Not so many years ago, the future for light-duty diesel-powered
vehicles in North America looked bright. Diesel fuel enjoyed two big
advantages over gasoline: it delivered more energy per gallon, and was
less expensive. Plus, diesel technology had made great strides in
rivaling or exceeding gasoline engines in smoothness, performance and
drivability. In Europe, diesel soared to a 50 percent market share. It
sounded like a winner for North America too, especially with tougher CAFE
standards on the way. Several OEMs paraded advanced European diesel
technology as an easy and cost-effective solution to the
U.S. fuel-economy challenges everybody knew were coming. But as 2008
winds down, there are few diesel options in U.S. showrooms or in the
product pipeline, and the few available are from European OEMs. What
happened?
Several factors changed the picture - some anticipated, some not. The tough new U.S. Tier II, Bin 5 emissions regulations proved to be difficult and expensive to meet. Complex emissions after treatment equipment added another $1,500 to the $1,000 extra cost of designing and producing a diesel engine.
At the same time, new U.S. requirements for ultra-low-sulfur diesel fuel drove up refinery costs and pump prices, reversing diesel's traditional price advantage. So far this year, retail diesel prices have been averaging around 60 cents per gallon more than gasoline. In addition, global diesel fuel demand has risen substantially and refinery capacity is strained, keeping prices up and supplies tight. All these factors have conspired to stretch out the projected "payback" period for the higher initial cost of a diesel-powered vehicle.
It does not appear that the diesel-to-gas price imbalance will change in the near term. The ratio of gasoline to diesel fuel refined from a barrel of oil can't be varied by more than 5 percent. Europe burns more diesel fuel than gasoline, but it's the reverse in the United States As a result, the U.S. imports excess gasoline from Europe and exports diesel fuel to Europe. In addition, there is significant new global competition for fuel from other transportation sectors, such as rail, shipping, aviation, highway trucks and on/off-road equipment as economies expand in emerging countries.
Another major factor working against diesel in the United States is existing investments in the manufacturing infrastructure. An analysis by CSM two years ago showed that it would take 12 new diesel engine plants - at an estimated cost of $500 million per plant, or $6 billion total - to supply a 20 percent market penetration for diesel in North America. Considering the current financial situation of the North American automakers, an investment of this magnitude is not likely.
Furthermore, advances in gasoline engine technology may soon cost diesel its efficiency advantage. Direct injection/downsized/turbocharged engines and HCCI, a compression-ignition gasoline technology, promise near-diesel efficiency for substantially lower cost.
Although diesel works well as a solution for compliance with current CAFE regulations, legislation that will not favor diesel could be on the horizon soon. Support is mounting for a Low Carbon Fuels Standard (LCS), which would establish a carbon cap on fuel or a minimum blending mandate (e.g., E1, E5, E10 for ethanol-gasoline blends; B5, B10, etc. for biodiesel). An LCS standard, if adopted, would drive biofuels industry development. Other legislative actions to achieve fuel economy could include engine power regulation similar to engine displacement taxes common in other parts of the world.
As conditions stand in the United States, the overwhelming challenge in the auto industry is meeting CAFE fuel-economy requirements that phase in from 2012 to 2020, and industry strategy does not appear to include a significant role for diesel.
Near-term targets (now to 2012) likely will be met with incremental improvements, such as ISS (idle stop systems), micro-hybrids, new dual-clutch (DCT) and 6- to 8-speed transmissions, technology that reduces parasitic losses (such as electric power steering), electrical load and battery management, and aerodynamics improvements. Longer term, 2012 to 2020, more sophisticated and expensive technologies will be necessary to stay on the fuel-economy pace. These will include direct-injection gasoline systems, turbocharging and downsizing, hybridization and further electrification of the vehicle (plug-in hybrids and pure electric vehicles), combined with other improvements, such as drag loss reductions (brakes, etc.).
It's hard not to reach the conclusion that gasoline engine systems will gain and keep a cost advantage over diesel in the U.S. due to the continued higher cost of diesel fuel versus gasoline, plus the higher costs of technology development, manufacturing and after treatment compliance for diesel.
Eric Fedewa may be reached via email at ericfedewa@csmauto.com.
PDF NEWSLETTER