Diesel Dilemma in the U.S.

Tuesday, September 15, 2009 by Guest Blogger

Why don't small diesel cars get bought or sold in the U.S.? The last time you were in Europe up to 40% of the cars driving next to you were diesels. They were getting up to 60 MPG and didn’t have complex recharging systems or heavy batteries. Could you tell? They weren’t smoking, they didn’t sound like an F350, they were probably going to last longer than the petrol version next to them and they are great mid and small sized cars. This industry trend seems almost absent in the U.S. consumer marketplace.

If you could buy the new Taurus as a Turbo Diesel and get 40 MPG, would you? If you could buy the same Saab, Audi or BMW that you buy here in the U.S. today and get double the mileage with none of the hybrid costs or future headaches of replacing batteries – would you? I know I would.

If you wouldn't buy one, why not? Most of these vehicles have been engineered to meet U.S. vehicle safety and crash standards. The diesel that you can buy here in the U.S. is now clean enough to put in their highly tuned engines without destroying them. What is stopping the OEMs from bringing them over by the boatload? VW is making a start – their TDIs appear to be selling well but this is a small manufacturer with few models. Is it really public opinion of diesels that is driving manufacturer behavior? Has there been no consumer research to gauge loyalty for this forgotten automotive engine segment? Or are the manufacturers overstating consumer concern and missing a huge opportunity to improve U.S. fuel consumption on new vehicles... and limiting consumer choices? I know that when I buy my next vehicle, it will be a diesel since I commute 86 miles to work each day.

Posted by Chris Royle, Director, Global Product Strategy, Polk (09.15.09)

Comments for Diesel Dilemma in the U.S.

Wednesday, September 16, 2009 by Glenn Mercer:
I agree with your comments. I think, however, the reason few small diesel cars are sold in the USA is the economic penalty. Diesel engines are costlier than gasoline engines, due to things like extra aftertreatment equipment (the joke runs that hybrids carry around power plants and diesels carry around refineries...), more powerful fuel injection systems, stronger engine blocks, etc. Estimates of the cost penalty versus a gasoline powertrain are $2,000 on up. The thing is, the penalty doesn't scale linearly with size of engine or car: ya gotta pony up $2,000 for a 1.5 liter and maybe $2,500 for a 3.0 liter, etc. Thus the proportionate penalty is higher for the smaller car. If a car is $20,000 a $2,000 cost hit is 10%; if $40,000 a $2,500 cost hit is 6% or so, etc. I don't think this is the total explanation, but the greater ability of pricier cars to "absorb" the diesel cost penalty is part of it I am sure... thus we see lots of Mercedes diesels, but as you point out only VW is active in the low end (and note that Honda kiboshed their small-car diesel for now). Other smaller issues include the fact that not every gas station has a diesel pump (do an informal survey of stations in your area, to check) and the (irrational but persistent) problem with diesel often costing more than gasoline per gallon. (I know it varies but historically diesel has cost more than gasoline.) Yes, the better mpg offsets the higher price per gallon, but a lot of people (irrationally) remember "How much I paid to fill up the tank," not "How much did I spend per mile on that last trip." (As an analogy, I know a person who decided to cancel an order for a Smart when they found out it used premium gasoline; I pointed out that the mpg was superb regardless, but she thought it was "robbery" to pay for premium gasoline.) Just a few comments.
Wednesday, September 16, 2009 by Chris Royle:
Glenn – these are all good points. On the cost item, yes there is a real cost difference and it is not linear, you can see it in the vehicle price differences in Europe as well. However, even if it’s $3000 for a diesel over the equivalent gas counterpart, the difference pays off for high mileage drivers. If you assume $3 per gallon for both fuels and you get 20 MPG in the gas version and 40 MPG in the diesel, you are saving $750 per 10,000 miles so the payback is about 40,000 miles. I’m at over 90,000 miles in about 3 years so it makes a lot of sense for me. I completely agree that a lot of this is irrational behavior from the consumer perspective but wouldn’t you think that a good ad campaign could overcome that? If they can convince people they need 27 cup holders, convincing them to save money should be easy – right? Also, the concept of a ‘price floor’ for gas could work in diesels favor. If that ever gains traction and the minimum price for gas reaches $4 per gallon or more, can the same happen for diesel? Won’t the trucking industry fight to keep an artificial tax floor from raising the price of diesel and therefore all freight in the country? More people moving to electric and gas heating from fuel oil will also help, it’s typically in the winter when the fuel oil and diesel prices rise based on demand for the former. I can easily imagine a future when the price of gas is $5 or $6 and diesel is under $4. Finally wouldn’t having multiple fuel capabilities help protect the OEMs from future unpredictable market changes, just as strength in multiple segments (rather than dependence on trucks and SUVs) would have helped in the past year.
Wednesday, September 16, 2009 by Glenn Mercer:
I wholly agree, but then again, just on the "rational consumer" point: thinking consumers will ever become rational is definitely swimming against the tide (smile). Why buy a Porsche 911 at $75,000 when a Subaru STi pretty much does the same thing for less than half the price? Why do two-person households buy Suburbans? Or, to make the ultimate point, why does anyone in their right mind ever buy a new car, given on a total cost of ownership basis a 3-year-old Civic is probably the best thing to own. Buying any new car at all is almost always irrational (one reason why the average buyer of a new car is 45 years old or so, right? when you have enough disposable income to blow it foolishly on a new car). So even though I agree with you I am not sure betting on customers becoming more rational will make much difference in the near term.
Thursday, September 17, 2009 by Chris Royle:
OK, so maybe I'm expecting too much (smile). But then I'm the guy that bought my wife an 2 year old CPO BMW for half of it's original price with just under 20k miles on it and she's still driving it with over 90k on it now. Maybe if the markets are irrational and the price of gas hits $6, consumers will become more rational! Who knows.

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