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Automotive investors are bracing themselves ahead of the possible decision Tuesday, which might allow German local authorities to ban all but the very latest diesels from city centers.
A ruling would affect all vehicles sold before the latest "Euro 6" standards were introduced in September 2015.
After the court failed to come to a decision last week, it added the unforeseen complication that it might decide it isn’t qualified to make the decision after all, and defer to a European court.
The AFP news agency said Thursday presiding judge Andreas Korbmacher wanted to deliberate the issue very thoroughly and delayed announcing the verdict. Reuters quoted Korbmacher as saying the European Court of Justice might have to consider the issue of whether bans are permissible.
The Federal Administrative Court in Leipzig had been expected to rule on an appeal by the states of Baden-Württemberg and North Rhine-Westphalia after lower-level judges ruled they could impose bans on some diesels in their respective capitals Stuttgart and Düsseldorf.
The environmental group Deutsche Umwelthilfe (DUH) sued Stuttgart and Duesseldorf because it wants to allow municipalities to ban diesel cars from city centers and make sure clean air regulations are enforced.
Investment researcher Bernstein said a decision to ban some diesels would have a number of implications –
- Consumer’s worst fears would be confirmed and diesel sales will slump further. The message that the latest Euro 6 diesels are fine and will still be allowed into cities will not convince all consumers. They either won't understand the difference or assume they will soon be banned too.
- Consumers will rush to dump diesels, if they can, and trash residual values. This will hit lease book values and new car affordability.
- German manufacturers will rush to offer gasoline versions of SUVs and big cars. It's unclear how this will fit with E.U. CO2 targets.
- Green groups and city mayors in other European countries will react to the German decision and start to accelerate similar moves. This becomes a potentially pan-Euro issue.
- The debate about hardware fixes to older pre Euro 6 diesels will intensify. It will become clear that this is not technically possible at a realistic cost. Removing the cars from the road, more likely achieved by scrapping schemes will be necessary. Who funds this - the consumer, the government or the manufacturer - will drive an intense debate.
Citi Research also believes whatever the decision of the court, diesel’s day is done.
“We would argue in the absence of bans, local authorities will look for other ways to reduce the impact of older, higher-polluting diesels on air-quality and while the “how” debate rages on consumers will shy away from buying used diesels for fear they will either be taxed more, restricted in their use or worth substantially less when they come to sell them in the future – perhaps all three,” Citi Research analyst Michael Tyndall said.
Tyndall calculated that France’s PSA Group, which includes the Peugeot, Citroen and Opel-Vauxhall brands, will the worst hit European manufacturer.
If Europe’s car makers can’t use diesels, a crucial part of the plan to cut CO2 emissions and meet European Union (E.U.) rules by 2021 would be eliminated. But the industry has alternative plans in place, given that the sales of ultra clean electric vehicles still languish. This gap in the market will be met by so-called “mild hybrids”.
The industry is investing heavily in these 48 volt hybrids which cost about 300 to 400 euros ($493). These systems produce the same low CO2 emissions as diesels.
Renault and Volkswagen are already offering 48 volt mild-hybrid engines instead of small diesels because costly after-treatment systems are likely to become mandatory to make diesels comply with tougher emissions regulations. These systems use the higher voltage to provide additional electrical power to drive an increasing number of electrical components in cars. The higher power can be combined with a belt-starter generator to assist acceleration and can increase fuel efficiency by between 10 and 15%.
In Germany, Europe’s biggest market, last month diesel sales dived to 33.3% of the market, from 45.1% in January 2017. Diesel sales are sliding across Europe, as the fallout from the Volkswagen dieselgate conspiracy soured its image. In 2011, 55.7% of all new cars sold in Europe were diesel. This has been on the slide and by 2025 its share of the market could reach to between 15 and 25%.
