Volkswagen Is Dreaming If It Thinks Diesel Is Coming Back

(Bloomberg Gadfly) -- With the threat of city driving bans looming across Europe, people who want to know whether it still makes sense to buy a diesel vehicle shouldn't count on any help from the autos industry's biggest beast.

That's the only conclusion to draw from comments by Volkswagen AG's boss on Monday that diesel cars would soon enjoy a "renaissance" as people rediscover the merits of a discredited technology.

As my Bloomberg New colleagues noted, it's a pretty ballsy statement from someone whose company did more than anyone to damage diesel's reputation. Matthias Mueller's optimism is flatly contradicted by data showing that diesel sales were in free-fall even before last week's German court ruling that city driving bans are okay.

It's also belied by Toyota Motor Corp.'s decision to stop selling diesel cars in Europe by the end of the year (though, in fairness, it doesn't sell many) and a Financial Times report that Fiat Chrysler Automobiles NV -- facing a Department of Justice investigation into its diesel software -- is poised to do similar by 2022.

Just three months ago, Mueller himself was saying it's time to consider phasing out government subsidies for diesel fuel to pave the way for electric vehicles, to the chagrin of some peers. Confused? Me too.

He's right that some diesels on sale since 2015 (known as the Euro VI) emit few dangerous nitrogen oxide pollutants. Indeed, various independent tests show Volkswagen's latest models are among the cleanest. Diesel cars tend to pump out less planet-warming carbon dioxide than petrol vehicles, which was the whole point of selling millions of them in the first place.

With their financial arms' lease books bulging with diesel vehicles, it's natural too for carmarkers to try to protect their investments in the technology and avoid impairments. The trouble is, carmakers and regulators can't give all Euro VI diesels a clean bill of health because some still emit many times the laboratory limit when driven on roads. 

Owners also don't know if their old diesel vehicle will need expensive repairs and, if so, who will pay for them. So far, German carmakers have offered them less expensive (but less effective) software upgrades. Mueller has said retrofitting older diesels might hamper their driving performance and, anyway, VW couldn't afford the bill. That could run to several thousands of euros per vehicle.

Such uncertainty is, of course, noxious for consumer confidence, which is why the most likely outcome is that diesel sales and residual values will keep falling. If that creates a financial nightmare for carmakers, it's one they brought on themselves. The time when car executives could talk their way out of this mess has passed.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Chris Bryant is a Bloomberg Gadfly columnist covering industrial companies. He previously worked for the Financial Times.

To contact the author of this story: Chris Bryant in Berlin at cbryant32@bloomberg.net.

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net.

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