Diesel Isn’t Dead

The sins of Volkswagen can’t kill gasoline’s smarter sibling.

byLawrence Ulrich| PUBLISHED Feb 29, 2016 7:07 PM
Diesel Isn’t Dead

Thanks to Volkswagen’s cheater diesels, many people have assumed the technology is dead like Abe Vigoda. This time, he’s never coming back.

But diesel isn’t dead. Not by a long shot. Its upsides in fuel economy, usable performance and, yes, reduced CO2 emissions will still prove irresistible to some buyers. The next spike in fuel prices, inevitable as a desert sunrise over Saudi Arabia, will have Americans scrambling for relief—including for their favorite SUV’s and pickups that work better as diesels than hybrids or EVs.

That’s not to downplay the billion-dollar stakes facing VW, whose 70 percent share saw it monopolize the American market for diesel passenger cars. A lot still hinges on the company’s solution to fix 600,000 diesels in America. And whether customers think they got a fair or a raw deal.

But even VW will recover from this. It might even rebuild its diesel business, one fan at a time. Don’t laugh. The worldwide scandal of rigging software to cheat federal emissions tests is already fading in the fast-spinning news cycle. Life goes on, and so do VW diesels. Remember when everyone assumed that used VW diesels would be worthless, forever stigmatized as serial killers of the environment? Hasn’t happened. When VW was being pilloried last fall, Forbes warned ominously that owners would incur up to $5,000 in lost resale value. But market experts now say that the scandal will have negligible effect on prices for used TDI’s. Three years from now, a 2015 Golf TDI Sportwagen is projected to retain a healthy 52.3 percent of its original value, versus 45.3 percent for the gasoline version, according to TrueCar.com.

“There’s always a sense of hysteria when these scandals break,” says Eric Lyman, True Car’s vice president of industry insights. “But our data tells us that consumers are either apathetic or forgiving in these situations.”

Eric Ibara, director of residual value consulting for Kelley Blue Book, cautioned that the VW scandal is different than some predecessors, because the company intentionally screwed customers. Since an eventual fix for the dirty diesels could impair mileage or horsepower, KBB has dinged its projections of TDI resale values—by one percentage point. But don’t forget: TDI’s traditionally keep three to eight percent more of their value than gasoline versions.

“A one percentage point drop would narrow the gap, but the TDI would still be worth more,” Ibara says.

Faith in may be shaken, but it’s still there. As a longtime VW loyalist, with the scars to prove it, I can attest that VW fans are more forgiving than most. Throw diesel into the mix, and it becomes an ultimate cult car, and often the only game in town. Aside from a Chevy Cruze here, a Jeep Grand Cherokee there, VW is the only mainstream, non-luxury brand that’s offering diesel passenger cars. I’ve talked to maybe a dozen TDI owners, and nearly every one said they’d consider buying another. For those wanting to stay out of a hybrid, there simply aren’t other compelling high-mileage options. We’re still talking fun-to-drive cars that get an easy 45 mpg on the highway, and better than 50 mpg for the latest Golfs and Jettas. That one-two punch of performance and mileage is not easy to replace. And, in contrast to historic safety scandals that claimed dozens or even hundreds of lives, cheating diesels might have, at worst, a tenuous connection to increased asthma and respiratory risks.

Still, until VW can get on the right side of the EPA and the California Air Resources Board, its showrooms are a no-fly zone for diesels. Audi and Porsche Cayenne diesels are sidelined, too, and competitors seeing opportunity. Land Rover, Jaguar, Mercedes and Cadillac remain bullish. About one in five Range Rover buyers in America are already choosing the new diesel Td6 version, a bit less for the Range Rover Sport diesel. Jaguar is vowing to offer diesels on every car in its lineup, save the F-Type sports car.

Bart Herring, general manager of product for Mercedes-Benz USA, agrees that with VW diesels in limbo, there’s a vacuum in the market—one that the new C300d 4Matic sedan might help fill. The diesel-powered C-Class sedan goes on sale in late spring, and Benz is hoping it will sneak past 40 mpg on the EPA highway chart.

“The people who are truly into diesel understand what’s going on, and they’re not afraid of it,” Herring says.

According to him, VW’s fatal mistake was its failure to equip cars with secondary tanks of urea. That so-called Selective Catalytic Redution (SCR) technology is proven to scrub smog-forming pollution.

“We feel that without SCR you can’t really sell a diesel the U.S.,” sasy Herring. “The tech is solid, proven and it works.”

He adds that “there’s not much out there” in the way of affordable diesels. But the C300d, at perhaps $43,000 to start, might lure a few people from VW.

“That’s not too far from a high-end Passat,” Herring says. “We feel the C-Class is coming at a good time.”

Shoppers on the fence can be certain of one thing: With regulators determined to sniff every diesel tailpipe, including potential spot checks and real-world tests, no automaker will dare sell a diesel that can’t ace a pollution test. As it is, too many people, including a media with no time for nuance, took VW’s shocking fraud as a referendum on the technology itself. The assumption was that “clean diesel” was the auto version of “clean coal,” a catchphrase and marketing scam that hid the dirty truth in every tailpipe. But models from everyone other than VW are putting the truth in clean diesel, including in Europe, where nearly half the new cars are diesel powered.

Here in America, Mercedes diesels chug along, luring only three to five percent of buyers compared with gasoline versions. Yet Benz is staying the course. Giveaway gas prices are clouding the picture, Herring says. Every automaker is struggling to find buyers for alternative-fuel cars—diesel, hybrid, EV, whatever—whose savings don’t justify their added cost at a piddling $2 a gallon.

“Right now, that’s a bigger factor than any questions on whether diesel is clean,” Herring says of fuel prices.

The moment pain at the pump returns, Americans will demand those alternatives, a rescue from their guzzlers, $70 fill-ups and their own short-sightedness. VW has blackened diesel’s halo like no automaker before, but it still has a chance to shine.