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Wednesday, 23 October, 2002, 08:59 GMT 09:59 UK
Diesel cars set to outsell petrol

Demand in Britain for cars with diesel engines has exploded during the last year.

Sales of company fleet cars with diesel engines, typically aimed at middle managers, have risen 85%, while sales of more upmarket executive cars with diesel engines have risen about 60%, according to Saab Great Britain's managing director, Jonathan Nash.

Exhaust
Petrol or diesel: A choice between two evils
At the same time, sales of similar cars with petrol engines have fallen sharply.

This shift from petrol to diesel is part of a long-term trend.

In 1990, less than one in 10 new cars sold in the UK was equipped with a diesel engine.

Now, that number has soared to more than one in five, according to the think-tank JD Power-LMC Automotive.

Legislation

Demand for diesel cars has been fuelled by government concerns about pollution.

European car makers recently entered into a voluntary agreement to reduce levels of carbon dioxide emissions by 25% from 1995 levels before the end of 2008.

So earlier this year, UK Chancellor Gordon Brown changed the tax regime for company cars in order to shift demand away from petrol towards diesel cars, which emit less carbon dioxide.

"The government has decided that people who have company cars provided for them will be taxed on the amount of carbon dioxide they produce," said Mr Nash.

"The difference in the individual's tax burden between the best performing car, from an emission point of view, and the worst performing car might be as much as 2,000 or 3,000 in a year."

Technology

But the demand for diesel engines has also been fuelled by their greater efficiency and better performance.

"Diesels have been boosted in recent years by significant technology improvements," observes the automotive industry website just.auto.com,

"The more the technical advantages of diesel have grown, the less [car makers have] relied on tax policy as a source of demand," JD Power-LMC Automotive added.

Europe ahead

Despite the sharp rise in demand for diesels in the UK, it is still significantly lower than the Western European average.

Diesel pump
Cheaper diesel and better engines fuel demand

In Europe, annual diesel sales have reached about 5.8 million and are expected to rise to almost 7 million by 2005, according to the investment bank Schroder Salomon Smith Barney.

That is 40% of all new cars, set to rise to 45%.

And that is a modest estimate. Some experts predict that diesels will outsell petrol cars in Europe by 2005.

French leaders

Some countries are even further ahead of the UK, with the most extreme example being France where more than six in 10 new cars have diesel engines.

Again, this is essentially because "the tax burden on diesel fuel is much lighter than on gasoline", JD Power-LMC Automotive observed.

"Those countries in which this disparity is greatest have, not surprisingly, been in the forefront of the switch to diesel."

And this shift has taken place, despite remaining concerns about diesel being a dirty and dangerous fuel.

Diesel emissions

No wonder, then, that the French car makers have stolen a march on their competitors in finding ways to make diesel cars more socially acceptable.

At the recent Paris Motor Show, PSA Peugeot Citroen announced that it had developed a filter which would soak up virtually all the particles normally released by diesel engines.

"It means our diesel cars are as clean as petrol cars," Citroen chief executive Claude Satinet told BBC News Online.

During the Paris show, PSA Peugeot Citroen chief executive Jean-Martin Folz went even further, calling a meeting of car executives from all his competitors.

Following the recent meeting in Paris, the executives concluded that "current diesel engines are dramatically more efficient than conventional gasoline engines in terms of both fuel economy and carbon dioxide emissions" and went on to insist that "diesel engines also have the potential to meet stringent requirements regarding local emissions".

In agreeing to this, the car industry may have forestalled legislative moves to curb diesel emissions, and the threat of taxes which could hit demand for diesel technology in which so much has been invested.

Winners and losers

Over the last couple of years, German car makers BMW, Volkswagen and DaimlerChrysler have seen sales soar in Europe, largely due to their ability to supply cars with decent diesel engines.

France's PSA Peugeot Citroen and Renault have also done well, as has Toyota and Ford - though both their luxury marques Lexus and Jaguar are suffering because they have no diesel offering.

Surprisingly, perhaps, Renault's partner Nissan has been slow to appreciate the changes in demand, as has Honda.

But the real loser has been General Motors which recently took a hit due to the diving value of its stake in iconic Italian car maker Fiat.

Fiat suffered from sharply falling sales as motorists have embraced marques with better developed diesel offerings.

Fortunately for GM, Vauxhalls and Opels come with diesel engines - as can be seen in its Eco-Speedster two-seater sports car on display in Birmingham.

Also, GM's Swedish subsidiary Saab managed to get on the band wagon just in time, while the Fiat Stilo MP Wagon on show in Birmingham will come with two diesel options.

Global dominance

Among those who believe in the power of diesel, there is much talk about taking on Asia and, eventually, even the US, where petrol is overwhelmingly the fuel of choice for motorists.

But such predictions ignore the fact that technological developments will also improve petrol engines, and drive the evolution of engines using alternative power sources.

"Any forecast of future improvements in diesel must be matched by a view of prospects for gasoline and hybrid vehicles," JD Power-LMC Automotive noted.


Cars and strategies

The Paris show

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22 Jul 02 | Business
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