Volkswagen's U.S. Diesel Sales Reached All-Time High in April
8 May 2006

[link|http://www.bloomberg.com/apps/news?pid=10000100&sid=aNgbm619GEbM|Bloomberg].

May 8 (Bloomberg) -- Volkswagen AG, Europe's largest carmaker, said its U.S. sales of cars with diesel engines reached a record 22 percent last month.

``We think the numbers reflect a growing awareness of the potential fuel savings diesel-powered vehicles offer and a growing acceptance of diesel in the U.S.,'' Steve Keyes, Volkswagen's U.S. communications chief, said in an interview on May 5.

Volkswagen is betting on increased diesel sales to help return the Wolfsburg, Germany-based carmaker to profit in the U.S., where the company posted losses the last three years. Volkswagen's overall sales in the U.S., the world's largest automobile market, last month rose 11 percent to 20,528 vehicles, with its market share gaining to 1.4 percent from 1.2 percent.

U.S. consumers are opting for diesel engines, which Volkswagen says are about 30 percent more fuel efficient than gasoline motors, as gasoline prices have surged. The average U.S. retail price rose to $2.92 a gallon last week, the highest since September and an increase of 13 percent from the beginning of April, according to Energy Department figures. The record was $3.07 in September.

``It's an interesting sign that U.S. consumers are starting to recognize the fuel efficiency and other benefits of diesel,'' said Adam Jonas, an analyst with Morgan Stanley in London with an ``overweight'' rating on Volkswagen shares. Diesel vehicles may be starting to ``get over the bad image they have in the U.S. from the '70s and '80s.''

Volkswagen's sharp increase last month follows a gradually rising trend for the carmaker in the U.S. Last year 14 percent of the Volkswagens sold in the U.S. had diesels, compared with 12 percent in each of the previous two years.

Diesel Models

Of the three models that Volkswagen sells in the U.S. with a diesel-engine option, the diesel versions accounted for 38 percent of Jetta purchases, 40 percent of New Beetle sales and 13 percent of Golf purchases. Diesel sales of the Golf were constrained by a dwindling supply before the coming switchover to a new version of the model, which is being renamed the Rabbit, Keyes said.

Diesel sales growth in the U.S. has been hindered in the past by a perception that diesels are dirty and noisy, and has tended to fluctuate with the rise and fall of gasoline prices.

``Now the market is feeling that these higher prices are here to stay, and diesel is a viable alternative,'' Keyes said. ``We're starting to approach sales numbers for diesel engines that was common in Europe a few years ago.''

The U.S. market share for diesel-powered cars and light trucks will almost quadruple by 2015 as automakers meet fuel-efficiency demands and as state emissions rules become uniform, J.D. Power & Associates forecast last month.

Diesel Sales

Diesel vehicles will account for 11.8 percent of U.S. sales by 2015, increasing from 3.2 percent last year, the marketing-research firm estimates. Worldwide share will rise during the same period to 34.2 percent from 24.7 percent in 2005, according to the study.

U.S. gasoline costs have risen as crude oil prices hover at historically high levels. Crude oil rose to a record $75.35 a barrel in New York April 21 on concern that shipments from Iran and Nigeria would be disrupted as the U.S. increases gasoline output for the summer driving season.

Since 2002, the cost of gasoline has risen to 3 percent of U.S. household budgets from 2 percent, according to the University of Michigan's Office for the Study of Automotive Transportation.

To contact the reporter on this story: Chad Thomas in Berlin at cthomas16@bloomberg.net .
Last Updated: May 8, 2006 09:19 EDT