Diesel
cars, long regarded in the UK and certain other Northern EU states as noisy, dirty
and slow are currently enjoying a meteoric growth in sales throughout Europe.
Rising from a mere 2.5% of new registrations in 1973, diesel had reached 22.7%
by 1994 and by 2000 had reached 34% (more than one new car in three) of new car
sales in Western Europe. Even more surprising is that this trend is set to accelerate
– the market is expected to have reached 38-40% diesel share by the end of 2001.
Mark Wilkinson reports.

What is behind the phenomenal growth of diesel cars in Europe? A number of
factors can be pointed to:

  • Government tax policy – as we have seen in other markets, even relatively
    small tax breaks can have a disproportionately large effect on buying patterns.
  • As demand for diesels has increased the carmakers have moved to offer a
    wider range of diesel models and equipment.
  • The European shift towards ‘eco-taxation’ has had a secondary tax effect
    on the market. Governments have targeted emissions of the ‘greenhouse gas’,
    carbon dioxide, as a way to measure vehicles’ ‘environmental friendliness’;
    vehicles producing lower CO2 emissions qualify for lower ownership taxes.
    Not only are diesel vehicles capable of offering much greater fuel economy
    (and hence CO2 emissions) than their petrol rivals but diesel also emits far
    lower amounts of HCs (hydrocarbons) and NOX (nitrous oxides).
  • Diesel fuel injection technology has been constantly advancing since direct
    injection was first introduced in cars in 1988 (in the Rover Montego). More
    recently the emergence of common rail and electronic unit injection has given
    the diesel lobby even more to be proud of. Such technologies have enabled
    diesels to become more desirable than equivalent petrol models (in the best
    installations) – with much better torque, fuel economy and almost equivalent
    smoothness and quietness.

TAX PROS AND CONS FOR DIESEL

Excise duty, and hence pump prices, for diesel road fuel has been consistently
lower than that for petrol across the whole of Europe since the early 90s (except
for the UK). In every case diesel duty was less than three-quarters of that
for unleaded petrol in 1994 (except for the UK, where petrol and diesel duty
were equal). This is in spite of the fact that diesel actually costs more to
supply than unleaded petrol in some cases.

EUROPEAN
PUMP PRICES FOR PETROL AND DIESEL

EUROPEAN
FUEL PRICES
aeh Average
fuel pump prices in Euro/litre (March 2001)
awg
Unleaded
petrol
Unleaded
petrol
Diesel
Price
drop in favour of diesel over 95 RON petrol
98
RON
95
RON
erah
%
Austria
1
0.93
0.85
8.6
Belgium
1.13
0.91
0.69
24.2
Denmark
1.13
1.1
0.93
15.5
Finland
1.29
1.04
0.7
32.7
France
1.12
1.02
0.8
21.6
Germany
1.09
1.02
0.91
10.8
Greece
0.81
0.78
0.69
11.5
Republic
of Ireland
1.13
0.95
0.93
2.1
Italy
1.12
1.07
0.89
16.8
Luxembourg
0.88
0.81
0.67
17.3
Netherlands
1.26
1.17
0.91
22.2
Portugal
0.96
0.77
0.66
14.3
Spain
0.91
0.85
0.72
15.3
Sweden
1.05
1.02
0.88
13.7
UK[1]
1.3
1.27
1.28
-1.3
[1] April 2001 figures
Source:
MW research – these are approximate guide figures to highlight price difference
by fuel type. Diesel prices are given for the most commonly available
formulation – actual prices can vary depending on sulphur content


DIESEL EXCISE DUTY COMPARED WITH PETROL – BY MARKET

TAXES
ON MOTORING
xdh Excise
duties on fuels in Euros/1000 litres (November 2000), exclusive of VAT
Unleaded
Unleaded
Diesel
98
RON
95
RON
xg
Austria
414
414
290
Belgium
493
493
290
Denmark
512
512
381
Finland
561
561
325
France
637
586
389
Germany
562
562
378
Greece
329
307
253
Ireland
454
374
325
Italy
542
542
403
Luxembourg
372
372
253
Netherlands
580
580
334
Portugal
349
349
246
Spain
403
372
270
Sweden
511
511
334
UK[2]
813
780
780[3]
EU
minimum rate
287
287
245
[2] Duty rates for March 2001. After the March 2001 budget these figures changed
to: RON98 petrol 781 Euro, RON95 petrol 748 Euro, ultra low sulphur diesel
732 Euro

[3] Ultra low sulphur diesel duty. Standard diesel duty is approximately
48 Euro higher

Source:
ACEA

In addition to fuel price differences, diesel drivers also face widely differing
annual ownership, purchase and company car tax treatments to petrol drivers.
Back in 1994 both Dutch and Belgian diesel drivers faced up to double the annual
ownership tax of a petrol car, whilst French diesel drivers actually had a 30%
discount in annual taxes for the pleasure of owning their DERV-sipping machines.
The UK’s rather cloudy vision of diesel has resulted in tax penalties on diesel
company cars – and as the UK has the largest company car fleet in Europe this
continues to have a rather negative effect on diesel car sales.


“the emergence of common rail and
electronic unit injection has given the diesel lobby even more to be proud
of.”


ECO-TAXES

Austria has long been a leader in the eco-tax stakes, with a car purchase tax
system based on fuel economy – possibly one of the reasons for its massive 61.8%
diesel share in 2000. Denmark has recently followed suit with a fuel economy
policy of its own but in this case it affects annual ownership tax rather than
purchase tax. Germany introduced its own ‘carbon-tax’ policy for annual ownership
in the mid-90s and since then diesel sales have rocketed (showing an increase
of more than 56% to over 1M units a year since 1998).

The UK’s newly introduced CO2 emissions-based annual ownership tax favours
diesel cars; even diesel company car tax penalties will not be able to prevent
a fresh resurgence of interest in diesel in coming years.

IMPROVED SPECIFICATIONS


“The UK’s newly introduced CO2
emissions-based annual ownership tax favours diesel cars”


Trim and equipment have dramatically improved on diesel cars on sale in Europe
– in the late 80s manufacturers used to offer just a few diesel models, with
very little to choose from in terms of options. Three doors with base specification
was a typical mass-market small diesel offering, almost as if the maker grudgingly
offered the car just to claim that it had a diesel model on the market. Modern
diesel cars are now just as well equipped as their petrol competitors – especially
important in the gadget-mad company and executive segments. Even smaller diesel
cars are now available in a number of trim packages.

2 Duty
rates for March 2001. After the March 2001 budget these figures changed to:
RON98 petrol 781 Euro, RON95 petrol 748 Euro, ultra low sulphur diesel 732 Euro

3 Ultra
low sulphur diesel duty. Standard diesel duty is approximately 48 Euro higher


IMPROVED DRIVEABILITY

Today’s modern diesels, with their high pressure direct injection (common rail,
electronic unit injectors or rotary high pressure pumps), turbochargers and
intercoolers are much more advanced and able to compete directly with petrol
cars on price, performance and equipment. Despite having been on the market
for only two years, both common rail and electronic unit injection have transformed
the modern diesel car’s image – for both performance and refinement. They also
provide a 35% improvement in overall fuel consumption (and hence CO2 emissions)
over traditional petrol engines.

Source:
Marketing Systems GmbH and MW research

GROWTH AND THE CURRENT MARKET

In terms of new diesel market share, Austria, Belgium, Spain, Luxembourg are
the largest in Western Europe, with more than half their new car sales taken
by diesel models. Austria leads with an incredible 61.8%.

Peugeot-306.jpg” width=”238″ height=”121″ hspace=”15″>
Peugeot
Citroen are leaders in Western European diesel market

In terms of actual diesel units sold, France is just ahead of Germany, both
with over 1M units, closely followed by Italy with over 800,000 units. These
countries alone were responsible for more than 60% of the entire EU’s diesel
sales in 2000. Of all the EU member states, Italy’s diesel car penetration has
grown the fastest, rising from 9.7% in 1995 to 33.6% in 2000, assisted by the
government’s abolition of a high (5-7% of the purchase price of a small car)
annual diesel ownership tax in 1996. Interestingly, Italy enjoyed a diesel share
of 25% in the mid-80s before this punitive tax measure was introduced.

Last year’s 34% diesel share for Western Europe should grow to 38-40% by the
end of 2001 as a result of Peugeot Citroen’s contribution alone (PSA, traditionally
a leader in the diesel field, produced 720,000 HDI common rail diesel engines
in 2000 and will increase this to over 1M units by the end of 2001). The Volkswagen
Group, PSA’s strong German diesel engine rival, are heavily committed to their
pumpe-düse (high pressure unit injection) diesel engine programme and will
continue to offer electronic unit injection engines across VW, Audi, Seat and
Skoda nameplates. Ford, too, is about to increase diesel installations in their
models with the addition of new common rail engines for Mondeo, Focus and Fiesta
during the course of 2001.

Mid-90s research into a possible link between asthma and diesel particulates
(sooty exhaust) has been seized on by the environmental lobby across Europe,
especially in the Northern European countries such as Sweden, where diesel penetration
has almost halved in the past three years. Diesel still has an image problem
in these countries and this has meant that it has been slower to take off. Despite
this, sales have continued to grow at a startling rate throughout the European
car market. Only the UK, Republic of Ireland and Sweden have seen a consistent
fall in new registrations, but even there the falls have now halted and look
set to grow again – dramatically in the case of the UK (2001 introduction of
CO2 emissions-based annual road tax). Despite the UK’s punitive diesel excise
duty and company car taxation, diesel sales have still more than doubled to
over 300,000 units since 1995.

DIESEL RESALE VALUES COMPARED TO PETROL CARS

In the UK and France at least, diesel cars, historically more expensive when
new, have always achieved a price premium (in France the premium is 10% on average)
on the second-hand market. Until recently in the UK, this premium has been highest
for PSA products, showing the market’s regard for their engines’ sophistication,
but a strong challenge has been mounted by German competition in recent years
– especially with the greater driveability available with high-pressure electronic
unit injection and common rail. Reliability, durability and economy are key
buyer perceptions about diesel; that total cost per mile, depreciation and fuel
bills are all substantially lower for diesel than petrol can only serve to strengthen
the case.

The
VW Golf TDi PD uses the pumpe-düse (high pressure unit injection)
diesel engine

In the UK at least, used diesel car values now far outstrip used petrol car
prices, especially in the premium executive vehicle market. BMW and Mercedes
now have a wide range of refined common rail-equipped models on offer. One-year-old
used diesel executive models from these two companies now achieve resale values
almost a third higher than that for an equivalent age and specification petrol
model. This is strong evidence for the growth potential of new modern diesels
on the UK market.

THE FUTURE

The potential for further growth is clearly highlighted by new diesel injection
technologies that have become available over the past few years. Forthcoming
particulate (diesel soot) trap technology, already on the market in a number
of PSA vehicles, from Europe’s leading diesel makers will help to fight anti-diesel
bias in the UK and certain Northern European states.

Emissions-based taxation looks set to stay in Europe; the UK’s new CO2 system
will no doubt have a significant effect in raising diesel sales. Others, such
as Denmark, Germany, Netherlands, Austria and Sweden have their own emissions/pollution/fuel
consumption-based policies (already for quite a number of years in most cases),
all of which favour the diesel. New diesel soot (particulate) traps, already
in production in some Peugeot Citroen cars, will rapidly spread across all major
makes of car over the next couple of years and legislation may even be put in
to favour this technology. Soot emissions are the last remaining negative public
relations aspect to the diesel engine – the new trap technology will assist

sales in those countries where diesel still has a bad image – Finland, Sweden,
Denmark, Switzerland and the UK.

In addition to fiscal incentives, dramatic sales increases have also been due
to extensive efforts by manufacturers to develop the markets; buyer incentives,
improved engines and trim levels, reductions in the diesel car price premium
etc. But petrol technology is beginning to fight back as direct injection petrol
engines come to the mass market. Things could become interesting over the next
few years….


To view related research reports, please follow the links
below:-

Diesel
Engines & Parts to 2003

The
2000-2005 World Outlook for Automotive Diesel Prices

Global
Car Forecasts to 2005