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Car makers counting the cost of VW’s diesel scandal

Car makers counting the cost of VW’s diesel scandal

THANKS a lot, Volkswagen. That is the sarcastic undercurrent at the annual motor show here, as executives survey the damage that Volkswagen’s diesel cheating scandal has inflicted on the industry — particularly on its plans to keep pace with stricter emissions regulations, writes Jack Ewing of the New York Times.

CAR MAKERS saw diesel — which accounts for more than half of the vehicles sold in Europe — as essential to meeting the Continent’s tougher carbon dioxide quotas.

Although diesel generates more harmful nitrogen oxide pollution than does gasoline, diesel engines produce less carbon dioxide, a cause of global warming.

“We cannot fulfill European CO2 standards without diesel,” Harald Krüger, the chief executive of BMW, said in an interview at the Geneva International Motor Show.

But automakers’ plans have been upended by Volkswagen’s admission last September that it programmed 11 million vehicles to cheat in order to pass tailpipe emissions exams.

The scandal called attention to lax European Union testing procedures, and sped plans to scrutinise tailpipe emissions under more rigorous road conditions. At present, cars in the European Union are tested in labs.

The scandal, which prompted Volkswagen to put on a more demure exhibition here than usual, has also unsettled regulatory officials and made it more difficult to get approval for new vehicles, Dieter Zetsche, the chief executive of Daimler, said in Geneva.

“We see situations where you get more questions and things are somewhat slowed down,” he said during a meeting with reporters. Zetsche declined to say what countries he was referring to.

Carmakers say they have the technology to allow their vehicles to pass emissions tests under a broader range of driving conditions.

But cars with diesel engines will become more costly as manufacturers add extra hardware to neutralise nitrogen oxides, which are linked to serious lung ailments.

European limits on nitrogen oxides, which were not only less strict but also less strictly enforced than in the United States, were set to become more stringent even before the Volkswagen cheating became known.

The problem for many carmakers is that better emissions equipment is not a selling point for most customers. Buyers may just see the extra cost, and perhaps decide to buy a gasoline car instead.

Even before the Volkswagen emissions scandal, analysts had forecast a gradual fall in demand for diesel cars in Europe. Fuel-efficient gasoline-engine cars and hybrids were expected to gain market share.

“Diesel will have to be equipped with even more technology,” said Peter Schwarzenbauer, a member of the BMW management board responsible for sales. “That is all technologically conceivable, but someone has to pay for it.”

If carmakers sell fewer diesels, they will have to find other ways to reduce carbon dioxide emissions. European regulations require carmakers to cut those emissions, averaged among all the vehicles they sell, 40 percent by 2021 compared to 2007 levels.

Plug-in hybrids and all-electric vehicles will help, but so far consumer demand has not taken off.

“We have electric vehicles today,” Barb J. Samardzich, chief operating officer for Ford of Europe, said during a meeting with journalists. “What we don’t have is consumer pull.” She and other auto executives said that governments should provide incentives to get customers to buy battery-powered cars.

European policy has long favoured diesel because of its superior fuel economy. Diesel engines extract more energy from a litre of fuel than a gasoline engine extracts from the same quantity. A car that uses fuel more efficiently also produces less carbon dioxide.

In Germany, diesel fuel costs about 20 euro cents less per litre than gasoline because of lower taxes. As a result, diesel has been particularly attractive for buyers of larger luxury cars that consume more fuel. About three-quarters of the cars sold in Europe by BMW and Audi, a Volkswagen brand, are diesels.

“The European industry is dangerously dependent on diesel,” Ferdinand Dudenhöffer, a professor at the University of Duisburg-Essen in Germany, wrote in a study published last week.

By contrast, in the United States, federal taxes on diesel are higher than for gasoline. The higher tax has been seen as a way of charging the trucking industry, heavy users of diesel, for the extra burden they put on highways.

The price of diesel helps explain why diesel vehicles that run on it account for a tiny percentage of the cars that BMW and Mercedes-Benz sell in America; the scandal is unlikely to affect their sales very much in the United States.

The same cannot be said of Volkswagen. The company aggressively marketed diesel in the United States and other countries, targeting the same environmentally conscious buyers who might otherwise have bought a hybrid like a Toyota Prius.

That strategy collapsed after Volkswagen acknowledged that it had programmed cars to recognise when they were being tested and to screen out more emissions.

At other times, the cars’ nitrogen oxide emissions were many times higher than is allowed. The carmaker said on Wednesday that the former chief executive was given a memo in May 2014 that contained information about irregularities in the emissions of its diesel cars, well over a year before Volkswagen made its public admission.

The company is now struggling to reach agreement with United States and California officials on how to fix about 600,000 vehicles under its Volkswagen, Audi and Porsche brands that are on the road and still emitting illegal levels of nitrogen oxides.

A United States District Court judge in San Francisco, who is overseeing class-action suits against Volkswagen, has given the company until March 24 to provide a definite answer on how it would bring the cars into compliance.

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