In order to facilitate the discussion on clean diesel as a fuel source, Audi of America assembled a panel of experts on the subject. The group included representatives from the Volkswagen Group of America, Bosch Diesel Systems of North America, the University of Michigan Transportation Research Institute and the Center for Automotive Research. The group was hosted by a speechwriter for Vice President Biden.
PANEL INFORMATION
Brett Smith
Co-director | Center for Automotive Research
Brett Smith is the co-director, Manufacturing, Engineering & Technology Group at the Center for Automotive Research (CAR). He joined CAR in 2000 after 12 years at the University of Michigan’s Office for the Study of Automotive Transportation (OSAT). Much of Mr. Smith’s work has involved advanced powertrain technology. He also worked with the National Institute of Standards and Technology to begin the development of a Roadmap for the High Volume Manufacture of Fuel Cells and authored a report for Argonne National Laboratory on an analysis of vehicle fuel efficiency.
Bruce Belzowski
Assistant Research Scientist, Automotive Analysis | University of Michigan Transportation Research Institute
Bruce M. Belzowski is an assistant research scientist in Automotive Analysis.. Prior to joining UMTRI, Belzowski worked for U-M’s Institute for Social Research and for R.L. Polk, where he was responsible for developing models of new car purchases and aftermarket spending. He recently co-authored an UMTRI study that concluded that drivers of diesel vehicles can save thousands of dollars in total ownership costs compared to similar gasoline vehicles. He has authored research reports focusing on a variety of automotive topics including product development, manufacturer-supplier-dealer relations and globalization.
Andreas Sambel
Director of Marketing and Business Excellence | Bosch Diesel Systems North America
Andreas Sambel is director of marketing, Diesel Systems North America, Robert Bosch LLC, where he is responsible for strategic and operational marketing activities for the company’s North American diesel group. He also serves as the Deployment of Business Excellence Champion for North America. An engineer who joined Bosch in 2003 as a launch manager for Diesel Systems, Sambel has held various positions, including director of sales, where he led the customer accounts in the Americas, and program manager, where he oversaw a customer project for the production launch of fuel injection systems with piezo injectors.
Nicole Barranco
General Manager – State Affairs, Industry & Government Relations | Audi / Volkswagen Group of America
Nicole Barranco serves as General Manager of State Government Relations for the Volkswagen Group of America encouraging better policy making when it comes to automakers and automobiles.
Jeff Nussbaum
Speechwriter
Vice President Joe Biden, 2012+ 2008 Democratic National Conventions
Jeff served as Vice President Joe Biden’s speechwriter during the 2012 presidential campaign and managed the speeches presented during the 2012 Democratic National Convention. He directed speechwriting during the 2008 Democratic convention and served as senior speechwriter in the Gore-Lieberman campaign. In addition, Jeff was co-author and collaborator with James Carville on the 2003 bestseller Had Enough? And he collaborated with Senator Bob Graham on his book Intelligence Matters.
DISCUSSION TRANSCRIPTION
Editor’s Note: This discussion transcription represents a mix of discussion over four different panels held for four different waves of journalists and other notable guests. The main panel discussion represents the conversation on the third wave as it is the one our staff attended. Some discussion involving panelists was not included where we lacked photography, bios or for other reasons though this document represents significantly more Q&A than any single night and includes questions from guests who attended any one of four sessions.
Jeff Nussbaum (moderator):
I cannot claim to know the mind of Joe Jacuzzi, but one of the reasons I think our friends at Audi have asked me to moderate this panel is because over the last decade and a half I’ve worked in two presidential administrations, for a Senate Majority Leader, and I’ve run a speech writing shop for the last two Democratic conventions. And one of the things that I’ve come to realize in this town, as much as we wish it weren’t so, is that the best policy does not always win. The best technology does not always win. The best explainer often wins and so, this evening, we have a group of really fantastic explainers to talk about diesel technology and the political policy and market challenges and trends that will impact its adoption. So let me introduce them.
First we have Andreas Sambel. In 1927, the engineering giant Bosch introduced to the market one of the first diesel fuel injection pumps. Eighty-six years later, the world’s largest supplier of auto parts is adapting that technology for the new generation of vehicles and Andreas Sambel has been tapped to play the lead role. He’s an engineer by training. He now has been tasked with Bosch’s diesel systems, I’m sorry he’s been with Bosch’s diesel systems since their beginning in 2003 and today he serves as Director of Marketing and Business Excellence overseeing their marketing operations across North America. Welcome, Andreas.
You know, we often use the expression that something is more difficult than herding cats, but there is something more difficult than herding cats – and it’s herding state legislators – and that’s what Nicole Barranco does for a living. She began her career in the auto industry managing federal affairs for the Association of International Automobile manufacturers, and today she serves as General Manager of State Government Relations for the Volkswagen Group of America encouraging better policy making when it comes to automakers and automobiles. Welcome, Nicole.
We’re also joined by Brett Smith. It’s sometimes easy to forget that a century ago the question of what should power automobiles was actually an open one. In 1898, the New York Sun somewhat famously reported that on any street, “Tthere may be seen more than five different methods of propulsion…” and gasoline engines didn’t make the list. One hundred fifteen years later, Brett is helping to re-open that question of engines and fuels as Co-Director of the Manufacturing Engineering Technology Group at the Center for Automotive Research. He specializes in advanced powertrain technology – a renowned authority on diesel, but also on fuel cells and hybrid electrics. Welcome, Brett.
And batting cleanup we have Bruce Belzowski, a research scientist at the University of Michigan’s Transportation Research Institute. Bruce has written extensively on a range of automotive topics including cost of ownership when it comes to clean diesel, and Bruce’s new study – which I believe he’s distributed to you – has concluded that clean diesel vehicles are thousands of dollars more affordable to own than their gasoline engine counterparts, and up to $5,000 less expensive after five years. So, for the clean diesel community, he has become truly ‘The $5,000 Man.’
I’m going to ask each of you to take a minute and say a little bit about your work, and then I have a couple questions, and several of you have submitted questions in advance which I’ll ask, and then we’ll open up the floor to your questions as well. So, Andreas, you want to lead us off?
Andreas: Thank you very much for that nice introduction, Jeff. Good evening. I would like to stress a little bit Bosch as a company. Many of you may know that Bosch does a lot of automotive components, but we also are in power tools. So, if you go into the hardware store today, you can get the drills and the jigsaws there from Bosch, but also dishwashers are really great products. In the automotive division, we deliver quite a variety of different powertrain solutions or systems for powertrain solutions. We deliver gasoline systems, diesel systems of course, but we also have systems for hybrid drives and also electric vehicles. I’m today here presenting the diesel systems for North America.
Nicole: Thanks, Jeff. As Jeff noted, I’m Nicole Barranco. I handle state government affairs for the Volkswagen Group of America and we set public policy positions for both Volkswagen and Audi. One of our main goals in doing that is to advocate policy that would level the playing field for clean diesel products. You may have heard the President speak in policy statements, one after the other, advocating for an ‘all-of-the-above’ strategy when it comes to sustainable mobility. Yet, clean diesel, one of the greenest choices, is quite often not given any incentives or recognition. In fact, it hasn’t received any incentives since the Energy Independence and Security Act of 2007. At that time, Audi received some tax credits for its lean burn engine technology.
Believe it or not, TDI clean diesels account for a quarter of Volkswagen and Audi’s U.S. sales. Are these incentivized? No. Do these vehicles receive HOV access for their improved fuel economy and ultra-low emissions? No. Do they get state or federal tax breaks? No. In fact, in fifteen states, diesel fuel is penalized with additional fuel taxes, so you have one set of taxes at the federal level and then in these fifteen states another tax on top of that. So, the only incentive that TDI drivers receive, and this isn’t dolled out by the government, is almost consistently best-in-class fuel economy, lower CO2 emissions, and diesel drivers knowing they’re doing their part for the environment. So our messaging in the coming weeks and months is that the U.S. government should include clean diesels in its ‘all-of-the-above’ strategy. Putting these vehicles on the road to be incentivized and not penalized. Thanks.
Brett: Jeff, thanks very much. And just to reference the article you mentioned a hundred years ago, Mr. Eisenstein didn’t write that. It just seems like Paul has been around that long…
Jeff: Violating the rule against attacking people who buy ink by the barrel… Here we go.
Brett: Paul’s had ample opportunity to, yes. Again, I’m Brett Smith. I’m with the Center for Automotive Research. The Center for Automotive Research this summer actually celebrated its tenth anniversary, but we have 35 years of history. We spun out from the University of Michigan in 2000. We became a not-for-profit in 2002 after some time with another organization, but we operate almost entirely exactly like we did back at the University of Michigan. We’re an independent research group that’s really focused on understanding what’s happening in the automotive industry. Our independence comes, I think, from a couple of things: one is we have an affiliates program that supplies some of the funding. That affiliates program is a wide variety. We have most of the vehicle manufacturers as affiliates, we have many of the top suppliers as affiliates, but we’re also have a broad range of others throughout the industry and non-industry that are affiliates and part of the program. I think we’re really re-enforcing the idea that our job, our mission, is to look at the topics, try to understand the topics, and look at ways to make this a more successful, more viable, more sustainable, long-term industry.
I myself have had 25 years at the organization. For the first fifteen or so years we’re in the automotive analysis part of it, looking at the industry, studying the industry. The last ten or twelve years spending more time, much more time, on the material side and on the powertrain technology side.
Bruce Belzowski: My name is Bruce Belzowski. As Jeff said, I’m at the U of M Transportation Research Institute in Ann Arbor. The institute was founded in the 1960s primarily as a safety institute, and it continues to that today, but there’s more extended research now going into connected vehicles and autonomous vehicles looking to the future of the industry. Myself, I work on the three main areas of research: one on information technology and how that applies to the auto industry both within the organization and within the vehicle; we look at powertrain strategies for the manufacturers and suppliers, and you’ll see some of the results from that in some of the handouts I gave to you today; and also the globalization of the auto industry. As the industry has changed and become a much more global industry there’s a lot of research that’s been done looking at these issues.
Our research funding comes from manufactures, suppliers, consulting companies as well as the set of conferences – we do about five conferences a year looking at these types of issues. We have a business of IT conference that’s coming up in September, Inside China conference in November, and Powertrain Strategies usually they’re every July. These are the things that we’re focusing on in our research and look forward to talking to you about it any time while we’re here.
Jeff: Great. I want to jump right in and talk a little bit about the market generally, for starters. You know, we’ve seen estimates – not even estimates – that consumer sales of diesel vehicles are up 24% over the past year, and some estimates that diesels could represent 10% of all non-commercial vehicles by 2020. I’m wondering if, Brett and Andreas, maybe you could talk a little bit about what you see as the market for diesel vehicles, and then maybe a little bit as it pertains to other hybrid electrics and technologies.
Andreas: You want to start, Brett?
Brett: Sure. We do not do our own forecast tracking, but we do obviously track the others and I think more important than doing the forecasts, we try to put into context what’s happening – what those forecasts are saying from a broader picture – and looking at, maybe, a consensus of those forecasts. Certainly, Jeff you referenced some of the forecasts that are out for 2018 – a five years out kind of period – when we see six to seven to eight percent market share for diesels and then moving on to 2025 we see a 10%, maybe a 12%. Bruce, you can certainly talk to some of the work you’ve been doing on that.
But I think the important thing to look at as you look at those, is this is a really – your opening reference to the article about a time of uncertainty – this is an incredibly uncertain time for this industry. There’s an enormous amount of great technology development, and Bruce and I had the opportunity to drive all day with these diesel engines, and the vehicles were fabulous – just amazing new technology. But that’s happening on the hybrid side, that’s happening on the internal combustion gasoline side.
There’s enormous amount of work being done, and I think with regulation coming over the next ten years, both from the fuel economy and CO2 discussion, but also from the Tier 3 LEV emissions. I think it starts to develop even more uncertainty as to what’s going to be out there. These are great forecasts, they’re great expectations, but the challenge becomes for folks like Andreas and Axel providing that technology leap forward. Ten years ago who would have thought that diesel engine could be where it is now? Twenty years ago, who would even have imagined it? What is that next ten years going to bring?
Jeff: Andreas, do you want to add a little of your sense of certainty?
Andreas: Looking back a couple of months, I would say maybe towards the end of last year, we saw about twenty different diesels, vehicles here in North America being available with a diesel powertrain. I’m not a native American, but I’ve learned very quickly that here in the United States it’s all about choices. And it is also what we found out in our studies that the people, the end consumer, did not have sufficient choices for diesel vehicles or powertrains.
What we see happening this year is that the amount of diesel vehicles is going to be doubled. So, at the end of the year, we’ll be able to have forty different models available. And we already heard in the press that Chevrolet Cruze, for example, has launched in the May timeframe. The Jeep Grand Cherokee is coming to the market, Ram was announced, and just yesterday Nissan announced the Nissan Titan with a five-liter diesel for the market. So, this gives the end consumer quite a bit of choice, and we are actually we have to admit we’re a little bit more bullish about the diesel market in the future. We see the diesel at about 10% in 2018. That’s what we see as a market share here in North America.
Jeff: Great. One of the things we do find over time is that people tend to be rational actors, and one of the things that influences behavior is pricing. Bruce, I was wondering if you could speak a little bit to cost of ownership and some of your research?
Bruce: Sure, Jeff. The handout that I gave you gives some of the details about the total cost of ownership project that we finished recently. The objective was to measure the value, in terms of money, of comparable gas and diesel light- and medium-duty vehicles over a three- and five-year period through analysis of cost of ownership. Here you’re looking at vehicle depreciation, fuel, insurance, licensing and fees, maintenance and repairs. So, we developed our own models for resale value and depreciation, as well as for fuel costs, and we did use estimates from Vincentric for some of the vehicle costs, for future estimates for fuel, I’m sorry, for insurance, licenses and fees, maintenance and repairs.
The data comes from Mannheim Auctions where we use the data for the resale value and depreciation analysis. We looked at their data of how much each of the vehicles cost when they went through auction. We went through model years, actually, model years 2000-2011, and so we have a really good sample of almost 33,000 vehicles. We also use the Energy Information Administration for fuel cost estimates, and NHTSA for some survival rates and annual miles driven, and EPA for MPGs to measure fuel costs. As I said, Vincentric for some of the others.
The equation is basically for total cost of analysis, total cost of ownership is: depreciation, MSRP minus the resale value, plus fuel costs and fees, insurance, maintenance and repairs. So, we measured everything in 2011 dollars, we assumed that everybody drove 15,000 miles a year, and we developed estimates for three years at 45,000 miles and five years at 75,000 miles. On the last two pages – and I’m not going to go into detail on each of these, I’ll let you guys take a look at it – but the first two slides look at three years, 45,000 miles and five years, 75,000 miles. And they break out into basic passenger cars, we have the Jetta and the Golf. Then you have the medium-size pickup trucks – the Silverado, here you’re looking at the Sierra 2500, Ram 2500 and the F-250. Then the luxury brands from Mercedes, the E-Class, the GL, the M and the R, and then the Touareg from Volkswagen.
You can see by the numbers here almost all of these vehicles have a positive total cost of ownership. So, even for a mass market vehicle such as the Jetta, you’re saving $3,000 over a three-year period of time which is a pretty good return in the industry because they look at how long drivers are going to keep their cars, so this becomes one of the big issues. If they keep it for three years you come out ahead, and again this includes the extra costs of the diesel to start with where you have a little extra added cost for that. You’re looking at $3,000, $5,000, $3,000… the Ford F-250 stands out as one of the vehicles that is not as good as some of the other vehicles. It had some engine problems over its history and it’s affected its resale value.
The other issue had to do with looking at the luxury segment. Here we look at the Mercedes vehicles and they tend to have – we knew we needed to do a little more research on this – but they tend to have a little more pricing power so they can adjust their prices on their vehicles. The other issue is that the German manufacturers, in particular, have been building these diesel V engines in Europe for many, many years and probably throughout the world, selling them throughout the world for many years, so they don’t really have a lot of upfront cost in terms of building and designing these things, they’re used to doing this compared to some of the other manufacturers who, if they were trying to do it in the U.S., it would be starting from scratch. It’s an interesting study that looks at how these different, again, gas versus diesel on a really same type of vehicle comparison and how they look compared to each other.
Jeff: Great, thanks. And so that’s really kind of a bit of an overview of the market but, of course, there’s another factor influencing the market and that’s regulation so I turn to you, Nicole. You mentioned it a little bit at the beginning, but what are the challenges that diesel faces in the U.S. from a state and federal tax perspective and from, generally, an incentive perspective?
Nicole: Well, there is a disparity in taxes between gas and diesel. As many of you may know, at the federal level, there is a six cent premium on diesel fuel over the price of gasoline, and then you add these fifteen states that have diesel fuel taxes as well, so that creates a bigger jump where consumers notice this price that quite often exceeds the price of premium gasoline at the pump. The other discrepancy is EPA rating is weighted to favor city driving over highway driving, so they give a 55% average to city driving and 45% to highway driving. Well, our diesel vehicles actually perform better on the highway, so while we still achieve these high EPA ratings we’re starting at a disadvantage. But I’d like to note…
Jeff: And that’s why these guys on their drives, they’re just blowing away the window stickers, right? That’s what you’re saying in your own experience?
Nicole: You’re exactly right, I was going to note that we quite consistently exceed our EPA mileage stickers whereas I’m sure some of you have read in the papers where some of the products maybe are having difficulty reaching their EPA numbers. Another thing on the simpler end is things that don’t cost any money like HOV access and parking spaces, we see that a lot at the state level. HOV access – those of you who have driven around northern Virginia certainly know it has skewed customer behavior towards one technology so, in a way, it picks the technology winners and losers. And then another policy – the thing that we have to overcome is education and awareness, because the misconceptions of diesel, the misperceptions of diesel, still remain today so that’s something we’re doing is trying to get out and educate the public about the positive benefits of clean diesel.
Q & A SESSION
Jeff: Let me turn to a couple questions that have already been submitted, and then I’m going to open it up to the audience. Speaking as we were earlier about what sort of confidence automakers have in which technologies, this question stipulates a huge amount of confidence in diesel because it asks how much capacity in refining do we have? Or, to put it in another way, what percentage of U.S. cars can feasibly be diesel given current refining capacity? I was wondering if Andreas can take that.
Andreas: Current diesel capacity, as we heard yesterday, the current market share of diesel is around the 3% mark. Today, absolutely, we can obviously fulfill that demand. If you look at the EIA data of cracking of middle distillates, we see that we have got sufficient capacity there in refining industry, and the refineries today add more capacity for cracking middle distillates. As a matter of fact, actually, the U.S. has become over the last couple of years a tremendous exporter of diesel fuel. So, that means that you definitely have an over capacity, or enough capacity to even export. If we look at the overall vehicles available today on the market, and also project that out over the years and project a 10% market share, even at that point we don’t see any shortage of diesel refining capacity.
As a matter of fact, also Hart Energy just recently issued a study on a global diesel or middle distillate availability, and also there it becomes fairly visible that on a worldwide basis in a particular year for the United States that there is no shortage in sight. We can fulfill that in the future, obviously.
Jeff: And one other question that came in – generally about diesels, but also about simply how Audi system works. Will most cars sold in the U.S. require the use of a urea diesel fuel system additive and, if so, what if the driver of the vehicle doesn’t fill the container in a timely manner? Will the car’s engine simply stop running? And maybe we can ask Axel to speak to that from the Audi side, if that’s all right.
Axel Macher (AUDI AG TDI engine expert): For the Audi models, I can say the fuel tank – or the AdBlue solution – will reach up to 18,000 miles. So, there is no problem if you are going at 16,000 miles to the service; they will fill it up. But if the Adblue tank is empty, the government is forcing us to shut off the engine. So, you can drive – you can drive it home, you can drive wherever you want – but you cannot restart the next time you want to start the engine. About 1,500 miles before, you get warnings – a lot of warnings – that in 1,500 miles the engine will not start again.
Jeff: Got it, so you have to make sure that if you ignore your warning light for 1,500 miles that last time you turn the key in the ignition you’ll be headed to Audi Service Center. Questions from the audience? We’ll come out with microphones.
John Matras (Car Buzzard.com): My question – a little bit of knowledge is a dangerous thing – but basically, when you run an engine, you’re producing the heat and heat expansion and all this sort of thing. I understand there are more carbons in a gallon of diesel fuel than there is in gasoline, so you’d get more heat out of that, but I’m trying to reconcile then the carbon emissions. Why would that be lower than a gasoline engine? I’m looking at the whole relationship of basically getting down to a chemical reaction.
Andreas: If you really look at the mathematics, yes, the diesel fuel has about 10% higher carbon content – higher BTU actually, that is – but at the same time you get a 20-30% better fuel economy on the diesel. So, if you make the mass there the diesel at the end of the day still has about a 20-25% better CO2 emission than the comparable gasoline engine.
Brett: Jeff, could I?
Jeff: Yes, please. Absolutely.
Brett: Actually that’s a great point. Something like that we’ve looked at a lot because if you’ve noticed over the last two years, three years, EPA has taken control of this discussion. It used to be kind of NHTSA driven. EPA is now driving fuel economy – but they’re not driving fuel economy, they’re driving CO2. It’s gone from a fuel economy discussion to a CO2 discussion, and that is really important for a lot of technologies. Gasoline has 8,887 grams – I’m sorry, 887 grams – versus 10,181 for diesel. There is higher carbon content in diesel, but, as you described, it’s more efficient. EPA looks at this and says, okay, the diesel engine is about 30% more efficient in terms of fuel economy, but their numbers in their latest work says they think in terms of CO2 it is only 7-20% different or better. That’s one of the reason EPA struggles with diesel going forward.
I think something I read – Axel, maybe later we can talk about it – some of the data that I saw from Brad and the gang was that your new diesel engine – your 3.0 – gets 40% or 50% better CO2 performance… and don’t quote me on that because I’d have to go back… which is huge step function from where EPA thinks things are, and that goes back to this discussion of EPA looks at diesel as a good mid-term CO2 thing, but maybe not a long-term CO2 thing, technology developing. Again, don’t quote me at all, I apologize but there was some documentation that I saw.
In terms of getting CO2 – diesel engines to be better in CO2 – which Bruce described everyone is getting better at things, that is a real opportunity for the technology, and I think an eye-opener for EPA to have to understand that kind of thing might be possible, because clearly they look at it as a long-term CO2 question mark with that content issue.
Frank Aukofer (Scripps Howard News Service): It sounds to me like this is a political problem. Why doesn’t diesel have more clout than, say, hybrids? Yes, it’s their territory, but why haven’t you folks been able to persuade legislators and Congress people and all of that, and the other folks have been able to do that? Why is that?
Nicole: Well, that’s what we’re doing in any forum we get the opportunity to do. So, we educate members of Congress, legislators, we bring our vehicles to forums. In fact, last week, this wasn’t an Audi, but we took our Guinness World Record setting Passat TDI diesel to the National Conference of State Legislators, where five thousand legislators walked by our booth and saw that vehicle…
Frank Aukofer: I guess the question is, why isn’t it working?
Nicole: Well, I think that people need to experience it, be exposed, get in there. So, all of these things, and actually anything that you all have to say to help move the needle is very important and persuasive because you all are the influencers, often to a greater extent than I am, so it really is just getting the messages out there.
Jeff: And if you could also introduce yourself and affiliation to the panelists, I know many of your colleagues know you.
Paul Eisenstein (TheDetroitBureau.com): Let me get you with two interlocking questions, if you will. Obviously, we’re having new U.S. standards that will be coming. Depending on who you talk to, you get some in the industry they’ll say they’re worried about going into diesel because they don’t know if the new technology can either be met or be affordable. So, that’s the first part, but also Europe has tougher standards coming which are now coming closer to where California is, so I wonder if you’d talk about that as a possible advantage because when you have the whole world meeting tougher standards it means the technology is closer, hardware is closer and the potential for economies of scale changes.
Jeff: Do you want speak to that as a supplier?
Paul Eisenstein: The supplier can answer economies of scale questions, right?
Andreas: I can definitely take that question. Yes, you’re right, also Europe is going to much tougher standards. The target there is in the 2020 area while we are talking about the 2025 area here in North America. From the technology point of view, there are technologies out there that we are working together with the OEMs and to answer the question about the technical challenge – meeting the CAFE standards is a challenge, it is not easy, but especially if you look towards the OBD requirements as well out there, but as I said there are technical solutions out there that we work together with the OEMs where we are confident that we will reach the goal line there.
Paul Eisenstein: Just to finish up the thought – as Europe starts to get close to this – there traditionally been a fairly big gap between us and Europe which says we deal with the issues of diesel because we like the CO2 numbers and we like the mileage. And the U.S., led by California with CARB which begins with the word “crazy,” they have taken a position of “don’t confuse us with the facts, diesel’s evil.” And you have all sorts of issues here and you have different standards and higher costs so, as you go forward, are we going to start seeing a more of a worldwide diesel as opposed to Europe and U.S., and thus drive down costs?
Andreas: If you look at the LEV, LEV 3 standard I mean, there are fulfilling with the diesel, we’re fulfilling the same standard as we fulfill with the gasoline. And diesel is a viable option in LEV 3, so we’ve got the same challenges that the other internal combustion engine has as well. So, we will meet that. Looking forward to harmonization of the standards, I think we are very close with the standards and there are definitely some potential there. How far they can go is definitely still something that needs to be evaluated and also depends a little bit on the strategy of the OEMs, I would say.
Jim Healey (USA Today): Nicole, realistically, no governing body is going to give up a tax advantage it has right now, whether it is fair or unfair. Money is too tight. So, I’d like you to tick off the three likely things you think will come from the federal or state governments to quit penalizing diesel and incentivize it. And then, Andreas, I’d like to ask you if diesel electric hybrids are realistic? That’s what they used in the Partnership for a New Generation of Vehicles to get 80 mpg in the mid-size car, but it was too expensive and some of the technology wasn’t there. Is it now realistic and at what price premium?
Andreas: Do you want to take the first part, or should I start?
Nicole: I’ll start. We are still working on, as an industry, on options for parity among the technologies but we’ve seen successes in different forums like when I mentioned the tax credit –the 2007 energy efficiency tax credits, those worked very well. Either way we achieve the parity in the fueling infrastructure, you know, would help a great deal because I think people notice…
Jim Healey: (Inaudible) … nobody is going to do it. So, how do you go in there with a package and sell it to the lawmaker, state or federal?
Jeff: Bruce, I’m sorry, did you want to…
Bruce: I think that one of the issues, Andreas talked about this – with the introduction of more diesel vehicles into the fleet, if you start getting consumer push or pull, I’m sorry, a consumer pull for these kinds of technologies, I think that the rest of things will start falling into place because they’ll start listening to their constituents about the types of vehicles they want to buy. This is one thing that I think is going to have an effect in the near-term, and maybe in the longer term as the number of options that consumers have for these vehicles comes into play.
Jeff: And then one thing I would add, although I’m not here as a subject matter expert, but an interesting piece of history you may be familiar with is when the diesel and gas taxes were severed, you may recall that non-commercial diesel drivers actually received a tax credit because the taxes were severed as a commercial tax – in lieu of taxing trucks themselves, they decided to tax their fuel. But diesel non-commercial drivers received the tax credit, so not to say the government is going to be in the business of handing out tax credits, but it is clear there’s a history that the goal was not to actually penalize a non-commercial form of transportation, and so to the extent that there’s an appeal to history, as well as an appeal to HOV and preferred parking spaces and things like that, there may be a bit of that as well.
Nicole: And I will say, I wouldn’t shrug off the HOV access. Anyone who lives up here knows that that has been wildly successful for getting consumers into vehicles that qualify for HOV lanes and diesel, which actually performs better on the highways, should have access to the HOV lanes when the vehicles with access are primarily the vehicles that perform better in the city. So, I would suggest that as another of the main public policy issues.
Jeff: Other questions?
Nicole: Andreas?
Jeff: Sorry, yes, we didn’t let Andreas answer.
Andreas: No, no, that’s fine. When you talk about hybrids today, we always think about a gasoline hybrid, but the hybrid drive itself is not attached to any engine. Is there a chance for the diesel hybrid? Absolutely, yes, you can already buy diesel hybrids in Europe. There’s quite a number of OEMs that already supply those and, actually, I have to admit we wanted to buy one here for the United States. Unfortunately, we couldn’t get it as a demonstrator because the vehicle was sold out already. So, there seems to be a great demand in Europe for that.
Comparing and answering the questions concerning the cost there, if we take that approach – and, granted, that’s a very simplistic approach – but if we disconnect the hybrid drive from the powertrain, then that means if we now compare a gasoline hybrid versus a diesel hybrid the difference in both powertrains is the engine itself. It’s not the hybrid drive. And if you talk about different engines, then it is exactly the difference that we talked today between a gasoline and a diesel engine, and then you’re talking in the area – and there was a Vincentric study recently, I think – we talked in the area of $1,500 to $2,500 in a passenger car vehicle that diesel is more expensive than the gasoline today. So, that is what it boils down to in the end as a very simplistic approach.
Jeff: Next question?
(Inaudible): Quick question on the diesel electrics. Mercedes (inaudible) in one of their S-classes over in Europe. And, is there a great difference in efficiency between the diesel electric hybrid and the gasoline electric hybrid?
Andreas: I have to admit I do not know about the Mercedes S Class hybrid. I have not heard about that, and I also cannot talk about different figures. We might need to talk to that OEM specifically.
(Inaudible): And Peugeot was the first to market the diesel electric in Europe?
Andreas: The Peugeot 3008 is one of the diesel hybrids in Europe. That is correct.
(Inaudible): Range Rover announced today that they’re going to bring out two…
Andreas: I didn’t get the beginning of the question. Range Rover?
Joe Jacuzzi (Audi of America): Could I ask one favor? We’d like to get a mic to you so that we can actually hear the questions throughout, and we’ve got other people, if I can just ask for that.
Wayne Gerdes (CleanMPG.com): The next question is for Nicole, and there’s, actually, three of them. Wayne Gerdes, CleanMPG.com, and I’m the driver on that Passat TDI. The E0 versus diesel on the EPA – that’s one of the hurdles that you have to overcome, and EPA just doesn’t seem to be moving on, especially as they move toward E15 in Minnesota. Next thing is futures prices. When I look at diesel versus RBOB out of New York, they’re very close and the extra taxes are not making up for what that differential is showing up at the pump. Is there a supply chain grab somewhere? Who’s actually grabbing that extra 50 cents, in some cases, especially in the winter when you see upwards of a dollar the future of prices versus gasoline and diesel don’t split up that way. And then the third thing, the tax credits have a negative connotation to them. Is Audi and Volkswagen prepared to follow that path? HOV lane access is excellent but, as you know, some people buy Ford because they won’t buy Chrysler and GM because of the bailout, and is Audi ready to pursue that tax credit because it does have a negative connotation amongst other drivers? That’s it.
Nicole: The main thing I would say regarding the tax credits is really the parity among technologies, and not taking technology winners and losers, so any policy that is being considered or is actually in place we want the effect to be even among the technologies. So, I would say if tax credits are offered to all alt fuel vehicles, that diesel be included in that, but I understand what you’re saying. On the diesel tax futures, I’m not sure I can answer that. I would have to get back with you. I don’t really know where the tax revenues from the fuel sources are going, so I would have to inquire.
Andreas: If that question was about the supply chain – if you look at – we are tracking the national average of diesel fuel prices over time, and you’re absolutely right. In the winter months, when the heating season starts, the diesel prices spike because diesel is a product out of middle distillates. Middle distillates are also used for heating oil, for example. The demand in the winter months is always greater so, therefore, the spike in the winter months. In the summer months, even in Michigan sometimes the diesel is lower than the gasoline. Those are the good days for diesel drivers.
From the supply chain point of view, a couple of years ago the U.S. started to export diesel fuel and has become a significant exporter of diesel fuel. In the meantime, refineries are installing new hydrocracking capacities in order to even increase the production of middle distillates and, therefore, also increase the production of diesel. Just last week, I read a report that Valero, for example, wants to double – wants to get the gasoline production at par with diesel, so they wouldn’t produce 50% gasoline 50% diesel, and this in a fairly small time frame. So, this shows where the market is going. From that point of view, we do not see any delivery or supply chain shortcomings for diesel fuel for passenger cars of Beetles in the future.
Wayne Gerdes: (Inaudible) … E0 versus diesel…(Inaudible) It’s such a gimme when you get the advantage of not just 2.5 to 3% but upwards of 5% loss of fuel economy because the vehicles are running on E0 versus what they really run on, on E10 in the real world, and diesel doesn’t gain any advantage on that EPA with any special fuels.
Nicole: Can you help me again, Andreas, with that?
Andreas: I’m not quite sure I understood the question, sorry.
Wayne Gerdes: We actually use E10 or ethanol is 10% laced here in the United States on gasoline, but the EPA is using E0 for the test cycles and so it’s automatically at least 2.5 to 3% and, in some cases, up to 5% better than they’re actually received in the real world. Diesel doesn’t get that advantage on the EPA test cycles. Are you guys proposing anything or pushing anything to straighten that out, give diesel a chance?
Andreas: From the Bosch point of view, I can give you a general answer there. We are very much in the same direction as Volkswagen. We’re not asking for any special favors or incentives. We’re also represented with the coalition of clean diesel cars, and the coalition is also pushing for a little playing field here. As I said, also the coalition is not asking for any diesel incentives. We just would like to have the same chances and today, to come back to Brett’s point, there are a lot of choices out there today in the market. It is not like what it was in the past – that one size fits all. We will see a lot more variety in powertrains, which are already here, but also the mobility demands from individual consumers are different today. So, I think the choice of end consumers will, at the end, determine where the market shares of each individual technology will be going.
Patrick George: I have a question for Nicole. You earlier talked about combating negative stereotypes about diesel engines. The example everyone cites about that were those abysmally terrible GM diesels from the early ’80s, but that was thirty years ago. Why do you think those stereotypes persist today?
Nicole: I think that the popularity of diesel is really taking off now, and people are beginning to experience the clean diesel experience. They’re understanding that the CO2 emissions are 30% lower, the fuel economy is higher, and the torque is higher, as well. So, I think that as more people get into these vehicles and get to experience it, they’ll understand it. But I think it’s really just getting the consumer to the product.
Jeff: Bruce and Brett, are you able to talk about perception because, to me, it’s more about following a truck on the road.
Bruce: I’ve just got a quick response to that. I get this question a lot from journalists who call me up and ask me about this question. And, I said, you know this is really an age question. My children have no idea what this is all about. They have no idea about this story. It’s only about older folks who said, oh, yeah, I remember back in the ’80s this was really bad. And it was bad, there’s no joke about it, but this was thirty years ago! And to continue to bring this up and say that I don’t understand why they did it so badly thirty years ago? Imagine what cars were like thirty years ago and how much they’ve improved since then. We talked about this in the last session and Brett brought it up. Who would have thought that the kind of technologies that you see now – thirty years ago, what they were like compared to what they are now? The EPA always says to the industry “we always challenge you guys to meet these standards and you always meet them – and you always meet them – actually, you meet them faster than we think you can beat them, and even you thought you could meet them, and cheaper than you thought you could meet them.” You know, the growth of these technologies, and advancements in R&D in these technologies, is amazing. But, back to your point, I really see it as an age issue. I don’t see younger people having this issue at all. Brett, do you want to add anything to that?
Brett: No…
Jeff: We have time for one last question.
Paul Rivera (Audi Club of North America): Okay, I actually had two questions…
Jeff: They’ll pick which one they want to answer…
Paul Rivera: Nicole, there have been some municipalities that have basically stated that all their taxis have to be technology specific. How are you driving – I think that’s the case with New York City, isn’t it, they want all their taxis to be hybrids, and there’s been other places where it sounds like they’re paid off by Toyota or something. So, can you respond to that?
And then the second thing, for Axel, is that during the EPA tests calibrated fuels are used. And I wanted to actually expand on this other gentleman’s point, the real world is quite a bit different than calibrated fuels. Now, is that true also with diesel that you use a calibrated diesel fuel when the testing is done by the EPA?
Axel Macher (AUDI AG TDI engine expert): The EPA does have a special diesel fuel, but I don’t know really the specs. I’m sorry.
Paul Rivera: Okay, they use a special fuel. They use a specific fuel.
Axel Macher: The cetane number is specialized, for example.
Nicole: So, for municipalities going to a fleet model – it’s not terribly unusual when you give the example of New York City, they did put out an RFP for their taxi system. I think only two companies actually responded. Some manufacturers didn’t want their vehicle to be part of the taxi fleet, so that was an option that was made on a company specific level. Other companies are interested in getting their vehicles into state fleets and there are often impediments to that. Some have some restrictions that exclude certain manufacturers and favor others, but fleet is a great way – if you’re suggesting putting diesels into a fleet somewhere so that people can experience it – it is a great way to introduce technologies that people are less familiar with. So, I’m not sure the extent to which we use the fleet for that purpose, but it is certainly something I could follow back with you on.
Andreas: Maybe I can say a couple of words to that. In New York City, the New York bus and Transit Authority a couple years back converted all their buses, the bus system – it’s a little bit of a different story but goes down the same line – to hybrid buses. Just recently, the New York City Transit Authority announced that they convert some of the fleet back to purely diesel buses. We need to also look at which buses they are converting back, and those are the ones that are going outside of the city that go longer distances. And this comes back to the point where I said before, it depends on the mobility needs that you have, on the distance you have to drive. There are mobility needs – inner city driving cycle, for example – that’s definitely where the hybrid has an advantage, where electric vehicles have a great advantage, but as soon as you go with longer distances this is where the diesel has its strength. And if you’ve got that mobility need where you go longer distances, this is definitely where the diesel comes in, and where you can definitely save money and also fuel when you drive a diesel there. So it’s, again, it’s not that one size fits all. There are certain applications where some technology makes sense and others make less sense.
Vinnie Richichi (CBS Radio): How does the demographics skew on these diesels and what about second time buyers? If somebody buys a Passat do they go again, or to maybe an Audi when they’re moving up, and how does that translate?
Mike: I think I can take that one. In terms of demographics, of course, with the luxury buyers we’re looking at people who are typically wealthier and better educated than the typical car buyer looking at diesels and also being able to do the math, if you will, in terms of seeing the advantages of diesel even though the fuel is more expensive at the pump. They’re also looking at in the longer term when you come to sell the vehicle. The residual value of the diesel is higher than the residual value of a gasoline powered vehicle.
Now, in states such as California that have very high fuel prices, diesels are actually popular. I know the image of California is hybrids and EVs, but diesels are popular in California because people are looking for the better fuel economy. If they were able to use the HOV lane, as Anna mentioned, then that would help their popularity even further.
I know that GM, for example, with the diesel Chevy Cruze they’re initially targeting existing diesel owners so people who own a GM diesel pickup truck they’re saying, “Look, you already know the advantages of diesel. You have your work truck. Now, here’s a passenger car you can use with the same diesel advantages for your everyday commute.”
Joe Jacuzzi (Audi of America): We have a ton of verbatims from customers who are waiting either to move up from an A3 to other models, or to move from gas power from the competition to buy an A7 or buy an A6. That’s why you’ve seen us have a steady roll-out. So, we have two, the A3 and the Q7, and now we’ve got all these additional models. So, I think, to your question in our demographics, in the IHG category, we have the youngest buyers – more GenX, more GenY’s than any other – so, to Michael’s point, they’re very smart on the fuel efficiency. A lot of our customers just haven’t actually had the opportunity to buy other models within our range. I pulled the verbatims a couple of weeks ago. It was pretty amazing the number of people who say “Give me an A6. Give me an A7 TDI.”
Ken Glassman (Prestige Media): Is the quality of diesel fuel sold in America similar to the quality of diesel fuel sold in Europe?
Andreas: I can take that. In Europe, we’ve got EN390, I think, the lubricity of the fuel in Europe is a little better than it is here in the United States, so the lubricity here is lower so there is more friction in the fuel. We are tracking the fuel on a national basis, and there I would have to say Europe is a little better in the quality, although, at this point, the fuel quality that we have here in North America is sufficient to run the new clean diesel injection system.
Ken Glassman: So any difference is not major?
Andreas: No. It is sufficient for the fuel injection system, if we talk about fossil fuels by itself.
Ken Glassman: Thank you.
George Polgar (CBS Radio-TV Philadelphia): Since various people have mentioned that, probably for the consumer, the price differential is big barrier, and consumers always go for the lower price, the lower monthly price, as there are advances is there a threshold when the price of this technology can come down to the point where consumers will look at all of the other factors, the comparative factors, and say, hey, not only is it better on all these other levels, but there’s parity there, or it’s cheaper? I mean is there any, I know that’s a manufacturing question more than anything else, but…
Bruce: I think that from the research that we are doing on it, it gives the companies, but also the dealerships, the ability to sell the total cost of ownership story rather than just the monthly payment story. I don’t know if – I think it’s more of a technology question, as you said, and a pricing question. When you look at the results from the survey you can see – I’m sorry, it wasn’t a survey, it was our analysis – that the luxury manufacturers tend to have more pricing options than some of the mass market manufacturers. So, things are a little tighter on the mass market side, in terms of how much they can give on price. And so we see that it is a little bit more research needs to be done on the difference between a luxury brand and how they deal with a diesel introduction and a mass market brand. So, I think this does give the dealership and the companies an opportunity to sell the whole story of ownership.
Noble Ackerson (Silica Lab Software): I’m in the minority here; I moonlight as the spokesperson for Chevy Volt. And, if I wanted to get into an Audi, I guess my natural question would be regarding the hybrid diesels again. When do we see a hybrid diesel in the United States market?
Jeff: Should we turn to our product guy?
Anthony Foulk (Audi of America product manager): Right now, we have the Q5 hybrid which is a gasoline. We have the A3 e-tron coming. But as far as future comments, we don’t have anything to announce as far as a diesel hybrid here in the U.S.
Noble Ackerson: And that’s the U.S. market?
Anthony: Yes, it’s coming.
Brett: From a clear cost point, it is a really tough hurdle for a diesel hybrid right now. There are great opportunities for fuel efficiency in it, but it is a really tough cost hurdle. I think people are going to do it at great peril, and with great caution if they do it, but I don’t see it; it’s not a volume product in the near future, I think is the hand waving answer to that.
Noble Ackerson: (inaudible) I’d argue that… the same with electric vehicles… an incentive would greatly increase demand…
Brett: Yes, yes, but it’s still a pretty big cost hurdle.
Jeff: Well, thank you all for what’s really been a great conversation. And there is no reason conversation has to stop when we leave the stage, although it will stop for a minute so Joe can tell you what you have in store tomorrow, but we are happy to continue it over dinner. Thank you all for your great questions and your great contributions. Thanks.
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