Diesel Economics 101
Diesel (as well as gasoline-electric hybrid) automobiles are typically sold at a higher price point than their petrol-only counterparts with the difference typically being several thousand dollars.
For example, the BMW 335d’s list price is $43,950 while a similarly-equipped 335i is $41,975. The diesel-powered BMW X5 Sports Activity Vehicle (BMW parlance for SUV) has a sticker price of $51,300, while its petrol equivalent costs $47,600.
The price-leading Volkswagen Jetta TDI is $22,830 while the entry-level Jetta is a mere $17,775. The Audi Q7 TDI lists for $50,900 (petrol version $46,900), making the Audi A3 TDI a relative bargain at $29,950, only $1200 more than the gasoline version. Mercedes-Benz sells its diesel ML350 SUV at a $4000 premium over the $45,700 petrol version but, in the GL-Class, the diesel GL350 is actually the price leader at $59,950, while the larger displacement petrol version starts at $60,950.
In the hybrid world, the Honda Civic sedan starts at $15,665 while the Honda Civic Hybrid starts out with an $8145 higher price tag, although the hybrid model does include more standard equipment.
It’s clear that, for most of these vehicles, drivers would need a decade or more of 15,000-mile annual driving before seeing any savings.
As a result, sales of diesel-powered automobiles remained tiny compared to their petrol brethren. When BMW launched the diesel X5 in December 2008, the percentage of buyers choosing the diesel powerplant remained in the single digits.
That is, until last July, when BMW’s Eco Credit arrived.
According to Dave Buchko, manager of Advanced Powertrain communications at BMW of North America, the pricing for diesels wasn’t arbitrary. Rather, it was based on how much more the car – with diesel powerplant – was going to cost.
A diesel engine, compared to its petrol equivalent, is more expensive given the level of technology in the engine. It runs at much higher pressures, requires more robust components and, in the United States, needs additional emissions controls.
In addition, BMW put a great deal of thought and effort into reengineering the 335d for the U.S. market. Engineers repositioned rocker arms in the engine to make it quieter (an improvement that eventually made its way to non-U.S. engines) and moved the catalytic converters closer to the exhaust manifold so they can heat up faster.
While European engines have particulate traps, only the U.S. version has the urea system that scrubs the exhaust. In addition, U.S. cars have more sound deadening material, resulting in reduced noise levels, and auxiliary heating, to allow the interior to warm up faster (diesels don’t run as warm as gasoline engines and many drivers still remember how long it took the interiors of 1970s and 80s Mercedes and Volkswagen diesels to warm to a comfortable level).
Of course, what no one could predict was where the U.S. diesel market was heading and what buyers were prepared to pay.
What BMW and other automakers found out is that, especially with lower fuel prices, only a handful of individuals were willing to pay a premium for a diesel.
Enter the Eco Credit. Timed to start with the launch for the U.S. government’s cash-for-clunkers program, BMW offered buyers of its diesel-powered automobiles a $4500 credit starting in July 2009. Indeed, according to Buchko, the amount of the credit was partially influenced by the cash-for-clunkers rebates.
Since the Eco Credit started, BMW’s diesel sales have climbed significantly. Diesel-powered X5s reached 25% of all X5 sales last November and 33% in December. 3er Series diesel sales hit a high of 366 units in December. Audi, Mercedes-Benz, and Volkswagen are also reporting significant increases for their diesel lines.
In Europe, over 50% of new car registrations are for diesel-powered autos. However, despite the recent gains in the U.S., the U.S. figure remains in the single digits. But change is on the horizon. The 2009 and 2010 Green Car of the Year awards went to diesels whereas earlier recipients were all hybrids. Indeed, with the 335d, BMW has demonstrated that a diesel (with 425 pound-feet of torque) can appeal to enthusiasts as well as eco-conscious consumers.
With the Eco Credit, which BMW has no immediate plans to eliminate, the 335d actually costs $2225 less than the petrol-powered 335i before the IRS tax credit of $900 is even considered. Better fuel economy, lower emissions, massive torque – who could turn down a deal like this?
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Thanks for mentioning this on FlyerTalk forums.
This incentive is not offered in my country and explains some additional interest which some FTers have pursued diesels as a new car option.
I’d be VERY interested in this 335d (even more so a 135D if it’s offered – a little hotrod!) if I was a US car buyer.
I am a very happy top-spec Aussie Jetta owner.
There are a lot of us at the golfmkv.com and vwwatercooled.org.au forums. Plus your US mags like European Car – with lots of interesting options for owners to improve what comes from the factory.
The Euro hot rods like the VW and BMW small cars, with torquey yet refined powertrains, is a great new car option.
Cheers,
Bizi
PS. Looking forward to your next edition, road-testing the Audi A3 TDI. If possible, can you test the VW CC TDI? Looking forward to seeing news on the next-gen USA-built (first-time!) VW coupe, based on the next-gen, USA-market Jetta generation, shown at Detroit this month.
Great article, Jonathan, as you say there are indeed two rather enormous elephants in the room.
The first is that there’s little to no financial benefit to the diesel (in the US) without the artificial influence of the $4500 eco-credit (which is misleadingly branded to imply that it is a green incentive, when it’s really just trunk money thrown at the buyer by BMW) and the other is the relatively low cost of fuel in the US compared to other parts of the world.
The second relates to what drives those economics and the ongoing cost of ownership. I’m actually looking at an X5 35d for my wife, but the reasons we may get one have nothing to do with the economics (those are broadly a wash when compared to the gasoline-engined X5 30i) and everything to do with 425 lb/ft of torque. Now, if we were paying $9 per gallon like some parts of the world, all bets are off. If we were, we’d moat certainly see diesels account for the same 60% to 70% of the market that they do in say much of western Europe. I don’t think the average American consumer, by and large, has the first idea how good they have it in terms of the low gas prices and relatively low pricing on the cars themselves. They do, however, appreciate power and performance, and this where the modern BMW diesels absolutely deliver.
Mind you, we should also reflect on BMW’s terrible, terrible efforts at marketing the diesel engines here in the US to date. I’ve rarely seen such a poor campaign. That also needs to improve – these incredible engines really do deserve better.
I always enjoy yout thoughtful, current, and richly-illustrated articles, and this was no exception!
However, the title elicited a topic that the article did not cover: the fundamental economics of energy vs. cost for diesel (vs. petrol/gasoline) engine. I wonder if you could comment on that aspect of the economics as well? I understand that the gasoline engine and diesel engine differe in efficiency, and that the cost of fuel is often distorted due to differences in tax levels. Is is as simple as “diesels get better fuel economy (mpg)”?
I was seduced by “Cash for Clunkers” AND the BMW “Eco Credit.” Barak Obama paid me $4,500 for a 1994 740iL with 170,000+ miles on it (two to four times its realistic trade-in value) AND I got the Eco Credit AND I get the $900 clean diesel income tax credit AND I get the stimulus bill income tax deduction for new vehicle sales tax. $12,000 in total incentives to buy a new BMW. How could I resist?
It would be tough, in the absence of all the incentives, to see too many people (myself included) who would pay MORE for a 335d than a 335i, but at pricing parity, the fuel efficiency, the torque, and the potential for more engine tuning tweaks still makes the diesel a compelling option.
I live in Thailand, and the ‘sales tax’ is based upon engine displacement (and a few other things). Due to the VERY high tax structure on engines over 2l, the only BMW I could even consider was a 3 series with a 2l engine. I test drove the diesel and the petrol versions, and the petrol engine was pathetic. On the other hand, the diesel version was almost as fast as my old E39 540i. Here in Thailand, diesel fuel is about 30% less expensive than petrol. Since I was looking at $80K for a 3 Series, the choice was a no brainer. This is actually cheap compared to the 3l Honda Accord at $110K, and it’s a petrol motor, and it isn’t as fast as the 320d. The low end Z4 is close to $200K. A 730d is right at $200K.
I am very happy with this car, my 5th BMW. As long as the revs are above 1500 rpm, the throttle response is instant, and hard. Squirting through traffic is effortless, and it cruses at 200 kph without even breathing hard. It’s very impressive for a piss ant engine. Of course we must remember that the piss ant 1.5l engine in the Brabham F1 car pumped out 1400 hp over 30+ years ago.
Economics?? I get well north of 45 mpg on the highway, and 38-42 mpg putting around town. That’s way better than the Camry Hybrid they sell here. Since it is more convenient to ride my motorcycle for small shopping (parking is impossible), I figure the BMW will tally about 10-12K kM per year. It should be my last car, so the economics of the diesel for me are obvious.
YMMV, FWIW
Steve Albrecht
Rayong Thailand