Howes: VW boss sounding dirge for dirty diesel engines

Daniel Howes
The Detroit News

You know the automotive status quo is upside down when the CEO of Volkswagen AG, Europe’s largest player, says government subsidies for diesel engines should end.

But that’s exactly what Matthias Müller did over the weekend. An electrification push by Chinese government officials, stewards of the world’s largest market, and the “Dieselgate” scandal that cost VW and its shareholders upwards of $20 billion can do that.

“I’ve become convinced that we should question the sense and purpose of diesel subsidies,” he told Handelsblatt, Germany’s leading business newspaper. “If the switch to environmentally friendly e-cars is to succeed, diesel combustion engines can’t continue to be subsidized the way they have forever.”

It’s hard to overstate just how revolutionary that concession is. Here’s a global player whose core business rests on a diesel foundation acknowledging that environmental pressure, changing regulatory requirements and its own duplicity are conspiring to reshape its decades-long strategy. And that’s not likely to change.

It means that Germany’s No. 1 automaker is explicitly advocating a reckoning with the years-long practice of taxing diesel fuel less than gasoline, a policy preference that shaped (and distorted) demand in favor of the diesel engines that nation’s Big Three automakers were only happy to provide.

But the world’s largest auto markets are rebelling, a fact mighty VW and its competition cannot ignore. China is using its central market power to essentially regulate an electric-vehicle market into existence. U.S. antipathy for diesel, heightened by the VW scandal, has all but killed the engine technology here. And rising urban pollution worries are emboldening cities to restrict vehicle access to city centers.

The impact of those changes could be profound for VW and German rivals BMW AG and Daimler AG, parent of Mercedes-Benz. For years, diesel engines claimed massive capital investment and powered large segments of their profit-rich premium line-ups, but diesel engines are losing popularity faster than electrified models are gaining acceptance among average consumers.

Credit VW for the mismatch. Its scheme to circumvent American emissions rules, exposed in September 2015, hastened the technology’s credibility crisis with American and European consumers, especially. It also empowered France and the United Kingdom, even municipal governments, to move toward barring the sale of internal combustion engines at some date in the future.

We’ll see. Automakers with workforces as large as VW’s make enormous economic contributions to economies, communities, even national pride. Regulating internal combustion engines out of existence with the assumption electrics will fill the void likely will prove far more problematic than hastening the demise of diesel, courtesy of VW.

Still, there’s no denying that advancing technology and keener environmental awareness among regulators and consumers alike are forcing the world’s leading automakers to bend to an unmistakable set of new realities. No one is immune.

Digitalization of broad swaths of our economy is transforming automotive engineering and manufacturing into a tech-driven enterprise threatening to upend the paradigm of human-driven vehicles powered by gas or diesel engines. Artificial intelligence, enabled by computing and Big Data, promise to fundamentally reshape the future of the past automotive century.

The mega-trends driving the techification of cars, trucks and transportation are not passing political and social moments. Their enabling technologies represent the most revolutionary change since Henry Ford rolled the first Model Ts off the moving assembly line and put the world on wheels.

In large and small ways, automakers are reckoning with that evolving reality. General Motors Co. is leaving markets to improve returns and free capital to fund electrification, mobility and autonomy efforts. Ford Motor Co. is playing catch-up in China, whose biggest foreign players are GM and VW.

And VW is bowing to a nemesis largely of its own making. It doesn’t take an engineer to understand that subsidizing diesel engines makes little sense if the technology underpinning the sprawling VW empire soon will be regulated out of existence.

Because it will.


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Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.