Diesels Turning Heads in Showrooms, Halls of Congress, Bosch Says

WASHINGTON – Executives at parts-making giant Robert Bosch LLC say diesel engines are intriguing U.S. consumers and influential lawmakers more than ever before, but they also warn tax rebates do not represent a viable long-term route to boosting the proliferation of alternative-propulsion systems.

“A pure incentive to the consumer in large volumes probably will not work, because it is unaffordable,” says Johannes-Joerg Rueger, head of North American diesel operations at Bosch, whose parts portfolio includes a raft of diesel components.

“You have to have the first step, and (tax credits) can help,” he tells Ward’s during an interview here. “Look how it is done in Europe. It is not done by giving incentives.”

In Europe, a hefty gasoline tax swung car buyers to diesels over many years. Rueger stops short of suggesting a similar scheme to popularize oil burners in the U.S., but warns government subsidies simply cannot last forever.

In the U.S., federal incentives for diesel-powered passenger vehicles range widely – from $1,300 for the Volkswagen Jetta TDI Sport Wagon to $900 for BMW AG’s 335d midsize sedan. Incentives for hybrid-electric vehicles vary just as much, while fully electrified vehicles command a whopping $7,500.

“You can do some stimulation with tax incentives for a few thousand (units), but you can’t do that for a million, for the whole market,” Rueger says.

For now, the U.S. likely can afford to incentivize diesels and other alternatives through tax credits. According to Ward’s data, just 2.1% of all engine installations in 2008 were diesels. Hybrids represented about 2.3%.

But interest in diesels and other alternatives are quickly growing, so Rueger favors government incentives to auto makers, rather than consumers. “Make OEMs think about solutions,” he says. “That’s what to aim for, and that’s 100% necessary.”

Incentivize auto makers to pursue diesel in U.S., says Bosch Senior Vice President Johannes-Joerg Rueger.

However, the message from auto makers is mixed. The Germans are bringing diesels to market now, but the Detroit Three remain hesitant.

Rueger blames the bleak financial condition of General Motors Co., Ford Motor Co. and Chrysler Group LLC after the economy soured and fuel prices spiked in 2008.

“The economic crisis simply hit at exactly the wrong point in time,” he says. “The (Detroit) OEM simply tries to reduce costs, cut back on costs and programs.

“The German auto makers had plans to come to the (U.S.) market first, anyway. They simply were further in the development, and from that perspective they were in a different position.”

However, the Detroit Three’s attitude towards diesels is changing as their financial health improves, Rueger adds.

“From discussions with our customers, interest is higher again, because everyone is getting out of the extreme crisis – still in crisis mode, but getting at least a little bit better,” he says. “It may take some more time and maybe a little bit higher volumes in the market, overall, to have the financial capacity to do it.”

And it will not happen overnight, as some Detroit executives have suggested, saying they already build and sell thousands of diesels every year in Europe and if demand warranted could bring them stateside quickly.

It will take time and money, Rueger argues. “You cannot simply take a European application for a vehicle and put it in the North American market – different regulations. It is simply much tougher here. You have to develop those applications further. That’s one reason.”

A more level playing field for alternatives to the gasoline engine would help. For example, the 2007 Energy Independence and Security Act included a $25 billion loan program for auto makers and suppliers to retool old factories for next-generation alternative fuels and advanced-technology vehicles.

The industry rushed to the program, and now auto makers and suppliers are using the money. But it virtually excludes diesel technology, with the exception of money available for biodiesel-fuel technology and production.

At the consumer level, tax credits for narrowly available plug-in hybrids are far more robust than for the more mainstream diesels, and when Washington politicians talk about reducing America’s dependence on foreign oil they typically tout electrification not compression ignition.

At the same time, Rueger doesn’t believe diesel should be afforded preferential treatment at any level.

“Our intention clearly is to have a level playing field,” he says. “We don’t want to have huge advantages for diesel, because from our perspective the technology that is most efficient and is best for the individual consumer will be chosen by the individual consumer.”

But 98% of the time, car buyers do not choose a hybrid, so until electrified vehicles arrive in volume the focus should be on improving the internal-combustion engine, Rueger says.

“This is the dominate technology,” he says, adding gasoline direct-injection soon will proliferate across most engines in North America. “Whatever you can do for the fuel economy of the majority of vehicles clearly is much more valuable short term than whatever you could do on the other side of the fence.”

For many consumers, diesels would be a more cost-effective choice than a hybrid in the near term, but the technology has had trouble shaking a reputation sullied by the dirty, noisy, smelly diesels of 20 years ago.

Bosch, which also sells hybrid and electrification systems to auto makers, started a public information effort about the new clean diesels seven years ago, culminating one year ago with the formation of the U.S. Coalition for Advanced Diesel Cars.

The national coalition, which counts diesel-technology suppliers BorgWarner Inc. and Umicore Group among its members, tries to favorably shape public policy from Washington.

One of its current causes is reviving a year-end tax rebate offered diesel drivers in the 1980s that would help overcome the $0.06 premium today’s owners pay for a gallon of the fuel.

And at the recent Washington auto show here, Bosch draped banners at every entrance highlighting the benefits of diesel technology. It also manned a booth at the show’s advanced technology exhibit and provided members of Congress and local media test drives behind the wheel of diesel cars featuring its technology.

Lars Ullrich, director of marketing-diesel systems, at Bosch, says feedback from lawmakers was positive.

“They were amazed at how quiet the vehicles are, how clean they are. They were amazed about the fuel economy,” says Ullrich, who chatted up Maryland Congressman Steny Hoyer at a sneak preview of the show. The House Democratic Majority Leader was surprised to learn the Volkswagen Golf TDI could travel 700 miles (1,127 km) on one tank of fuel.

Ullrich says Bosch’s efforts are paying dividends, noting diesels outsold hybrids in the U.S. last year, excluding the Toyota Prius.

“Consumers are much more interested in (diesel) technology, as the focus has become fuel consumption,” he says. “We are going out of this era where people associate the diesel with slowness, noisiness (and) odor.”

Ullrich points to take rates on vehicles with optional diesel powertrains now pushing 40%. On the Jetta Sport Wagon, he offers, the take rate for its 2.0L turbodiesel engine is 85%.

Third-party research also suggests consumers are warming to diesel technology. According to CNW Research, consideration of diesel engines among new car buyers has grown from 10.6% in October 2005 to 21.5% in December 2009.

Not surprisingly, consideration hit its peak, 23.7%, in August 2008, when gasoline prices hit a record high in the U.S. The data suggests consumers are aware of the 30% boost in fuel economy diesels can deliver, Ullrich says.

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