In the automotive world, nothing rivals the scale of excellence which is Germany’s car industry. Prodigious technology, excellent labour relations, and profit levels few can equal.
German car brands can do no wrong but in an awfully ironic case of ambition displacing judgement, they might have voided an immense amount of research and development investment. In Europe, diesel cars are preferred due to government incentives which tax them with greater benevolence than petrol vehicles. As cities and citizens grew concerned about emission pollution and the health consequences thereof in the 1990s, car makers clustered research and presented a case that diesel is the least harmful. Hence the incentives, which grew diesel car market share from a miserly 3% in 1990 to more than half today.
The European market is limited in size and if you wish to maximise profits, for any car brand, America is the land of almost inexhaustible sales revenue. There’s just one issue with the American market, it’s coldly indifferent to diesel. They’ll use diesel trucks for heavy logistics, tolerate diesel bakkies as an exception, but abhor the idea of driving ‘truck fuel’ cars.
American emissions regulations, especially in California, are forbiddingly strict and most European diesel cars would be unable to qualify for sale there. BMW and Mercedes-Benz never bothered marketing their smaller diesel engines in America, but VW did. And nobody ever queried how they managed to make their diesel engines sufficiently clean for the American market, when BMW and Mercedes-Benz, but companies hardly short of engineering resources, could not.
The truth was they didn’t, and the resulting VW emissions scandal has tarnished the image of German corporate governance, seen executives jailed, and a not insignificant hole in the balance sheet due to a record R50 billion fine. That’s a corporate entity having to pay out the shortfall in South Africa’s current budget.
Whereas diesel was once the saviour, providing superior fuel economy and lower running costs than petrol without a sacrifice in performance, it’s end is now virtually certain. Major European cities have committed to banning diesel cars by 2030 and manufacturers are slowly divesting from any further diesel engineering. On Tuesday, a German court ruled that cities in the country can ban diesel cars and trucks.
The issue surrounding emergency vehicles, such as fire trucks and ambulances, have not been clarified. In areas of high heat, diesel is a lot less flammable than petrol, hence most emergency vehicles being diesel powered. The question of heavily polluting diesel-powered ships docking in European ports, has also slipped through the policy net.
Volvo’s announced it won’t build any new diesel cars beyond 2023 and Porsche, which is owned by VW, says it’s discontinuing all its diesel models. For a sportscar brand such as Porsche, where diesel was always a tax workaround for owners in certain European countries, it’s not a massive issue as its proportion of diesel sales are negligible. For BMW, VW, and Mercedes-Benz, who have invested massively in diesel technology and production, and have a multitude of diesel powered derivatives in their product portfolios, the consequences will be substantial.
South Africa is in strange position to benefit. There’s no real incentive to drive diesel locally and the only segment which has embraced it are bakkie owners, who constitutes a significant part of the local market as Toyota’s Hilux is South Africa’s best-selling vehicle. The diesel engines powering South African bakkies are engineered for robustness and mostly unrelated to any of the sophisticated passenger car diesel engines sourced from Europe, hence the future supply chain should avoid disruption.
VW possibly has some risk with its Amarok, which is powered by the 2-litre engine which caused all the issues in America and an Audi-sourced 3-litre V6, which is related to the range of engines Porsche are abandoning.
In a market like South Africa's, you could see the phenomenon of diesel-dumping in the next few years — where engine options rejected by other markets are discounted and made available locally — with South Africans absorbing the production surplus. Unless government enacts a radical emissions taxation regime, which is unlikely, these diesel refugees could become an attractive buy for South Africans.
Receive a single WhatsApp message every morning with all our latest news. Sign up here.