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Diesels Won’t Do, Lutz Says

Diesels Won’t Do, Lutz Says

By Marty Padgett's avatar Marty PadgettMarty Padgett January 28th, 2008

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Modern diesel engines are unlikely to appeal to Americans despite rising fuel prices, General Motors vice chairman Robert Lutz predicts.

Lutz emphasized GM is developing a full range of diesel engines for use around the world. However, overall diesel penetration is likely to remain in single digits for the foreseeable future, Lutz said, dismissing claims by European automakers and suppliers that diesel has a bright future in the U.S. as fuel prices increase.

"Frankly in the United States, with diesel fuel the same price as (gasoline), I don't think that many Americans are going to pay a $3,000 or $4,000 premium for a modern diesel engine," Lutz said.

"On top of the normal diesel premium, you now have advanced emission systems. Unless we decide to eat the cost, which unfortunately we can't afford to do, I think customers are going to say, 'Wait a minute. At equal fuel prices I'm paying $4,000 more for this,'" he said. "It will not be like Germany," Lutz said during the question and answer period following a speech at the Automotive News World Congress in Detroit.

Consequently, the vast majority of Americans will continue to favor internal combustion engines that use gasoline, which are significantly cheaper than diesel engines, he predicted.

The penetration of diesel-powered passenger vehicles in will be "more like it is in Switzerland," 8 percent to 10 percent, at best, added Lutz, noting the tax system in the U.S. simply does not favor diesel power the way it does in Germany. In Germany and other parts of western Europe, the taxes on gasoline are much higher than on diesel fuel, which skews demand towards diesel motors, he said. In the U.S. gasoline and diesel fuel are taxed basically the same and thus cost the same at the pump. The emission standards in Europe also are not as strict as they are in the U.S., Lutz said.

"In those European markets where diesel exceeds 40, 50 percent or 60 percent penetration, you have to know there is a tax differential. Gasoline is $8 per gallon, diesel fuel is $4 per gallon," he said. "With that kind of price disparity everyone is going to buy a diesel.”

"In the countries where gasoline and diesel is about the same, percentages are much lower. They're much higher than they are in the States but they are down around 10 percent or 12 percent.

"I'm not advocating taxes hikes or calling for higher fuel prices," Lutz said. "I'm just explaining the difference between the European fleet and our own.”

"In America instead of raising fuel prices, we'll wind up raising new vehicle prices because of the increased use of lightweight material and fuel-saving technology. By the way, clean diesels do not come for free especially not when they are emissionized [to meet new standards], which mean thousand of dollars per vehicle and that in turn is going to cause people to hang on to their vehicle," he said. "People are going to say,'Whoa a $35,000 Chevy Malibu. I think I'll hang on to the one I've got for a while.”

Lutz also said the use of flex-fuel vehicles running on ethanol represents the best way to address the issue of U.S. dependence on foreign oil and the chronic insecurity it breeds. The wider use of ethanol as motor fuel could reduce U.S. dependence on imported oil, he said.

"Nothing we can do in the next five or 10 years gets even close to that kind of impact," he said.

Ethanol also is cleaner than gasoline and adaptable to the current re-fueling infrastructure, he said. It also doesn't require a major shift in consumer behavior, Lutz said. Enlarge PhotoModern diesel engines are unlikely to appeal to Americans despite rising fuel prices, General Motors vice chairman Robert Lutz predicts. Lutz emphasized GM is developing a full range of diesel engines for use around the world. However, overall diesel penetration is likely to remain in single digits for the foreseeable future, Lutz said, dismissing claims by European automakers and suppliers that diesel has a bright future in the U.S. as fuel prices increase. "Frankly in the United States, with diesel fuel the same price as (gasoline), I don't think that many Americans are going to pay a $3,000 or $4,000 premium for a modern diesel engine," Lutz said. "On top of the normal diesel premium, you now have advanced emission systems. Unless we decide to eat the cost, which unfortunately we can't afford to do, I think customers are going to say, 'Wait a minute. At equal fuel prices I'm paying $4,000 more for this,'" he said. "It will not be like Germany," Lutz said during the question and answer period following a speech at the Automotive News World Congress in Detroit. Consequently, the vast majority of Americans will continue to favor internal combustion engines that use gasoline, which are significantly cheaper than diesel engines, he predicted. The penetration of diesel-powered passenger vehicles in will be "more like it is in Switzerland," 8 percent to 10 percent, at best, added Lutz, noting the tax system in the U.S. simply does not favor diesel power the way it does in Germany. In Germany and other parts of western Europe, the taxes on gasoline are much higher than on diesel fuel, which skews demand towards diesel motors, he said. In the U.S. gasoline and diesel fuel are taxed basically the same and thus cost the same at the pump. The emission standards in Europe also are not as strict as they are in the U.S., Lutz said. "In those European markets where diesel exceeds 40, 50 percent or 60 percent penetration, you have to know there is a tax differential. Gasoline is $8 per gallon, diesel fuel is $4 per gallon," he said. "With that kind of price disparity everyone is going to buy a diesel.” "In the countries where gasoline and diesel is about the same, percentages are much lower. They're much higher than they are in the States but they are down around 10 percent or 12 percent. "I'm not advocating taxes hikes or calling for higher fuel prices," Lutz said. "I'm just explaining the difference between the European fleet and our own.” "In America instead of raising fuel prices, we'll wind up raising new vehicle prices because of the increased use of lightweight material and fuel-saving technology. By the way, clean diesels do not come for free especially not when they are emissionized [to meet new standards], which mean thousand of dollars per vehicle and that in turn is going to cause people to hang on to their vehicle," he said. "People are going to say,'Whoa a $35,000 Chevy Malibu. I think I'll hang on to the one I've got for a while.” Lutz also said the use of flex-fuel vehicles running on ethanol represents the best way to address the issue of U.S. dependence on foreign oil and the chronic insecurity it breeds. The wider use of ethanol as motor fuel could reduce U.S. dependence on imported oil, he said. "Nothing we can do in the next five or 10 years gets even close to that kind of impact," he said. Ethanol also is cleaner than gasoline and adaptable to the current re-fueling infrastructure, he said. It also doesn't require a major shift in consumer behavior, Lutz said.

Tags: Industry, Shoppers, General Motors

Posted in: 2008, BMW, Mercedes Benz, Diesel



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Responses (22 total)

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  1. By  Darryl Ross #1, Posted: 1/28/2008

    Bob Lutz's commentary regarding diesel vehicles and the North American market is foolish. I hope he reads this. I am a GM shareholder and I am discouraged by how unsophisticated they believe the market is in this country. If management (e.g., Mr. Wagoner and Mr. Lutz) stops rationalizing and starts totally delivering the automaker would be able to more quickly realize a turn around. GM could have made a killing in the market if it sold credible diesels in passenger cars and light trucks! The public in this country has been clamoring for fuel efficient vehicles for the last four or five years. Toyota and Honda have answered the call with state of the art electronics and hybrids, while GM is still paying lip service to it with little of nothing and a smattering of "mildbrids" in this country. GM could have delivered diesels in spades in this country from the investments in Isuzu and Fiat. Personally, I own a 2005 VW Jetta TDI now because it is a diesel (i.e., fuel efficient) and provides loads of content and quality at a moderate price. Its fuel economy numbers are 35 city and 41 highway. Where is the GM in this country that can match this? Just a little more perspective to fly in the face of your assertion that diesels won't sell. I was downsizing to one vehicle. As a result, I sold my 2002 VW Bettle TDI with a diesel engine in 2005. There was a high demand for it because of its fuel efficiency and limited diesel vehicle supply. Therefore, it sold for more than the Kelley Blue Book price. Mark my word, Mr. Lutz, you can stick your head in the sand on this issue, but GM's lunch is about to be eaten again big time in this country this year or early next year unless you reverse your thinking and get with the diesel program. I say this because Honda realizes that diesels are the way to go with mid level and above vehicles and light trucks. When it releases the clean diesels for passenger cars and light trucks for the 2009 model year, GM will again slip behind. VW will be back in the game too with its clean diesels and so will Mercedes and BMW. Beyond a certain point, advertising and styling, GM's preferred gimmicks won't help you. Also, my German designed vehicle that was built in North America (i.e., Mexico) offers items that no GM vehicle will deliver in one package even if I were willing to pay for it (e.g., electronic steering that provides road feel and feedback, a full size spare standard, lockable rear seat backs, assist grips, locking fuel filler door, auto/manual transmission, and a rear seat headrest for the middle passenger). You get these things whether you pay $15,000 or $28,000. Just tell me where these features are on the much touted Malibu at $20,000 or $30,000? So no one will say that I am biased despite being a owner in GM, over the years, I owned a 1985 Pontiac Fiero and a 1991 Saturn SC. My advice to GM is to try harder in this country at being a better leader in this market instead of a follower. I must say that GM's fuel efficient vehicles in this country truly look good when you see them written about in testing as a prototype in a US lab or when riding on the roads of Europe when looking at a picture. It is time to stop short changing us in this country and give us the technology that you are delivering in Japan and Europe. Furthermore, here is a tip for you. Versatrak and a fuel efficient diesel engine would bump sales of the Chevy HHR to another level.

  2. By John #2, Posted: 1/28/2008

    Like many people Mr. Lutz makes good sense unless you look at this comments in detail. Most countries in the EU do favor diesel fuel tax-wise - but that doesn't control the market place. I recently made a motor trip from Germany to Ireland where I live. Consistently in Germany, France, UK and Ireland where ever we stopped for fuel the cost difference was negligible - 1 or 2 cents (pence) at most. Gone are the days of a major difference between prices. The market place is responding to higher numbers of diesel powered cars and light trucks. My 1.9TDI performed flawlessly on all roads and the cost of the trip was cheaper than gas by what I'd calculate as 30% with the higher mileage per gallon.

    Few fill-ups, great performance and quiet engines are here now Mr. Lutz - ask your folks to lend you a Passat or a BMW - you won't be disappointed.

  3. By brian #3, Posted: 1/28/2008

    Diesel is the way for GM to make it's 35 MPG right now - The value of diesel is the difference in mileage (plus the fact that you can go Bio easier in a Diesel than a Gasoline engine)

    Honda is coming out with a clean Diesel very soon - GM oughta be working to do the same.

    Lutz needs to talk to the press alot less and work with his engineers alot more...

  4. By Jim MacMudo #4, Posted: 1/28/2008

    Bob Lutz has it dead right. The American public will not pay $2500 - $4000 more for diesel engines that meet current (let alone future) U.S. EPA requirements. Mr. Ross speaks glowingly of his VW TDI's -- try to buy a 2008 model. They do not exist, and when reintroduced in 2009 with BlueTec technology, will indeed cost $2500 - $3000 more than their gasoline buring analogs. It will take several years and more than 100,000 miles to recoup the cost differential (currently about $.20 / gal. diesel higher than gasoline) via fuel savings to break even with a diesel purchase. It makes no economic sense with the current tax rates for diesel fuel in this country along with the burdensome environmental regulations to buy a diesel passenger vehicle.

  5. By  Darryl Ross #5, Posted: 1/28/2008

    Mr. MacMudo both you and Mr. Lutz are wrong. Your thinking is stone age. Honda and the Germans will prove you both wrong. VW sold virtually every diesel passenger car it brought to market with little or no advertising. Most VW ads said discounts were not available on the TDI or diesel versions because there was no problem selling them. Try to get a used TDI from 2001 through 2006. They are snapped up when they are found. The diesel package on my vehicle only added $1,500 to the price, which was much less than the hybrid technology that most were fooling around with (i.e., Toyota, Honda and GM). You need to do some reading. Hybrids have a long period of cost recovery that does not support their investment. A number of magazines pointed this out. VW diesels do not and were called a more prudent investment even before fuel prices got to where they are now. Also, VW diesels will reappear in 2008 as 2009 models in the guise of the VW Jetta. On the heels of this will be a diesel for the Tiguan small SUV and a 3.0 V6 diesel for the large SUV, instead of the current V-10 diesel. $2,500 may be the max mark up for the Jetta. $4,000 is a figment of your imagination. Even at $2,500 over the gas version it may be worth it since you will get improvements over my 2005 version, namely 140 horsepower versus 100 horsepower and an increase in fuel efficiency numbers over the 35 mpg in city and 41 mpg on the highway. Plus do you think for one minute that GM will hold the line on price for its vehicles over the same timeframe. If so, you are dreaming. I might also mention that the 2009 Bluetec Jetta will still include the quick shifting efficient and state of art automanual transmission or DSG, a transmission superior to anything available from GM! On another point, VW stockpiled diesel cars in 2006 to carry it over through the 2007 model year - so there would be no break in diesel availability for the Jetta. However, to throw a carrot to you and chide VW. They have a gas 150 to 200 horsepower TSI engine that is estimated at 40 in the city and 45 on the highway that is available in Europe but not here. If VW would have been smarter, it could have made this engine available here to clean up in sales, even without pushing diesels. GM only wishes that it had gas engines available to achieve such efficiency at a high level of horsepower in this country.

  6. By Doug #6, Posted: 1/29/2008

    Wow, Lutz believes the technology his company has embraced is the future, and not the technology he's passing on? I'm stunned. Aren't these clowns the same people that said the Germans and the Asians can have the car market, trucks and SUV's is where the money is? Now who's laughing?

  7. By Nicholas Czaruk #7, Posted: 1/29/2008

    With thinking like this, no wonder GM is going down hill, I bought a 1984 WV Passat Diesel Station Wagon in 1984, which sold me on diesels, great mpg, no tuneups, easy maintance, and fun driving, after that experience, I have been sold on diesels and would still have that car if it didn't get hit by a bus. Since then I have had two MB a 1980 where I got 30 mpg around town, which was great for a large car, and a 1987 MB where I get 25 mpg in a large car around town. If I buy a car, I want to get better mpg, especially today, as well as a vehicle that can carry things. The ideal car is a diesel station wagon that gets great mpg and has space to carry things, I do not need a SUV to have space to carry things and reduced mpg.

    Looking at the latest Auto shows we see power, limited space, low fuel economy, and higher prices. Where are sensible people in auto design and fuel efficiency?

  8. By Ronnie #8, Posted: 1/29/2008

    Does anyone remember those "GM GRANADES" of the later 1970 and early 1980's when GM reinforced some parts of an Oldsmobile 350 gasoline engine and called it a diesel. It was then placed in various Chevrolets, Pontiacs, Oldsmobiles and Buicks. It was not a true diesel engine. It was a terrible compromise. Those unreliable engines set diesel marketing in North America back at least 40 years.

    I think Lutz is wrong again. People will purchase foreign cars with reliable, clean burning diesel engines and leave those Chevy Malibus sitting on the dealer's lot.

  9. By  Torr #9, Posted: 1/29/2008

    So now I have to purchase a VW to be OK? First off, I wouldnt purchase a diesel because of the smell associated with the fuel. Second, availability where I live is substantially less than gas.( Some stations dont have it at all.) Third, at this time the price is 40 to 50 cents more expensive. Fifth, temperatures get down to zero degrees to the teens most nights in the winter, so I would have to plug in my car. Sixth, if you baseline a year of driving at 15,000 miles and you get 40 mpg with a diesel and 30 mpg with a gas car. Current gas prices here are at $3.45 for diesel and $3.00 for gas per gallon, the difference is only about $200 per year in savings to go to the smelly fuel that also limits where you can refill, has to be plugged in in cold temps and has roughly the same horsepower, maybe a little more, but I bet most people dont buy either car for its horsepower. Lets say the diesel gets 45 mpg. The savings is still only $350 a year. At a premium of only $1500, which I believe is not realistic, you have to hang onto the diesel for over 4 years just to break even! As far as hybrids are concerned, I think it is a great idea, but in order to recoup the cost involved with the premium you pay, you must own the car for over 7 years maybe longer! Most americans keep their car for only about 3 1/2 years before looking for another one. If you do keep it longer, any car has things that need to be replaced eventually, like tires and brakes, wipers, regular maintenance that should be done every thirty to forty thousand miles. But what if they have parts that break? You cant tell me that they are going to be cheap to fix. What if a battery pack goes bad? I know that the escape hybrid battery pack costs over $8000 to replace! How long do they last? Not to mention they have historically not gotten what they are advertised to for mpg. Dont think I agree with Lutz about ethanol either. It isnt the save all he suggests. With decreased mpg in relation to gas, yet costing the same if not more as well as availability issues, we have a lot of things to overcome still. Suggesting that one technology is the way to go is simply nieve stupidity at this time. Forcing the american consumer to drive something they dont like is not going to work. And do you really think that if all cars got better gas mielage that people are simply going to continue driving the miles they do? No! They are going to plan trips and visits to relatives that they havent been able to afford until they got that better gas mileage. The reason diesels and hybrids have sold well recently is because they were duped into thinking that it would save them money, when in reality they pay more every month in their car payment rather than at the pump! If you hang onto your cars longer, it will eventually prove me wrong, but history doesnt show that we will hang onto the cars long enough to do that.

  10. By jim #10, Posted: 1/29/2008

    Lutz maybe right given the higher cost of diesel fuel. What befuddles me is the fact that diesel used to be cheaper than gasoline and I don't understand why the gas companies charge more (and get away with it) for less refined fuel. But, the fact is. biodiesel may bring about a lowered coat for diesel. Ethanol is a hoax of huge proportions. Fuel mileage is 30% less, so more will be consumed; the consequences on the cost of food in this country when corn is used for fuel is disastrous! Diesel is really the only short term solution and when coupled with batteries charged by an onboard diesel generator, it will produce a longer term solution.

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