Will the Volkswagen scandal end diesel cars in the US?

Volkswagen says it won't sell any diesel vehicles for the 2016 and 2017 model years in the US and the company has voiced uncertainty that it will ever resume diesel sales in the US.

Benoit Tessier/Reuters
A worker shines the grill of a Volkswagen car displayed on media day at the Paris auto show, in Paris, France, September 30, 2016.

On Friday, Volkswagen agreed to pay a settlement of $1.21 billion to 652 United States VW dealers after the last year’s emissions scandal involving the company’s TGI diesel powered vehicles.

Each dealership will receive an average settlement of $1.85 million paid out over the next 18 months in addition to the continuation of incentive payments and vehicle buy backs for cars dealers can’t sell.

Also on Friday, the US Justice Department, Federal Trade Commission, and lawyers for owners asked a federal judge to approve the buy-back offers for the 311,209 owners of Volkswagen's 2.0-liter diesel-engine vehicles. And the company is still potentially facing civil and criminal US fines for violating emissions laws.

All of which begs the question, will diesel car sales ever recover?

“We are not stopping diesel. Wherever diesel makes sense as a package to the car, we’ll continue,” VW Group of America CEO Heinrich Woebcken told Automotive News in July. “But in reality, we have to accept that the high percentage of diesels that we had before will not come back again.”

Since the Environmental Protection Agency stopped sales in September 2015 due to evidence that VW's diesel vehicles were designed to cheat US emissions standards, the company has not sold any new diesel cars in the US. Reuters reported Saturday that Volkswagen announced it will not sell any diesel vehicles for the 2016 and 2017 model years in the US and the company has expressed uncertainty that it will ever resume diesel sales in the US.

Meanwhile, the market for diesel cars is undoubtedly suffering.

Throughout the first eight months of 2015 before the scandal broke, between 4,800 and 9,500  diesel passenger cars were sold each month in America. However, once it became clear that Volkswagen was cheating emissions standards, that number dropped drastically. In January 2016, automakers collectively sold just 225 diesel passenger cars, The Wall Street Journal reported.

That speaks to both Volkswagon’s control over the US diesel car market and a drop in consumer confidence that extends to all diesel cars, including those made by its rivals BMW and Mercedes-Benz. American-made models have also taken a hit. A spokeswoman for General Motors (GM) told the Wall Street Journal that the company has not sold a single diesel-powered Chevy Cruze since May 2015.

Granted, diesel vehicles in the United States tend to be pickup trucks or vans bought for work-related purposes and diesel passenger cars never caught on to the extent that they have in Europe. But even in Europe, sales have dropped. Diesel cars, not just those made by Volkswagen but all manufacturers, once dominated the German car market, but sales have fallen to 46.8 percent of total car sales, the lowest level since 2012, Bloomberg reports.

On the other hand, the low sales could simply be a result of the hole the VW left in the market when it stopped selling diesel cars.

“Diesel sales in the US, Volkswagen had about 50 percent of those sales, so when the Volkswagen cars were taken off the market that cut the sales of diesels,” David Merrion, CEO of Merrion Consulting Group and retired executive vice president of Detroit Diesel Corporation, tells The Christian Science Monitor.

That hole will likely be filled as other automakers release diesel passenger car models and possibly rebuild consumer confidence. For example, GM typically only makes diesel pick-up trucks but recently announced a new diesel model of its Chevy Equinox, which is likely to get up to 40 m.p.g. on the highway.

"We are very optimistic about the future of clean diesel cars in the US despite the Volkswagen situation," Allen Schaeffer, executive director of the Diesel Technology Forum, tells the Monitor. 

"If you look at August sales, diesels were actually up 4.5 percent, so we know that consumers are still interested in investing in the new generation of fuel efficient clean diesels and so are manufacturers."

Material from Reuters contributed to this report.

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