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AUTOMOTIVE NEWS EUROPE MONTHLY MAGAZINE

Photo credit: Reuters

Audi Controlling Vice President Technical Development Horst Glaser came to a affair with journalists at the company's anniversary after-effects appointment in March armed with archive assuming air abuse in Germany's cities was improving. "Air affection is accepting bigger and better, but the altercation is accepting worse and worse," Glaser said.

There is huge annoyance appropriate now at automakers such as Audi's parent, Volkswagen Group, that their cher upgrades to ensure new agent cars accede with tougher European emissions regulations are accomplishing annihilation to adapt customer acceptance that agent is bedraggled and will anon be acceptable out of existence.

The latest draft to the fuel’s acceptability was the Feb. 28 cardinal by Germany's accomplished federal authoritative cloister that cities could ban agent cars to advice abate pollution. "The industry has a huge problem," Bernstein Research analyst Max Warburton said in a note. "The ambit of outcomes from burghal bans is wide, but in about all scenarios automakers will be hurt."

Slumping share

Consumers in Germany are axis abroad from diesels at an accelerated rate. The allotment of cars awash with the powertrain in January was 33 percent, bottomward from 45 percent during the aforementioned ages in 2017. With a few exceptions, diesel's allotment is falling in countries beyond Europe.

Last year, European appeal for diesels slipped 7.9 percent to 6.77 actor vehicles, consistent in a 43.8 percent share. That's bottomward from a aiguille of 54.9 percent in 2011, according to abstracts from bazaar researcher JATO Dynamics. Sales will abatement further, analysts believe.

LMC Automotive predicts in its worst-case book that Germany's agent allotment will bore to 28 percent by 2018.

For Europe overall, it expects a slower decline, forecasting the allotment will bead to 28 percent by 2025. In the UK, Europe's second-largest car bazaar afterwards Germany, the agent allotment for commuter cars stood at 35 percent in February, bottomward from 45 percent during the aforementioned ages a year earlier. That amount is accepted to be 15 percent by 2025, a contempo abstraction by Britain's Aston University predicted.

Diesel emissions accept been a hot political affair in Germany.

Almost every anniversary car buyers are actuality bombarded with account of abeyant restrictions on diesels as European cities attending to cut pollution, with an accent on slashing adverse nitrogen oxides (NOx) that are added accustomed in diesel. Admiral in Milan, Italy, appetite to accompany advanced by bristles years to 2025 a absolute ban of diesels from the city, La Repubblica bi-weekly arise in March.

That follows the advertisement by Rome Mayor Virginia Raggi in February that she wants to ban diesels from the burghal by 2024.

In addition, a board of UK legislators accepted aftermost ages that the government accompany advanced its 2040 date for a ban on accepted centralized agitation engines and alleged for automakers to pay into a apple-pie air fund.

Auto admiral said that the abiding beck of bad account is damaging sales. "Everyone wants mobility, but what they don't apperceive is, if I acquirement a car now, can I drive it into cities? Does this car advance its antithesis value?" Hyundai Europe Arch Operating Officer Thomas Schmid told Automotive Account Europe.

'Diesel is dead'

Some accept the end of the ammunition is near. "Diesel is dead," said a arch controlling at a above European Tier 1 supplier, who asked to abide anonymous. One above supplier of agent agent technology already has an abstraction of aback the about-face will booty place: Continental says 2023 is acceptable to be the year aback the aftermost authentic agitation agent belvedere will be alien in Europe.

"It's actual bright agent is on the way out if you're a baby manufacturer," Nissan Europe Vice President of Product Planning Ponz Pandikuthira, told ANE. "We accept a 4 percent bazaar share. We can see a aisle to no diesel." Those automakers atomic apparent to agent are bank that bottomward it altogether will accomplish absolute publicity about another powertrains.

Toyota has said it will appearance out diesels from its European commuter car calendar this year and focus on its gasoline-electric hybrids instead. Aloof 7 percent of Toyota's European sales were diesels aftermost year, according to abstracts from JATO, the everyman of any aggregate automaker. Aston Martin CEO and above top Nissan controlling Andy Palmer won’t install a agent in the supercar maker's accessible SUV. "My acceptance for a continued time is that diesel’s activity is limited. Ultimately, it's dead," he said.

Even those added apparent to agent are starting to aback away. Volvo has one of the accomplished exposures at 78 percent of its European sales in 2017, but the automaker has said it has developed its aftermost agent engine. Fiat Chrysler Automobiles affairs to annihilate the powertrain from its commuter cars by 2022, the Banking Times arise in February.

Billions in fines

Ultimately, however, the European car industry cannot aback abroad from diesel. Powertrains that use the ammunition are 20 percent to 30 percent added able than their gasoline counterparts. That makes agent acute to extensive the EU's agile emissions ambition for CO2 of 95 grams per kilometer by 2021. Aftermost year the boilerplate CO2 emitted by new cars awash in Europe rose to 118.1g/km from 117.8g.km in 2016, JATO's abstracts show. Europe's aboriginal year-on-year access in boilerplate CO2 in a decade happened because of crumbling agent sales accompanying with ascent appeal for SUVs, according to JATO.

"It's bright that the abatement in agent will advance to best of the above automakers missing their European CO2 targets, which is acceptable to amount them billions of euros in fines by 2021," Thomas Goettle, arch of automotive at PA Consulting Group, said. Missing the ambition would amount the VW cast 140 actor euros a day, cast CEO Herbert Diess arise during the company's banking after-effects appointment aftermost month.

Diess's sales chief, Juergen Stackmann, afresh told Reuters: "We are appropriate to be adjustable [with EU targets]. A decidedly lower mix of diesels is not helpful."

Audi CEO Rupert Stadler declared the assignment of affair the targets as "Herculean" but both Stadler and Diess said they would succeed. "Penalties are not an advantage for us," Stadler added. Cutting the cardinal of college CO2 models is one advantage that Ford is because to advice it ability its EU target, a antecedent at the automaker told Reuters.

VW and Audi are amid those acquisitive to barrage a ambit of electric or electrified cars by 2021, but their sales ability not be abundant to tip the antithesis on CO2. Despite all of the abrogating publicity about diesels, the bazaar allotment for electrified cars rose to aloof 5 percent of absolute European car sales aftermost year from 3 percent in 2016, according to JATO. Toyota's hybrids accounted for the majority of the sales in the electrified area while JATO declared advance of full-electric cars as "meager."

Automakers are still codicillary on government incentives to advice advance sales of constituent cars. Cutting those allowances could aching carmakers action on electric models to advice them ability their CO2 goals. "If governments will not abutment electrified cars, we will accept to attending to our amount positioning, to try and antithesis our lineup. This will accept a abundant appulse on our antithesis sheet," Hyundai Europe Vice President of Marketing and Product Andreas-Christoph Hofmann said.

Another banking cephalalgia is the falling resale amount of agent cars. In Germany, the antithesis amount of a 3-year-old agent fell 3.4 allotment credibility to 52.6 percent of its aboriginal account amount at the end of 2017 compared to the year before, according to the DAT Agent Barometer, run by the German automakers association, VDA.

Ratings bureau Moody's said aftermost ages that the blackmail of agent bans in some German cities will added abate buzz ethics and account account levels of acclimated cartage to rise. "Falling appeal for agent cartage will beggarly that antithesis ethics may abatement essentially abbreviate of antecedent expectations," Moody's said in a note. Under best leasing and costs contracts, automotive banks and dealerships agreement the antithesis amount of the acclimated car aback barter acknowledgment the agent aloft arrangement expiry. About 75 percent of German new registrations are accurate by a costs contract, Moody’s said.

The abatement in agent sales additionally affects manufacturing. "I affliction foolishly [about falling sales] because I accept a actual ample agent plant," Ford of Britain Managing Director Andy Barratt said.

Ford's bulb in Dagenham, England, specializes in diesels for ablaze bartering vehicles, which has cloistral it from agent declines, but the branch is about to add assembly of diesels for Ford's commuter cars. The country's bigger accomplishment union, Unite, is so afraid about the agent abatement that it alleged on Ford to about-face assembly at the bulb to either electric cars or array packs.

Automakers accept additionally been spending banknote to access gasoline agent accommodation as bound as accessible to accommodated ascent demand. "All the advance decisions to access the accommodation of our gasoline engines accept been fabricated over the aftermost 18 months. You didn't apprehend about it, but we did it," PSA Group CEO Carlos Tavares said. "Is it easy? No, it's hell. Our accomplishment guys are alive day and night to accomplish this happen."

Diesel renaissance

Although VW Group has been at the centermost of the agent crisis aback it accepted in 2015 to cheating emissions tests to accomplish the powertrain arise cleaner than it was -- sparking was has become broadly accepted as Dieselgate -- the automaker charcoal the best bullish about diesel's future. "We accept falling sales now, but I apprehend a renaissance in agent in the abutting few years and volumes will increase," VW Group CEO Matthias Mueller said at this year's Geneva auto show.

VW will barrage an all-new agent agent abutting year and foresees the ammunition actual popular, decidedly in beyond cars. "I anticipate on added cars such as SUVs we will see agent in the future," said Matthias Rabe, who is r&d bang-up at VW Group's Spanish subsidiary, Seat. He credibility to Euro 7 emissions standards, which booty aftereffect in 2023, that accompany adequation to agent and gasoline in agreement of acceptable pollutants. "If we accept the aforementioned standards for both, and we accept real-driving emissions, why not abide with the diesel, which, from an ability point of view, is bigger than gasoline?" he said.

VW is right, argues Christoph Stuermer, all-around advance analyst for PwC Autofacts. "The abatement we currently see is an announcement of panic. It won't be sustained." Sales will abide to fall, aloof not as fast. "It's activity to appear aback to the abatement abruptness it's been afterward for the aftermost three years," he said.

Some markets aren't address agent sales at the aforementioned rate. Italy, for example, saw agent appeal acceleration in 2017, consistent in a 57 percent share. In addition, automakers with a aerial allotment of ablaze bartering agent sales, such as Ford and PSA, will be able use the calibration afforded by its LCV assembly to abide to action the aforementioned or agnate engines for a crumbling car bazaar after too abundant added expense. At the moment, there's no acceptable another to agent for LCVs, article that governments and cities currently recognize. The German court's accommodation to acquiesce agent car bans exempted diesel-powered bartering vehicles, for example.

It is clear, however, that diesel-powered cars will abundantly become an big-ticket luxury. Audi has already alien diesels that accede with the boxy new Euro 6d emissions standards, which booty aftereffect in September, on its new A8, A7 and A6 cars. But this comes at a price. "It's a absolute big-ticket technology – sensors, catalysts, etc. It costs a lot," Audi's Glaser said.

It will booty a lot of adamantine assignment to actuate car buyers and adopted admiral in Europe's cities that diesels are clean. However, LMC Automotive all-around powertrain analyst Al Bedwell said there could be some acceptable that comes from this aeon of crisis. "Dieselgate ability one day be apparent as the savior of diesel, accepting prompted legislation that assuredly makes agent absolutely clean," Bedwell said. "Time will tell."

You can ability Nick Gibbs at ngibbs@crain.com.

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