Like most industries right around the world, the car industry has been hit hard by the coronavirus pandemic. Many big car companies have been haemorrhaging cash for months as production ground to a halt and dealerships closed all around the world.
Although things have been slowly re-starting in recent weeks, the long-term implications of what has happened in the first half of 2020 will be felt for a long time – and that’s without considering what may still happen if the virus returns in a second wave.
Car companies are already having to make tough decisions about how to ensure they survive, yet alone return to profitability. Inevitably, that’s going to mean that they make some deep cuts to their current business models.
Some brands have already been cutting the number of models they sell. Renault has announced this month that it is dropping its Koleos SUV and Grand Scenic people carrier from sale in the UK, and other companies are likely to follow suit with any slow-selling models.
But as well as specific models or even brands that could face the chop, there is one area of the car industry that seems likely to suffer across the board – the diesel engine.
Falling customer demand for diesel cars, growing environmental pressure and new emissions laws have badly hurt diesel sales in recent years, but enormous coronavirus-related financial losses could be the trigger for many car companies to kill off their diesel models sooner rather than later.
Diesel sales in freefall
Sales of new diesel cars in the UK have been declining for about five years. Concerns about air quality had been starting to gain traction, and then bombshell revelations about Volkswagen cheating emissions tests detonated. Unable to engineer certain diesel vehicles to both comply with emissions laws and still provide reasonable performance, Volkswagen engineers programmed their cars to just switch off all the anti-pollution equipment. This allowed the cars to spew toxic fumes directly into our air, and it happened in millions of cars all around the world.
The full impact of the Dieselgate scandal took a while to sink into the public consciousness. Although the cheating was publicly exposed in September 2015, it probably took at least a year for the general public to really understand the significance of what Volkswagen had actually done. The scandal brought the problem of diesel emissions onto the front pages of newspapers and the top of TV news bulletins over a long period of time. Scientists were repeatedly interviewed to explain it all, but the clear overall message was that diesel cars were bad news.
Diesel’s slow fall from favour began to accelerate. From 50% market share in 2015, it fell to 48% in 2016 and then 42% in 2017. Things really crashed in 2018, when diesel’s market share slumped to only 29%, but there was more than just Volkswagen’s Dieselgate actions behind this.
The EU reacted to Dieselgate by fast-tracking tougher emissions regulations, which also tried to prevent Volkswagen-style cheating. This added even more complexity and more expense to diesel cars. Dozens of diesel models from different brands were pulled from sale during 2018 as car companies had to extensively modify them to meet the new laws. There may have been falling demand, but those people who wanted a diesel car often still had to wait several months to get one.
Some car companies looked at the cost of upgrading their diesel engines (while simultaneously trying to develop new hybrid and electric vehicles), looked at the falling sales for diesel cars, looked at government plans around the world to ban new petrol and diesel cars over the next 10-20 years, and decided it wasn’t worth the effort. They dropped their diesel models for good. Volvo was the first mainstream manufacturer to declare that no future new models would be offered with diesel engines (although models already on sale would continue to offer them), and others have quietly followed suit.
There was a further slip in 2019 as diesel’s market share fell to about 25%, with private new car buyers leading the exodus away from diesel towards hybrids and full-electric vehicles. Then, just when you thought diesel sales couldn’t fall any further, along came the coronavirus.
The overall new car market was down about 35% for the first half of 2020, largely as a result of shutdowns from March onwards. Fleet sales (down 52%) have fallen harder than private sales (down 45%), which recovered to some degree in June when showrooms reopened. Fleet buyers tend to buy more diesel cars than private consumers, so diesel sales are being particularly hurt by a lack of company car orders.
As a result, new diesel car sales are down about 60% for the first half of the year, from almost 350,000 units to just over 140,000. This is a massive collapse and, with the growing popularity of electrified cars only likely to accelerate (electric new car sales have almost tripled this year to date), it’s unlikely to recover.
Falling demand also hurts used car values, which in turn makes financing or leasing new diesel cars more expensive, which in turn reduces demand even further. So the downward spiral continues until it simply becomes uneconomical for car companies to keep offering them.
A national lockdown of almost everyone in the UK meant that businesses in almost every industry came to a standstill. Slashing costs and saving every penny has become paramount, which means ordering new company cars for employees has suddenly become much less of a priority – especially since so many of them are currently working from home and may well be doing so for months to come.
Air quality in big cities improved dramatically in April with no cars, buses or taxis clogging the streets. Environmental groups latched onto this quickly, lobbying goverment to offer greater subsidies for electric cars and/or more taxes on diesel cars and diesel fuel. The car industry has been lobbying for a repeat of the 2009/10 scrappage scheme, but the fact that very few electric cars are built in the UK may scupper the chances of that.
End of the line for diesel?
The eventual demise of diesel is inevitable anyway, as governments around the world draw up plan to ban the sale of new combustion-engined cars (ie – petrol and diesel) over the next 10-20 years. The UK sits roughly in the middle, with plans to ban them by 2035. Ahead of those deadlines, market forces and model cycles were expected to mean that diesel cars would gradually disappear from most new car showrooms over the coming decade.
However, this timetable may now have gone out the window as car companies start looking for ways to urgently cut costs. No car company can afford to be building and selling vehicles that customers won’t buy, and in the current environment many brands may choose to cut their losses immediately and kill off their diesel cars as soon as possible.
There will still be demand for diesel vehicles in the short-term future, but it is likely to be far smaller and more niche than previously. If you do a lot of long-distance motorway driving, a diesel engine is usually far more economical than an equivalent petrol unit and much more practical than an electric car that spends hours recharging all the time.
If you tow or carry heavy loads, a diesel motor is still far superior to a petrol one – which means big SUVs will probably soldier on with diesel for a while yet. However, demand for those currently popular vehicles may start to slow down if costs keep escalating. Buses and trucks will still rely on diesel for the forseeable future as well, as there are no viable alternatives currently on offer for them.
But for suburban new car purchases for day-to-day commuting and family duties, diesel’s days are definitely numbered.
We advise car buyers to think very carefully before buying a new diesel car in 2020, even if the deal on offer sounds fantastic. You may find that your resale value plummets while the cost of road tax and fuel increase over your ownership cycle, so any savings you’re getting now could be outweighed by losses down the road.