Do Diesel Cars Have a Future After VW Scandal?

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Just about everyone agrees that Volkswagen is going to get hit hard following revelations that the company’s diesel cars had been rigged to cheat on emissions tests. But there are likely to be some knock-on effects to all makers of diesel-powered cars.

The analysts at Kelley Blue Book (KBB) and Autotrader conducted a survey of car shoppers and the results don’t offer a lot of consolation to makers of diesel-powered cars. The most damning result: 72% of respondents say they think the issue could spread beyond Volkswagen. Almost as bad: 42% feel other carmakers are also cheating on emissions tests.

A senior analyst at Autotrader said:

Volkswagen can fix the mechanical problems and make reparations to owners, but winning back the confidence of shoppers and loyal buyers will be a daunting challenge that could take years to overcome.

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The United States is not the big problem, however. Sales of diesel-powered passenger vehicles amount to less than 5% of all new car sales in the country. In Europe, nearly half of all new cars have diesel engines, and most European governments encourage diesel-fueled cars through some kind of financial incentive. Analysts at Platts noted:

In order to do a “180” on decades of diesel promotion in Europe, the EU will have to fight against large industry bodies, including the influential French diesel lobby, which heavily protects the industry in favor of their home brands Peugeot and Renault.

Platts also notes that the backlash against diesel may raise incentives in Europe for electric cars, as well as support for biofuels.

The future of diesel-powered passenger cars in both the United States and Europe will be determined by consumer pocketbooks. Diesel cars in Europe are cheaper to buy and they are cheaper to operate than gasoline-powered cars no matter where. To overcome that advantage, European governments will have to eliminate subsidies for diesel cars and, in the United States, diesel fuel will have to sell at a premium of around 40% to gasoline before diesel-fueled cars and light trucks lose their operational advantage. All these things might happen, but none will happen quickly.

VW’s hope — and that of other diesel car makers — is that consumers’ memories are short. VW is going to have to spend a substantial amount to pay fines and make owners of the company’s diesel cars happy (or less unhappy). If the company can do that without going bankrupt, consumers will come back, but warier about claims of clean diesel engines.

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