The Car and Truck Fleet and Leasing Management Magazine

Diesel Reboot

A new wave of diesel passenger cars arriving in the U.S. offers fleets a compelling fuel-efficiency and sustainability solution.

May 2014, by Paul Clinton - Also by this author

The 2014 Volkswagen Passat TDI Clean Diesel SE has a 2.0L inline four-cylinder engine that produces 140 horsepower and 236 lbs.-ft. of torque. Sales of the 2014-MY Passat to commercial fleets so far have favored 55% toward the TDI model over the gasoline version. Photo credit: Vincent Taroc.
The 2014 Volkswagen Passat TDI Clean Diesel SE has a 2.0L inline four-cylinder engine that produces 140 horsepower and 236 lbs.-ft. of torque. Sales of the 2014-MY Passat to commercial fleets so far have favored 55% toward the TDI model over the gasoline version. Photo credit: Vincent Taroc.

Faced with tightening corporate average fuel economy standards in the U.S., automakers have turned to a new generation of cleaner burning diesel passenger cars and SUVs to help them meet the new regulations.

With high fuel efficiency and extended range, the new models also give potential buyers of diesel vehicles — including fleets — a compelling alternative to gasoline.

This crop of vehicles bears little resemblance to the diesel vehicles sold in the 1970s, which noisily coughed out clouds of black exhaust, due to advances in diesel engine technology as well as regulations that significantly reduced the sulfur content of diesel fuel sold in the U.S.

Right now, diesel-powered vehicles make up only 3% of all passenger cars, SUVs, vans and pickup trucks (light-duty and heavy-duty). Among 2014 model-year vehicles, consumers had 35 choices for diesel vehicles, including 19 cars and SUVs, nine pickups and seven vans.

“There will be more diesels in the U.S. in the coming years than at any point in the past,” says Allen Schaeffer, executive director of the Diesel Technology Forum. “Manufacturers are looking at all the options to bring customers a fleet of more fuel efficient vehicles with the right mix of cars and trucks to meet the desires of consumers and help manufacturers. Big fuel economy goals in the future are driving interest in diesel in the U.S. right now.”

Schaeffer expects the market to triple by 2020 with a slew of new models on the horizon.

As diesel fuel has higher energy content than traditional gasoline, the vehicles boast greater torque and beat the EPA fuel economy ratings of their gas-engine counterparts. Schaeffer believes that last factor gives diesels the edge over gasoline-electric hybrids.

“If you do a lot of highway driving, the hybrids are probably not going to deliver the posted fuel economy,” says Schaeffer. “The diesels are also something that folks are looking at on a long-term value basis. These vehicles are known for their long-term durability.”

Current Models

Volkswagen of America has been producing vehicles with clean-diesel TDI engines for the U.S. market since the 2009 model year. The latest generation is rolling out for MY-2015 including the Jetta, Passat, Beetle and Golf. The SportWagen is targeted for MY-2016.

Volkswagen sold about 72% of the 112,000 diesel-powered vehicles bought in the U.S. in 2013 to retail and fleet customers, says Martin Kiel, national fleet sales manager for the automaker.

When you include Audi and Porsche models, VW’s market share rises to about 80%. Audi now offers TDI versions of the A6, A7 and A8 L sedans as well as Q5 and Q7 SUVs. Porsche offers the Cayenne Diesel SUV.

The Passat TDI mid-size sedan is leading the way among those choices. In fact, 40% of Passat sales in March came from the diesel model. Sales of the 2014-MY Passat to commercial fleets so far have tilted 55% toward the TDI model over the gasoline version, Kiel says.

“Our commercial customers have really embraced the technology,” Kiel says. “We find customers switching from hybrids into these vehicles.”

The 2014 Mercedes-Benz E250 produces 195 horsepower and 369 lbs.-ft. of torque and an estimated EPA rating of 28/45 mpg city/highway. Photo credit: MBUSA.
The 2014 Mercedes-Benz E250 produces 195 horsepower and 369 lbs.-ft. of torque and an estimated EPA rating of 28/45 mpg city/highway. Photo credit: MBUSA.

Mercedes-Benz USA also offers a robust diesel lineup in the U.S. that includes diesel versions of the E-250 mid-size sedan, GLK250 compact SUV, ML350 mid-size SUV and GL350 large SUV.

For MY-2014, the E-250 BlueTEC replaced the E-350 BlueTEC, offering a new four-cylinder engine that provides nearly comparable torque and horsepower ratings, says Peter Lueckert, head of global clean diesel powertrain development for Daimler.

The automaker improved the efficiency of the turbocharging by introducing a two-stage process and increased pressure in the fuel injection system to compensate for the engine downsizing. Mercedes is taking an optimistic view about increasing adoption of diesel in the U.S., Lueckert says.

“In the past, diesel and the public didn’t have a good relationship, but with the clean diesel we introduced in 2006, we see additional performance with low-end torque and good fuel economy,” Lueckert says.

Another German automaker, BMW, upped its diesel ante when it introduced the 328d xDrive and 535d sedans for MY-2014. BMW had last attempted a diesel passenger car in the mid-1990s, when it offered the 335d. In its luxury utility lineup, BMW added a diesel X5 full-size SUV in 2014 and a diesel X3 compact SUV for MY-2015. The 740Ld xDrive long wheelbase sedan also arrives in 2015.

Detroit automakers have also re-entered the diesel market in MY-2014. General Motors introduced the Chevrolet Cruze Diesel, which is equipped with a 2.0L four-cylinder turbo diesel with six-speed automatic transmission and front-wheel drive. The diesel model costs about $1,500 more than its gasoline counterpart.

“The Cruze is a good fit because we had that platform with that engine in Europe,” says Mike Batchik, GM Fleet and Commercial product manager for cars, who notes that the U.S. emissions are more stringent than the European standards.

As part of its refresh of the Jeep Grand Cherokee for MY-2014, Chrysler introduced a 3.0L turbo-diesel V-6 that produces 240 horsepower and 420 lbs.-ft. of torque. For the $5,000 premium, diesel buyers get a tow rating of 7,200 pounds, higher low-end torque for off-roading and a combined fuel economy rating of 24 miles per gallon.

The EcoDiesel Grand Cherokee marks a return to the market for Chrysler since it discontinued the Jeep Liberty CRD (common rail diesel) in 2007. The 2014 Grand Cherokee has begun to attract retail as well as fleet buyers, says Eric Mayne, a Chrysler spokesman.

Coming Models

In addition to these available models, several others should arrive in the U.S. in the coming years, including Audi A3 TDI, Audi A4 TDI, Porsche Macan Diesel, Volkswagen Golf SportWagen TDI and Volkswagen CrossBlue Plug-In Hybrid TDI. Audi is expected to introduce the A3 TDI in 2014.

The diesel-powered Mazda6 Skyactiv-D, which is available in Europe and Japan, was delayed in late 2013 and remains in development, according to Beverly Braga, a spokeswoman for the automaker. “There’s no timing on when we would bring the Mazda6 to the U.S.,” Braga says.

Volkswagen showed a concept version of the Golf SportWagen at the New York International Auto Show in April. Volkswagen has been showing the CrossBlue plug-in diesel hybrid at auto shows, and its CEO says the mid-size SUV would reach the U.S. in 2016 at the North American International Auto Show in January.

The 2014 Chevrolet Cruze Turbo Diesel offers 151 horsepower and 264 lbs.-ft. of torque wit 46 mpg on the highway, allowing 717 miles on one tank of diesel fuel. Photo credit: GM.
The 2014 Chevrolet Cruze Turbo Diesel offers 151 horsepower and 264 lbs.-ft. of torque wit 46 mpg on the highway, allowing 717 miles on one tank of diesel fuel. Photo credit: GM.

Diesel-powered vehicles may cost more to acquire, but much of this cost is recouped through impressive fuel economy savings, which has helped them gain popularity among commercial fleets.

Roche Diagnostics, a Swiss company that manufactures equipment and reagents for research and medical diagnostic applications, has added more than 800 Passat TDI sedans to its pharmaceutical fleet based in San Francisco. The vehicles now make up 59% of Roche’s 1,425-vehicle fleet, says Bonnie Brown, manager of administrative services.

Brown has been adding the vehicles to meet a corporate sustainability goal average of 36.7 miles per gallon by the end of 2015. The Passat TDI earned an EPA highway rating of 40 mpg, while the gasoline Passat gets 34 mpg highway.

“Because of this mandate, we made some changes in our fleet selectors,” Brown says. “Besides offering hybrids and other fuel-efficient vehicles, we put the VW Passat on the selector list.”

Roche began turning in lower-mpg vehicles before the end of their lease term, which netted the company $4.2 million as a result. The Passat TDIs have taken the fleet from 24 mpg to 34.5 mpg, Brown says.

Higher MPG

Other diesels also offer significantly greater fuel efficiency than their gasoline counterparts. The 2014 Cruze diesel gets an EPA-rated 46 mpg highway, while the 1.8L four-cylinder version gets 36 mpg highway and the 1.4L four-cylinder model gets 38 mpg highway.

The Mercedes-Benz E250 Blue-TEC gets 42 mpg highway. As for the Jeep Grand Cherokee, the rear-wheel diesel gets an EPA-rated 30 mpg highway, while the similar gasoline model gets 25 mpg highway.

Diesel vehicles typically deliver 20% to 40% higher fuel economy than their gasoline-powered counterparts, according to Schaeffer. They typically are also warrantied to burn B20 biodiesel, giving green-minded fleet managers an extra incentive.

The appeal of diesel fuel over other alternative fuels is partly a result of its wider availability at traditional fueling stations. In that regard, it maintains an edge over compressed natural gas, electric charging and such nascent options as hydrogen. About 52% of U.S. fueling stations provide diesel fuel, Schaeffer says.

Diesel fuel sold today offers a much cleaner option compared to diesel sold in yesteryear. As of 2007, most on-highway diesel fuel sold in the U.S. is ultra-low sulfur diesel (ULSD), and the regulation set the maximum allowable sulfur content for ULSD at 15 parts per million. The previous low sulfur diesel fuel had a mandated limit of 500 parts per million.

As a result of the new fuel standards, the EPA estimates that nitrogen oxide emissions have been reduced by 2.6 million tons each year and soot or particulate matter has been reduced by 110,000 tons a year.

Greater adoption of diesel-powered vehicles may hinge on the American public’s ability to erase its memory of the older generation of diesel cars, said Frank O’Donnell, president of Clean Air Watch.

“The fuel itself has changed a great deal over the course of the last decade,” O’Donnell said. “Today’s diesel engines are not your granddad’s diesels, but there is a legacy of our memory of the smoking Oldsmobiles of the 1970s.”

The Diesel Cost Equation

For fleets, calculating the costs associated with diesel vehicles compared to gasoline is an essential part of the investigation.

The lifecycle experts at Vincentric put together a fleet-specific analysis of 19 diesel passenger cars and SUVs in the 2014 model year compared to their gas-engine counterparts. Vincentric measured eight cost elements (depreciation, financing, fees and taxes, fuel, insurance, maintenance, opportunity cost and repairs) at 15,000 miles for five years.

In 10 of 19 models, the diesels returned a lower total cost of ownership than their gas counterparts. Compared to previous Vincentric diesel analyses of 2012 and 2013, the average total costs of ownership are trending favorably toward diesel.

Note that comparisons of diesel models to their gas counterparts are not exact when it comes to equipment. Also, the Vincentric calculations are based on projections. Individual circumstances — from negotiating capitalized costs to remarketing de-fleeted vehicles — vary greatly.

The average price premium for the diesel models in this group was $3,396. However, after five years, the diesels depreciated an average of only $1,913 more than their gas counterparts.

Over those five years, the diesel models save an average of $2,098 in fuel over gas. For luxury vehicles that require costlier premium fuel, the diesel versions will return an even more favorable fuel expense.

Maintenance costs averaged $98 higher over five years for the diesel models, while repairs ran $171 more. Higher diesel maintenance costs are generally the result of the fuel filter, which needs to be changed two or three times in a five-year lifecycle at a cost of about $120 each.

Differences in brake types from gas models to diesels also contribute to both higher and lower costs. Not replacing spark plugs count in diesel’s favor.

The lower the initial premium for a diesel engine greatly affects the total cost of ownership. For three of the Mercedes models compared — the E Class, GL Class and GLK Class — the initial costs for the diesel versions are actually less than the gas models.

Black Book Analysis

While Vincentric uses Black Book values for its projections, we asked Black Book to collate actual auction values for diesel vehicles to understand retention rates for the diesel premium.

Black Book provided retention rates for all light-duty diesel vehicles sold in the 2012 model year, or a typical 36-month fleet cycle, divided by car models, truck models (including pickups, vans and SUVs) and combined.

After three years, the retention rate for the diesel engine option on all 2012-MY diesel vehicles is 97%. In other words, while vehicles overall typically retain 47% to 52% of their value after three years, an upgrade to a diesel engine option will only depreciate 3% on average.

Looking at the diesel truck models only, the retention rate dips to 85%, though this is skewed by some van models that have an initial diesel premium of $12,000.

On the other hand, 2012-MY diesel passenger cars retain more than their original value after three years — a remarkable 130% of their value.

“This is a positive sign for diesels in regards to their retention value,” says Ricky Beggs, Black Book’s editorial director. “There is no other option that will bring that kind of money after three years.”

Of the 19 models analyzed, 10 diesel models (blue) returned lower costs of ownership at 15,000 miles and five years.
Of the 19 models analyzed, 10 diesel models (blue) returned lower costs of ownership at 15,000 miles and five years.
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