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The European Diesel dilemma

Connector's Strategic Partner & Director of the Auto Think Tank of the IE Business School in Madrid, Jose-Luis Criado, shares his views on the talk of the town : diesel versus petrol. First a quick reminder :

  • Only about 20% of the world’s car production are diesel and the vast majority of them are manufactured and sold in Europe

  • The popularity of the Diesel engine has been decreasing for a couple of years already. The Volkswagen scandal in 2015, aka "dieselgate", was an accelerator, not a trigger, but it serves to marking a chronological moment

  • In 2017, Italy was the only one of the five main EU markets (DE, FR, IT, UK & ES) where Diesel registrations remained above 50% of the total number of registrations

  • Diesel still represents 70% of the EU fleet sales, but is decreasing

The European dilemma

Diesel engines produce less CO2 emissions, but more NOx particles than petrol engines. We already know that CO2 emissions impact our climate, regardless of the location of the emission; in other words, less emissions is always better.

The situation for NOx and NO2 is different. Particle emissions harm humans directly once a certain concentration in the air is reached. It's therefore not surprising that the EU has regulated particle emissions and has put in place penalties when member states are exceeding the maximum emissions.

On the other hand, the EU wants to achieve an average of CO2 95 g/km for all cars sold in the EU market by 2021; the responsibility of reaching these objectives lays with the OEM's. If they don't reach this target, the EU will apply substantial fines.

Until recently, manufacturers were on track to this target, but as the balance of diesel and petrol cars changes in favour of petrol, achieving this target will become much more difficult.

So, in fact, manufacturers in Europe, prefer to sell more Diesel to avoid fines, while cities are

punishing Diesel engines to reduce NOx and avoid fines.

Reality check : Diesel is still the best option from a TCO point of view

Most people agree that the long term solution is electric or other alternative form of clean

power-trains. But besides political day dreaming, significant penetration of clean cars in the

European car park will take a long time. The EU has around 300 million cars on its roads and the annual registration rate is about 18 million. Just to illustrate the situation, in the impossible hypothesis that from tomorrow onward, 25% of all registrations would use alternative fuels, it would take 33

years to replace half the EU car park. So, for the present generation of people and companies,

a very important discussion is what do we do in between and how we manage the transition.

From a TCO point of view, still no power-train can compete with a diesel engine, and when the vehicle is a real working tool with high mileage usage, even less so.

Your jalopy is costing me money!

LCV's are virtually all Diesel. And we haven’t even started doing something about them. Not to mention heavy trucks. But the biggest enemy of clean air are old vehicles. Scrapping very old cars and reducing the average age of the car park should be taken more seriously. Manufacturers have done a fabulous job from the technical point of view. A 15 year old car is perhaps 10 times dirtier than a new one.

So far, most governmental plans to motivate renewal of cars where aimed at helping the

purchase of new vehicles by scrapping an old one. That is good. But scrapping a 15 year old

car and replacing it by a 7 year old, is also good.

Stop blaming the Company Car

Company cars also play a part here. Leasing companies are one of the best contributors to renewing the vehicle park. The average duration of a leasing contracts is 3 to 4 years; private owner keep their cars about (very roughly) 7 years.

Leasing companies, through residual value forecasts, are also the best thermometer of the

expected evolution of second hand vehicles values. For the last few years, residual values in

Europe have been increasing gradually, slowly recovering from the sharp fall during the past

crisis. This happened both for diesel and petrol vehicles. However, last year that increase has

continued for petrol cars, but has flattened for diesel. And this year residual values for diesel

engines are expected to stay flat or even reduce. Of course, this is not a whim of the leasing

companies, it simply reflects the expected decrease in appetite for diesel cars in the future,

which is mostly triggered by the doubts created by cities’ announcements of usage restrictions.

Going back to the transition period, it is difficult to have an educated opinion. Too many

variables are at play. The speed of technological change, the eagerness of politicians on

regulations, the mood of public opinion…

The only correct advice

I have the privilege of being part of the Auto Think Tank of the IE Business School in Madrid, and as part of our discussions, an idea that came about was that instead of measuring just the composition of the vehicle park, to start measuring the km driven or the hours driven with the different power-trains, as a more accurate indicator of the transition. It may well happen that I have a Diesel car at my home in the suburbs, but that I make as many kilometers with electric car sharing vehicles in the city.

The summary of the dilemma is illustrated by an individual wanting to change his car and

asking: “what type of car should I get?” I would not dare to recommend a course of action but, what I did was lease it, so the risk of my decision is shorter.

In three years’ time, we´ll see.

Jose-Luis Criado

Connector Insight