Diesels Doomed? Delhi Deals Death Blow In Wake Of Dieselgate

December 16, 2015

Just when diesel fans thought things couldn't get any worse, along comes news that a high court in India has prohibited sales of some diesel vehicles until next spring.

2015 has not been a great year for diesels. In March, we discussed countries like France and England, which have been encouraging citizens to buy hybrids and electrics instead of efficient diesels. We wondered aloud, "Is the diesel dead?"

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Little did we know about the scandal that was brewing at Volkswagen -- one that would force the German automaker to admit that it had equipped more than 11 million vehicles with illegal software designed to cheat on emissions tests. The still-unfolding nightmare could cost Volkswagen upwards of $25 billion in fines, court fees, and repair costs.

And now comes this: India's Supreme Court has issued several orders that aim to cut pollution in Delhi, a city that ranks among the world's worst in air quality. While elected officials launched a plan to curtail driving in the Indian capital by allowing cars with even- and odd-numbered license plates to enter Delhi on different days, the Supreme Court has issued several orders of its own:

  • A ban on registrations of new diesel vehicles with engines larger than 2.0-liters until March 31, 2016.
  • A ban on trucks (many of which are diesels) driving through Delhi if the city isn't their final destination.
  • An order that taxis in Delhi must convert to CNG by March.
  • A ban that prevents commercial vehicles built before 2005 from operating in Delhi.

Furthermore, the government has asked state and local officials to stop buying diesel vehicles for employees and to phase out those currently in use.

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Why does this matter? India is a huge market, and it's set to grow far, far bigger in the coming decades. Today, diesels make up about 30 percent of mass-market vehicles sold in the country. If other cities follow Delhi's lead, automakers doing business in India will be forced to ditch diesels in favor of cleaner, more efficient vehicles.

The new rules put several companies at significant risk. While Suzuki and Hyundai will be hurt somewhat, Toyota stands to take a big hit, since two of its best-selling mass-market vehicles will be directly affected by the new law.

The effect will be even worse among German luxury brands like Audi, BMW, and Mercedes-Benz. Diesels make up 70 percent of their sales volume in India, and many of those cars and SUVs come with engines larger than 2.0-liters.

OUR TAKE

We have to assume that part of the high court's decision stems from Dieselgate and the pall that it's cast on diesel vehicles around the world. But regardless of the reason, the fact remains that in the U.S. and India, diesels are beginning to feel the squeeze. If that effect carries over to the diesel stronghold of Europe and/or the massive emerging auto market in China, that's probably all she wrote.

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