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Catch-22: If Diesel Sales Boom, Will Their Cost Advantage Bust? Page 2

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2014 Chevrolet Cruze Clean Turbo Diesel, 2013 Chicago Auto Show

2014 Chevrolet Cruze Clean Turbo Diesel, 2013 Chicago Auto Show

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According to ALG analyst Eric Lyman, whether diesels keep the momentum they're gaining in the market depends on two things: public perception and pure economics.

As for public perception, diesel is at last seen by American new-vehicle shoppers as a premium technology, Lyman recently confirmed to us. “We’re really starting to see a shift in consumer behavior the past couple of years, in American consumers valuing the technology,” he said. “So some of the long-held beliefs about 'dirty diesel,' or concerns from decades ago, are finally starting to fade as consumers get more exposure to the technology.”

Supply is short and demand is strong

In economic terms, just like with most kinds of vehicles, it's a matter of supply and demand. And today, with Volkswagen being the only mainstream automaker to offer diesel options, demand far outweighs supply on the late-model used market—which is why values are so inflated.

“We’re going to see more and more automakers introducing that technology, which should help awareness, but it also has an impact on supply relative to those numbers we see today,” said Lyman.

Chevrolet has already priced the 2013 Cruze Clean Turbo Diesel at $25,695, including destination—a price that’s somewhat higher than that of the Volkswagen Jetta TDI. With the Mazda model anticipated to roll in at about the same price, possibly even less, we may see them cutting into VW’s sales, and its inflated late-model used values.

Mazda SKY-D Engine

Mazda SKY-D Engine

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ALG won't yet say whether it’s predicting that Mazda's diesels will do as well as Volkswagen's diesels in residual values, but Lyman says it's a good fit for the brand. “One of the things that Mazda has been doing well is the fuel-efficiency improvements in some of their recent redesigns, and the diesels fit squarely within that strategy,” said Lyman.

That said, success of the Mazda and Chevrolet diesels depends on those same familiar economics: initial pricing, and how long it takes to pay the sticker-price premium back with savings at the pump. Complicating that is that, in the U.S., diesel prices have stubbornly been significantly higher than those of regular-grade gasoline.

Will break-even economics slow diesels down?

“So you get the added fuel efficiency, but you have to pay extra on the front end for the technology, and you have to pay more at the pump—so it just really pushes forward the break-even point on your investment,” summed Lyman.

Automakers don't haveas much wiggle room on diesels' sticker price either, as the technology costs hundreds, perhaps thousands more in manufacturing costs (and related expenses like emissions certification) than a gasoline model

“Ultimately there's a factor at play that's beyond automakers' control, which is the price of diesel versus gas,” Lyman noted.

How does the diesel market expand without that softening on the used-car side, negating one of its key advantages? One scenario Lyman can think of is if gas prices rose up to the five- or six-dollar level for a sustained period. That’s because diesel has been at a lower cost premium in recent years, and as the per-gallon price of gasoline rises, the percentage premium for diesel usually lessens—making these vehicles more attractive, for people who keep a tally of their driving costs.

Diesel component supplier Bosch is, of course, bullish. It recently predicted than ten percent of the U.S. light-vehicle market by 2018 will be diesel-powered; and it counts a total of 42 diesel-powered product introductions just this year—most of them trucks, admittedly.

Will diesels make the jump from niche appeal to mass-market sensibility? Over decades, diesel technology in passenger cars has had a lot of false starts in the U.S. If recent, pleasing-to-drive products from Volkswagen, Audi, Mercedes-Benz, BMW, and now Jeep are any indication, the next couple of years are going to be interesting.


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Comments (17)
  1. This will be interesting. Not noted however is that Audi is offering diesels across the line for 2014 except for RS models as I've read. And just yesterday, I learned my local PD is replacing its V6 Chargers with VW Passat TDIs! While it will be a difficult cost/benefit to determine, the perception will be driven by 2-3 fill ups every four weeks vs 4-5 over the same period. My '98 New Beetle TDI never got less that 40 mpg!

  2. Where I live in North Carolina diesel is 50-60 cents per gallon more expensive than regular gasoline. So I'm not going to pay extra for a vehicle and then be penalized every time I fill up.

  3. I suggest you get out pencil and paper, figure out your likely mileage (gas vs. diesel), your likely retention of the car, and go from there. One other consideration is that diesel may drop in price relative to gasoline; usually the oil companies feel they can stiff the truckers on diesel, but if more cars adopt oil-burning, the price may fluctuate like gas since when prices go higher, ordinary citizens do less driving. Truckers don't have that luxury.

  4. The true price of fuel economy should be: price to drive one mile. Take the price of the fuel ($/gal) and divide it by mpg. That is a better estimate of the cost of travel.

  5. The more diesels, the merrier IMHO. I traded for a Passat TDI a little over a year ago, and have been hooked ever since. My lifetime MPG is about 42, and highway trips at 45+ MPG happen all the time. We don't get the best of the diesel technology here because of cost and other considerations, but I am glad to see that changing gradually over time.

  6. "Automakers don't haveas much wiggle room on diesels' sticker price either, as the technology costs hundreds, perhaps thousands more in manufacturing costs (and related expenses like emissions certification) than a gasoline model"

    This is bunk. As an engineer, I know that there are actually less parts in a diesel car, especially the engine, than there are in a gasoline equivalent.

    It is true that initial engineering, research and development costs were higher, but one has to bear in mind that these were already offset by two factors:

    a) the current diesel engines, which are just coming on the market have been developed over the last 20 (!!!) years;

    b) the research and development cost is recouped in volume sales.

  7. "(and related expenses like emissions certification)"

    Which "related expenses"? It costs up to (can be cheaper, in fact!) $100,000 USD to get the EPA certification, and that includes any and all EPA and U.S. DOT modifications.

    Taking an average price of $25,000 USD per vehicle, and assuming an average profit of $10,000 USD per vehicle, the cost of certifying a vehicle is offset by selling only 10 units.

    These myths about diesels costing more to make are nothing more than propaganda perpetuated by manufacturers' marketing departments, and aided wittingly or unwittingly by auto journalists.

    Take it from an engineer: it's bunk. The whole premise.

  8. There used to be a cost advantage with diesel, but I don't see it anymore. Diesel used to be cheaper than gas, now it is $0.50/gal more than gas. Diesel engines used to be simpler (and therefore more durable) than gas, but factor in urea injection, turbo, and emissions controls and the "simpler" advantage has also evaporated. Diesels used to be much more efficient than gas, but the recent mileage figures I've seen give little or no advantage to diesel. Factor in the ridiculous price of diesel engines and you've lost me (and a good portion of the public) completely.

  9. you must be reading incorrect articles. 1) diesels still get 5-10 MPG over every gas vehicle with equivalent power and that's before break-in which really increases the advantage, in fact, most gas figures are overstated, not so with diesels 2)you can also opt for bio-diesel which is about $1 cheaper in most states 3)when I owned my two diesels, the IRS rebated the federal taxes on the fuel (I dunno if this is still the case, I got my rebate from 1980 till my last year of ownership 2002) supposedly fed taxes were for big rigs only so cars and farm vehicles can get it all back at end of year 4)how about it's just better for our country since diesels take 30% less oil to make a gallon we help out the oil supply

  10. I'm seeing plenty of gas cars advertised at 40 mpg, which is also very close to the max figures advertised for diesels. I'll grant you the fact that the diesel engine is going to beat any gas engine on torque, but if you want the public to really embrace diesels, makers will have to be pushing the 50 mpg line. That's because they see 40 mpg all over the place now, with gas engines that cost thousands less. Also, a gallon of crude oil can only be refined into a certain percentage of gas, LP, diesel, etc. Diesel is actually one of the smaller products yielded in the refining process, and that can't be changed.

  11. The EPA ratings for diesels are crap. If I got the EPA ratings in my VW Golf, I would be dropping it off at the dealership because something would be wrong with it. I average 45 MPG (city AND highway). Highway driving 50s are easy; 60s are duable.

  12. A few points I've not seen mentioned...when I owned my 2 VW diesels from 1980 to 2002, you could file with the IRS to get your federal taxes back on diesel fuel (save the receipts though) usually came to $200-300 and supposedly was because the fed taxes were for big rigs road damage was not a widely publicized thing, the forms were in the IRS farm vehicle section in the library. We had a group of ski patrolers who all bought diesels for that reason.
    I'm also not seeing bio-diesel being mentioned...that is usually cheaper than gas and thirdly the extended highway range of diesel saves you time AND money ..less stops mean less buying of crap at the fuel stop and less trip cut my ski trips into a single tank journey

  13. I wish we could get the VW Polo 3 cylinder TDI that gets up to 70 MPG & is the size of the first generation VW Rabbits in our "so called free country. Dito the Ford Fiesta diesel available in Europe that gets 60 MPG. People are so short sighted. In a few years, if not sooner we will be seeing $6 a gallon gas & diesel. I have been driving diesels since 1979 & wished I knew about the diesel IRS tax rebate. I currently own two running Mercedes diesels plus a 1979 Citroen CX diesel & a VW Quantum TD I can't seem to get running. I once had a 1983 Datsun/Nissan Sentra diesel that averaged over 42 MPG for 50,000 miles including LA traffic. I then traded for a 1985 Mazda 626 diesel. I have also had a couple of Peugeot diesels too.

  14. I cannot find anyone other than our small little ski patrol group that used or even knew about this IRS refund...I worked weekends from 1979-1994 at an upstate NY ski area which was about a 300 mile round trip each weekend, I kept my receipts and every February we got back around $200-300 after sending the form in January. ..the forms were in our public library section on farm vehicles but worked for cars as well...I few points on the other diesels you mentioned..I myself was interested in the Mini Cooper diesel(68mpg) as well as the range rover evoke diesel (54mpg) but no luck getting them here but I will say some of the mileage figures are in imperial gallons which are larger than USA gallons...also look into bio-diesel $3 near me

  15. In the midwest Diesel is 30, 40 cents higher than gasoline, Biodiesel is 50 cents a gallon higher. Where do you live?

  16. 1) since there are no major regulations on bio diesel yet the price varies..small mom and pop places that use old restaurant oil have been selling fairly low in the Idaho/Nevada area near me 2) you also may look into getting your diesel taxes back..most are aimed for big rigs and road wear but there used to be an IRS form you can fill out that applies to farm vehicles and cars which do not damage the roads..I used to get $200-300 back a year when I had my two VW diesels in the 90's

  17. ULSD has raised the price of Diesel to 30, 40 cents a gallon higher than gasoline here in the Midwest.

    The other issue to consider is that if you pay the premium price for a deisel engine, the vehicles won't last as long as the engine. I recently traded in my 2001 Dodge RAM with the Cummins Diesel - It had 189,000 miles. The engine ran great, everything else had completely fallen apart. For a truck I paid $45,000 for I got $1900 at trade in.

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