The Diesel Downturn

The automobile industry all over the world is facing an unexpected challenge. Diesel vehicles which were the star performers in many countries across the world are now rapidly losing market share. Diesel vehicles are being shun by regulators and consumers alike. This has caused problems for many automobile companies around the world.

For instance, Jaguar Land Rover, a UK based premium car manufacturer has seen the demand for its vehicles plummet in the past couple of years thanks to the diesel downturn. The same has been the case with other companies such as Maruti Suzuki in India. Maruti, which accounts for almost 40% of the sales of all Indian vehicles has decided to stop manufacturing vehicles which run on diesel from 2020.

From the above examples it is obvious that the diesel downturn is not a company specific or even a country specific problem. Rather the issue is being faced by cars in different countries and across different price ranges. In this article, we will have a closer look at some of the reasons why diesel vehicles have suddenly fallen out of favour.

Fall in Demand for Diesel Vehicles

The demand for diesel vehicles has been falling rapidly all across the globe. For instance, in the United Kingdom, the government has decided to ban the use of all diesel vehicles by 2040. Consumers, therefore know that diesel is a dying technology. As a result, fewer people are willing to buy these vehicles. Earlier, diesel vehicles used to account for about 50% of the sales of all vehicles in the United Kingdom. Bow, they account for close to 30%. The same situation is present in countries all across the world. The German federal government has authorized its local governments to take decisions regarding the banning of diesel vehicles based on the pollution level in the respective cities and counties.

The automobile industry is facing a negative impact as the result of these rulings. This is the reason why they were trying very hard to avoid it. For instance, Volkswagen famously found itself in the middle of a scandal when it was found that the company was purposely misreporting emission related numbers for its diesel vehicles. This was being done to misreport pollution and avoid regulations which would have a negative financial impact on the industry.

Introduction of New Emission Norms

In other countries like India, newer emission norms have sounded the death knell for diesel vehicles. The Indian government has made it mandatory for all diesel vehicles to move to newer emission norms called Bharat Stage VI (BSVI) by April 2020.

As a part of this upgrade, companies will have to redesign their engines in order to lower the emission of toxic gases. The majority of cars sold in India are hatchbacks or compact SUV’. If the engines of these small cars are modified to comply with the new emission norms, the prices of the vehicles are likely to rise substantially. On the contrary, when petrol vehicles will be upgraded, the increase in their costs will be relatively minor. This means that the consumers will be forced to pay more money to buy diesel vehicles further jeopardizing their competitiveness. Since the main reason for buying diesel vehicles was lower costs, it is unlikely that the vehicles will continue to sell. This is the reason that along with Maruti, every major automobile company in India is contemplating removing diesel cars from their portfolio.

Deregulation of Prices

Also, the fuel situation in India was peculiar until some time back. The prices of petrol and diesel were regulated by the government. As a result, there was a huge differential in the prices between petrol and diesel. Petrol was used to run private vehicles and hence was priced expensively. On the other hand, diesel was used to run trucks, buses and other public vehicles. Hence, the prices were artificially low.

Over the past few years, the prices of petrol as well as diesel have been deregulated. This has resulted in the price differential narrowing. Earlier the difference between the prices of diesel and petrol were Rs 20 per litre. Now, this differential has reduced to Rs 10 per litre. Therefore, the initial cost of diesel vehicles will be higher and there isn’t too much of a difference in subsequent expenses.

Diesel Vehicles as Pollutants

The world is waking up to the problem of climate change and greenhouse gas emissions. Diesel vehicles have been identified as one of the risk factors which increase the overall pollution. As a result, most countries around the world have decided to get rid of diesel vehicles. This is being done by bringing in tougher emission norms which make it unviable for the manufacturers to continue making these vehicles. Industry analysts are aware that this could be the end of the road for diesel vehicles. Electric cars and greener fuels might become viable in the long run and they are likely to make diesel vehicles obsolete. This is the reason why car companies are voluntarily abandoning the manufacture of diesel vehicles.

Authorship/Referencing - About the Author(s)

The article is Written and Reviewed by Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.