By John Eichberger
Editorial Note: This article ran previously in the August 2015 issue of NACS Magazine
Last fall, the Fuels Institute published two reports on the diesel market and we discussed how diesel-powered vehicles could help the automobile industry solve its fuel economy challenges. So what has been going on in the market since? Turns out quite a bit.
Fuel Prices
One of the reports issued by the Fuels Institute, “Consumers and Diesel: Potential Conflict Between Fuel Economy and Cost,” reported that the number one reason cited by consumers for not wanting to purchase a diesel vehicle was fuel cost. In that report, we demonstrated that despite the higher posted price for diesel fuel, most of the time it was a better value on an energy equivalent basis.
Since then, market realities have changed. In fact, diesel and gasoline are being sold for nearly the same price in some markets these days. Nationally, the premium charged for diesel fuel has largely disappeared; by the end of June, diesel was being sold at a national average price that was only seven cents higher than gasoline.
For retailers, diesel margins have historically been stronger than those of gasoline. At the end of 2014, margins for diesel fuel peaked at near $0.80 per gallon compared to less than $0.30 for gasoline. More recently, however, the margins have come in line with historic trends with diesel delivering margins that are about $0.15 per gallon better than gasoline — directly benefiting diesel consumers in the form of lower prices.
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Vehicle Purchases
So have lower diesel fuel prices (absolute and relative to gasoline) resulted in a buoyed market for diesel-powered vehicles? This question is akin to the one the media has been playing with: Do lower gasoline prices affect vehicle purchase decisions?
It is always dangerous to assume that one factor alone is driving consumer behavior. People are affected by a number of influencing factors and while they may be able to identify some core elements, ultimately the final purchase decision rests on elements that may not always be quantifiable.
Such is the case with the relationship between diesel fuel prices and diesel vehicle purchases. According to WardsAuto, sales of light duty vehicles in the first six months of 2015 outpaced the same period in 2014 by 4.4%. However, diesel vehicles fell behind pace, dropping from a 2014 market share of 2.95% of new sales to 2.73% in 2014.
And when looking at the top 10 selling diesel vehicles from March through June 2015, only three passenger cars share the space with trucks and vans — and all three come from Volkswagen: Passat, Golf and Jetta. The BMW X5 SUV penetrated the top 10 in May, otherwise the most popular diesel vehicles have been the Ford F Series (light and heavy duty), the Ram 1500, Chevrolet Silverado, GMC Sierra and Mercedes Sprinter Van. Through June, the 10 best-selling diesel vehicles accounted for 83.1% of all diesel vehicles sold in 2015 and 81.1% in 2014.
However, while larger vehicles continue to dominate the diesel vehicle market, there is growth in the availability of diesel vehicles. According to WardsAuto, 37 models of light duty diesel-powered vehicles were sold in the first six months of 2015. Of those, 26 were cars, crossover or sport utility vehicles, which represents an increasingly appealing option to consumers. And although they may not be completely economically rational in their selection of a vehicle, the more consumers are presented with diesel as an option, the greater the potential they may actually buy one.
The market for light duty diesel vehicles and fuel remains relatively small, but most experts expect bigger things ahead — but just how big remains uncertain. According to the U.S. Energy Information Administration, diesel fuel demand is projected to increase 9.9% by 2035 and light duty diesel vehicle sales are projected to account for 4.3% of the market. These projections are lower than some other forecasts, some of which peg diesel vehicles hitting as much as 14% of the market by 2030.
Wherever the market lands, definite potential for growth in the diesel market exists, for both vehicles and fuel sales.
For more information about the Fuels Institute or how you can get involved, contact John Eichberger, executive director, at [email protected] or (703)518-7971.
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