Photographer: Mark Elias/Bloomberg

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Mercedes Recall Points to Diesel’s Decline

Diesels make up about half of European car sales. That puts automakers in a bind.

Diesel just took another hit, this time from the inventor of the automobile.

By recalling almost all the Mercedes-Benz diesel cars it’s sold in Europe in recent years, Daimler AG effectively acknowledged that the technology has flaws. That’s a blow for diesel, which has been under assault since Volkswagen AG was found cheating on emissions tests nearly two years ago. 

Since then, authorities around the world have stepped up scrutiny of diesel autos, which burn less fuel than gasoline equivalents but emit smog-inducing nitrogen oxides. The cities of Paris, Madrid, Athens and Mexico City have all said they will ban diesel vehicles from their roads by 2025.

That’s put carmakers in Europe, where diesel accounts for roughly half of annual auto sales and tens of thousands of jobs, in a bind. They need the fuel to have a chance at meeting tougher environmental targets that start kicking in next decade.

While Daimler, Volkswagen and BMW AG are all ramping up electric-vehicle plans, mainstream models aren’t yet available and demand remains tepid. So they’re counting on diesel to close the gap, while they invest in lowering the cost and increasing the range of battery-powered cars. Daimler, rather than abandoning the technology, is accelerating the rollout of a new generation of cleaner diesel engines.

“This is about managing diesel’s decline as gently as possible and to get a little bit of reprieve,” said Arndt Ellinghorst, a London-based analyst with Evercore ISI. “That’s not going to change the fundamental direction of the shift in technology.”

The recall marks a conciliatory step after Daimler vowed to fight accusations of cheating following a meeting with government officials in Berlin last week. The crisis has been mounting for months, with hundreds of police officers and prosecutors searching company sites in May. German authorities have been scrutinizing the carmaker for possible emissions cheating involving two engines used by Mercedes. Daimler also is the subject of a U.S. probe into allegedly excessive diesel emissions.

To head off the drip of bad news, the automaker will now extend an upgrade of about 250,000 compact cars and vans to more than 3 million vehicles in Europe with the latest emissions standards. The plan, which involves a software patch and avoids complex component fixes, will cost about 220 million euros ($255 million), the Stuttgart, Germany-based company said in a statement on Tuesday. 

“The public debate about diesel engines is creating uncertainty,” said Daimler’s chief executive officer, Dieter Zetsche. “We have therefore decided on additional measures to reassure drivers of diesel cars and to strengthen confidence in diesel technology.”

Unlike Volkswagen, which admitted it deceived regulators, Daimler says it adhered to rules that allow vehicles to reduce emissions controls to protect a car’s engine. Still, doubts about diesel in the aftermath of the VW scandal have prompted the home states of Daimler, BMW and Audi to push for fixes on older models to cut air pollution.

The concern extends beyond Germany. France’s Energy Minister earlier this month said the country would end the sale of gasoline- and diesel-powered vehicles by 2040.

One of Daimler’s peers is preempting these stricter rules. Volvo Car Group said this month it will phase out vehicles powered solely by fossil fuels and offer only hybrid or fully electric motors on every new model launched in 2019 or later. The Swedish carmaker expects to have five wholly electric vehicles in its lineup by 2021 and make its last full-gasoline or diesel car in about 2025.

“The Daimler recall is another punch in the gut to the diesel industry, and an additional black mark in terms of public perception, but the fuel isn’t going away,” said Michael Harley, group managing editor for Cox Automotive.

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