SLATE. All you wanted to know about the future of diesel vehicles

The automotive industry has been going through troubled times. After GM’s ignition switch problem and the Takata airbag issues that led to the massive recall of Honda and Toyota vehicles, it is now the turn of German car maker Volkswagen to face the heat from an emission scandal. The accusation that VW’s vehicles had a cheat device software is huge and has mooted the question — are diesel cars on their deathbed?

Volkswagen, with a 13 per cent share of global cars sold, admitted that about 11 million VW and Audi cars with the two-litre diesel engine had embedded software that enabled them to cheat on emission tests. The software would turn on emission control systems when it detected that the vehicle was being tested. This enabled cars to deliver results that fell within regulations. When the car was being driven on the road, the systems were bypassed. So, while emission norms were met in the lab, they were actually 40 times higher on the road.

The revelation begs a few questions. One is whether diesel cars, with their higher nitrogen oxide and particulate emissions, can really meet stringent environmental standards that are set to get even tighter? Two, in many markets, diesel cars are preferred over petrol due to their high torque and lower fuel intake. But now it appears that their claim of reconciling performance and green demands is probably not feasible.

The extent and brazenness of the violation by VW may trigger big changes in the regulation and monitoring of auto industry. For example, regulators have so far tested cars for emissions in a laboratory setting or have trusted automakers’ test results. But, surely in the future it is likely that testing would happen in actual road conditions, for extended periods.

Many congested cities, that have high pollution levels, could also consider banning diesel cars (a raging debate now in Paris). Many countries that offer subsidies for diesel fuel may choose to remove it. These measures can hurt the sales of diesel cars, especially in Europe where it is quite popular. The gainers may be US car makers who are betting big on electric cars, which have not seen much traction so far. Japanese automakers who have a head start on hybrid cars, could also see a jump in sales. European auto makers, who have a higher dependence on diesels, may end up on the losing side.

As a car buyer, you must be aware of compliance risks of your car and how it may impact its resale value. You may have to fork out more cash for your favourite car in the future, as automakers may pass on the costs of new emission technology to buyers.

As an investor, knowing the shifts in the industry will help you bet on the right vehicular technology for the future. For example, if the world moves to electric vehicles, you can profit by betting on battery manufacturers. Likewise, if automakers are moving away from steel to lighter aluminium monocoques, you may want to adjust your exposure to automotive steel makers accordingly.

Of course, we must all be ever alert about the health risks such as asthma and lung diseases caused by long-term exposure to harmful emissions. Our choices today would impact future generations as well.

The Volkswagen emission scandal tells us that bottomlines matter more to companies than anything else. In future, even when there’s no smoke, suspect a fire.

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