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Friday, May 10, 2013

U.S. Diesel Models Surge In 2013, But Will Their Pricing Make The Cut?

In the U.S., the Toyota Prius is the undeniable champ among hybrids. It’s become an icon for the green-car movement, as well as a car that makes a lot of sense for those who stick mostly to city stop-and-go commuting and want to minimize their use of fossil fuels.

But for those who commute longer distances—in the exurbs, or at higher speeds—there’s a green-car choice that can make even more sense: diesels. And the champs among diesels, at least if you go by sales, bear the TDI badge.

Volkswagen has been successful in marketing its TDI diesels as vehicles that aren't just fuel-efficient, but sporty. And that’s added desirability to both the VW and TDI badges over the years, according to Alexander Edwards, president of the research firm Strategic Vision. “VW has done a great job, in getting people to think about diesels a little differently,” said Edwards. “We are starting to see some people, like they would say they’re going to go shop for a hybrid, saying that they’re going to shop a TDI.”

TDI badge is worth something

VW is the only automaker that continued, quite consistently, to push diesels in the U.S. market, through a time when other automakers gave up on it (only in 2007 did VW take a hiatus die to regulatory issues). Diesels now account for about 20 percent of U.S. sales for VW. The automaker has has also been selling more than a quarter of its mid-size Passat sedans with the TDI diesel, more than three quarters of Jetta Sportwagen sales have been with the TDI badge, and more than 20 percent of VW's U.S. vehicle sales have been in TDI form.

It now offers diesel options on the Jetta, Golf, Beetle, Passat, and Touareg (all but Eos and Tiguan—and the next Tiguan will have it). This year and last year, it’s been selling more than 20 percent of its U.S. vehicles with diesel engines. More than three quarters of U.S. Jetta Sportwagens are being delivered in TDI form.

Now VW is no longer the lone mainstream brand with diesels. At last, the 2013 and 2014 model years are looking like they might end up being at a sort of tipping point for diesel acceptance. In 2012, sales of diesel passenger cars grew by more than 25 percent. And the number of diesel models on the market is expected to increase exponentially. Furthermore, Pike Research (now Navigant) last year projected that by 2018, annual sales of diesels will reach a rate of 928,000; that’s many times what they are now.

At the leading edge of this new wave, Chevrolet and Mazda are introducing diesel passenger cars this year. They join diesel versions of the Jeep Grand Cherokee—and later this year, a diesel version of the light-duty Ram 1500.

Diesel pricing is critical for mainstream brands

Luxury brands such as Mercedes-Benz and BMW rolling out plenty of other diesel models; but pricing has been critical to the success of VW's diesels over the years, and it's going to be crucial for whether all-new models like the Chevrolet Cruze Clean Turbo Diesel and Mazda 6 Diesel find strong demand.

“Effectively, everyone out there is preaching MPG and environmental friendliness, and putting it in their ads and trying to sell it, and the truth of it is nothing is happening because the customer still has one barrier they’re not willing to get over, which is the cost of doing business for an alternate powertrain vehicle,” said Edwards, who notes that gas mileage might be one of the first priorities shoppers mention, but it has secondary importance next to other practical considerations, or even styling.

“Is it going to have a real impact in their purchase decision? For five or ten percent of them, it absolutely will. For the rest, it will, but it will be in a melting pot of issues that are often significantly more important.”

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