Navigant Research Blog

Diesel’s Second Act in the U.S.

Lisa Jerram — May 31, 2012

It has long been a source of frustration among advocates of diesel cars that American car buyers have been so impervious to their attractions while Europeans have flocked to diesel.  This is starting to change, with diesel car sales rising significantly in the past few years.  There is still a huge gap in the market share for diesel compared to Europe, but the increasing availability of light duty diesel models in the U.S. combined with the rising gas prices are making the U.S. a promising market for diesel for the first time in many years.

To provide some context, the chart below shows the market share for diesel in LDVs in Western Europe and the top four European car markets since 1994.  In Europe, diesel sales began ticking up in the late 1990s, and broke past the 50% mark for the total Western European market as of 2006.

Diesel Share of New Passenger Car Vehicle Registrations, Western Europe and
Top Four EU Car Markets: 1994-2010

(Source: Pike Research)

The percentage varies quite a bit from country to country, based largely on the comparative prices of diesel and petrol.  In most of Western Europe, diesel is taxed at a lower rate than petrol, and this is partly responsible for the massive shift from petrol to diesel for passenger cars (that and the high prices for fuel overall).  However, this is not true everywhere, most notably the United Kingdom, which has one of the lower rates of diesel market share, but still sees diesel capturing over 40% of sales.

By contrast the U.S. has had very little light duty diesel market activity except in the pickup truck category.  It’s widely assumed that U.S. consumers’ bad experience with diesel cars in the 1980s spoiled the market, as many diesel cars from that time were unreliable lower powered, and distinctively smoky and smelly.

We are now seeing a major shift.  The U.S. saw a significant jump in demand for clean diesel cars in 2011, up 27% over 2010.  That’s higher than the total growth in the light-duty car market, which was around 10%, and also more than the hybrid market, which actually saw sales drop slightly, just 2% from 2011 over 2010, although this is most likely a blip and not a trend that we expect to continue.

There are a couple of reasons why the U.S. is becoming a better market.  First, diesel cars in the U.S. are now much cleaner, as they adhere to the same emissions standards as gas cars do – another difference with Europe, where diesel is regulated separately from petrol and given greater allowance on NOx emissions which are the hardest to control for diesel.

Second is simply increasing availability of diesel models beyond the pickup category.  The market is still dominated by the European OEMs, many of which are in the premium vehicle segments, but there are also mid-range diesel cars like the Volkswagen Jetta and Golf, which capture more than 50% of diesel car sales in the U.S.  The 2013 introduction of the diesel powered Chevrolet Cruze, which will be the first new diesel car in the U.S. by a domestic manufacturer in quite some time, has created high anticipation.

Going forward, we expect the U.S. diesel market to show strong growth but still at a relatively low total market share.   As with the hybrid market, demand for diesel may wax and wane a bit as gasoline prices do, but with gas prices expected to rise, this should drive demand for all types of fuel efficient vehicles, including diesels.

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