International -- European Business: Automobiles
A Diesel in Every Driveway? (int'l edition)
A new breed of engines sparks a race for market share
Klaus Zintz, a die-hard fan of the original Volkswagen Beetle, likes to tool around Stuttgart in his 1977 convertible bug. But when the 44-year-old biologist went shopping this summer for a New Beetle, in white with a sunroof, he opted for a diesel engine as well. He likes the improved fuel economy--5.2 liters of fuel to go 100 kilometers, compared to 8.7 liters for the gas-powered version. And Zintz, an outdoorsman whose walls are covered with photographs of visits to the Alaskan and Canadian wilderness, is no longer worried that a diesel engine will hurt the environment. "It used to be, diesels were lame and stinky," says Zintz. "The technology is so much better now, and they're fun to drive, too."
It's not your daddy's noisy diesel anymore. Thanks to breakthroughs in fuel-injection technology, the new generation of oil-burning engines is peppier, cleaner, and quieter than ever. So much so that diesel-powered cars are now one of the fastest-growing segments of Western Europe's 14-million-unit annual auto market. Their share will soar from one-quarter last year to one-third by 2003, says Peter Schmidt, editor of the British newsletter Automotive Industry Data. The booming sales have sparked a fight for market dominance, pitting current leader Volkswagen against a rush of new entries from BMW, PSA Peugeot Citroen, Fiat, and Mercedes. "There's an avalanche under way that will reshape the entire European car market," says Schmidt.
The diesel trend is born of engine envy. Volkswagen has enjoyed near-monopoly status in the European diesel car market, with its Golf TDI by far the best-seller. VW took the lead away from Mercedes-Benz and Peugeot in the early '90s, when it introduced direct-injection technology. Putting fuel and air directly into cylinders decreased fuel consumption by 15%, allowing VW to charge premium prices for its diesel cars. The Golf TDI, for example, starts at $16,737 vs. $14,158 for the gas-powered model.STANDOFF. Rivals are now fighting to get a share of those fat margins. They're doing that with the help of Fiat, which invented a new kind of fuel-injection system in 1997 called common rail. Each injector is linked to a single rail that runs the length of the engine, allowing fuel to be pumped at high pressure through shorter fuel lines into each cylinder. Combined with an electronic system that monitors the exact amount of fuel needed, this method leads to more efficient combustion.
The result is a technology standoff that threatens VW's dominance. Fiat is offering its patented injection system on its entire lineup. The Italian auto maker has also sold the manufacturing license to German component maker Robert Bosch Group, and it now supplies several carmakers, including DaimlerChrysler. Mercedes has adopted it for its A-class city car. Priced at $15,158, it's a big hit, accounting for 35% of sales of that model so far this year. Peugeot has staged a comeback with a new engine, also based on Fiat's system, for its Citroen Xantia and Peugeot 306 and 406.SHRINKING EDGE. VW is sticking to its guns. Instead of spending millions on redesign, it has upgraded its three- and four-cylinder diesel engines with new high-pressure injection equipment. Klaus-Peter Schindler, a diesel specialist in VW's power train development department, says the new technology, which is already offered in the Passat, is 20% more powerful. He also says VW tests show that its engine has lower emissions, is more powerful, and has better fuel consumption than competitors using the common-rail system. "We have clear indications our technology is the best on the market today," Schindler says.
Whatever edge VW has now may not last. Already Fiat's system costs about the same to build, and economies of scale will bring that down very soon. More important, Fiat is already working on an advanced version. The company expects to have its second generation ready in three years, with a 30%-to-40% reduction in emissions. "VW has a good product, but common rail will be the standard," argues Gary Beecroft, an analyst with Standard & Poor's DRI in London.
Customers don't care how the fuel gets into cylinders, as long they have an affordable car that's fun to drive. Diesel has long been 30% cheaper than gasoline in Europe, where gasoline prices can top $4 per gallon. And now even performance is no longer an issue. BMW made that point in June last year, when its two-liter, four-cylinder turbo diesel won a 24-hour race in Germany. Thomas Mawick, analyst with auto researchers Marketing Systems in Essen, says the 1.9-liter, 90-horsepower Golf TDI can accelerate faster than the 100-horsepower, 1.6-liter gasoline version.
There are a number of new products in the pipeline. Using the Fiat system, Audi and BMW are preparing to launch the first diesel-powered V-8 models by the end of the year, and Mercedes will follow next year. The Audi A-8 version, to be introduced in September, will sell for an estimated $65,800.
At the lower end of the price spectrum is the VW Lupo 3l TDI. The new diesel-powered mini, priced from $14,158, goes on sale this month. It's so fuel-efficient that its 1.2-liter engine can travel 100 kilometers on three liters of fuel. With its use of lightweight aluminum parts and injector technology, the Lupo is the first car to meet strict emissions guidelines proposed by Brussels to take effect in 2005. Knowledge from Lupo development will help with making bigger cars more lightweight and fuel efficient, notes Schindler.
More diesel advances are coming. A new filter devised by PSA will reduce particle emissions by 60%. It will be introduced at the Frankfurt Motor Show on the replacement for the Peugeot 605 and will hit showrooms next spring. Other carmakers are racing to design engines that control particles without having to add the weight of a filter.
The phenomenal growth rates for diesels could taper off in the middle of the next decade, notes Schmidt of AID, as carmakers apply their improved fuel-injection technology to gasoline engines as well. For now, though, sales are still accelerating, even in Germany, where punishing taxes on diesel engines have held their share to 17% of the market. Diesel sales surged 25% last year and were up an additional 35% through May of 1999, compared to overall German market growth of just 5%. Any European consumer with an eye on fuel costs just can't seem to resist those snappy new diesels.By Karen Lowry Miller in Frankfurt, with Monica Larner in Rome, Katharine Schmidt in Stuttgart, and Inka Resch in ParisReturn to top