk because they have strategically bet on the powertrain to meet tougher carbon dioxide emissions rules that start to take effect in 2020.

Diesel engines have been a popular European consumer preference. But now, the industry strategy is in jeopardy.

The growing anti-diesel sentiment will make it harder for automakers to meet the European Union’s fleet CO2 target of 95 grams per kilometer. Diesels are about 20 percent more fuel efficient than gasoline engines, so they are key to most manufacturers’ CO2-reduction strategies. Automakers that miss their CO2 targets face stiff fines.

But demand for diesels, which held steady in the immediate aftermath of VW’s scandal, is starting to crumble because of intensifying public scrutiny of the technology, especially in Germany. Stuttgart, the cradle of Germany’s auto industry, could even prevent 3-year-old diesels from entering the city limits on certain days starting next year. Following a court order this year, Munich likely will be the next to institute a ban.

That news had an immediate sales effect: Diesels accounted for just 40 percent of Germany’s new-car sales in March, down from 45.8 percent a year earlier and a high of 48.1 percent in 2012.

‘A catastrophe’

A senior German industry official called the public reaction “a catastrophe.”

“The first thing we need to do is get away from this debate over fahrverbote,” he said. There will be no solution to cleaning up diesels until after Germany’s national election in September, he predicted.

As other governments joined Germany in cracking down on the powertrain, diesel sales fell to 46 percent of the European market for the first three months of 2017, from 50 percent in the first quarter of 2016, according to data from JATO Dynamics.

London’s mayor said in mid-February that owners of pre-Euro 4 diesels will face an extra £10 “toxicity charge” when entering the city center starting in October.

BMW has the highest share of diesels in Europe among German luxury brands, at 71 percent, according to JATO. More than 80 percent of Volvo’s cars are diesel, and Land Rover barely sells any gasoline-powered vehicles in Europe.

But some experts believe that the diesel-heavy premium brands will have less immediate worry because they also have high levels of fleet sales in Europe. Fleet customers often drive corporate cars for just two to three years before returning them — meaning they will not immediately worry about whether governments might enact driving bans years down the road.

More immediate concern likely will come from manufacturers that sell diesels primarily to private buyers, who keep their vehicles for 10 years, on average. Those consumers will think hard before committing long term to a diesel that might be banned in the years ahead.

One brand that could face this pressure of uncertainty is Peugeot, which counted on diesels for nearly half of its sales during the first three months of this year. That was higher than any of Volkswagen Group’s volume brands.

Victim of success?

Peugeot’s vulnerability on diesels masks the company’s achievement. It has the lowest measured CO2 emissions of any automaker competing in Europe and is one of the only brands to use the most expensive NOx reduction-technology, SCR urea treatment with AdBlue, across its entire diesel lineup. The public backlash against diesels in general could make Peugeot a victim if consumers have to confront a new reality of not being able to drive the cars into Europe’s biggest cities.

Tobias Ulbrich, a specialist in transportation law with the German firm Rogert & Ulbrich in Dusseldorf, has little sympathy for carmakers, arguing they have brought the bans upon themselves with their scandalous behavior. He is representing some 1,700 Volkswagen owners in Germany suing the automaker for damages, claiming their VW diesels have lost resale value because of the emissions scandal and vehicle recall.

Ulbrich said the driving bans are the result of automakers’ failure to meet NOx limits. And that has hurt the perception of diesel vehicles.

“In an environment where bans are an immediate threat,” he said, “those people that regularly drive in the major metropolitan areas are not going to purchase a diesel under any circumstance — no matter how clean manufacturers claim these cars allegedly are.”

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