Diesel Economics 101

By Jonathan Spira on 29 January 2010
  • Share

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.DieselEconomics

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?