Photo: Chrome Diesel Logo

By: Anton Wahlman | Mar. 6, 2017 10:28 AM ET

SUMMARY
  1) Diesel car and light truck sales in the U.S. suffered a crushing blow when Volkswagen, Audi and Porsche abruptly left the market in late 2015.
  2) Mercedes has since disappeared, BMW has reduced its U.S. diesel offerings, and FCA is caught up in a regulatory disagreement.
  3) However, we are now seeing an onslaught of a new, long list of diesel offerings hitting the market from Chevrolet, GMC, Mazda, Ford, Jaguar, Land Rover and Nissan.
  4) With all of these diesel offerings hitting the market in waves through early 2018, the next year should start to see massive increases in U.S. diesel sales.
 5) One reason this could accelerate even further from here would be regulatory relief from Washington D.C. away from electric cars.

Who would have thought it? The Volkswagen Group (OTCPK:VLKAY) diesel scandal broke in September 2015 and within a couple of months sales of all VW, Audi (OTCPK:AUDVF) and Porsche (OTCPK:POAHF) diesel vehicles came to an end in the U.S.

It got worse, with BMW and Mercedes paring down their diesel offerings in the U.S. dramatically. You can no longer get a diesel in the BMW 5 and 7 series sedans, although the 5 series will be coming back later this year. Mercedes? It canned all of them for the U.S. market, even though it says it aims to bring the GLS diesel back sometime ...soon.

In January 2017, we found out what had been delaying the approval of the 2017 model year light vehicle diesels for the Fiat-Chrysler (NYSE:FCAU) - one RAM pickup and one Jeep Grand Cherokee. Basically, the EPA and FCA are having a disagreement about regulatory compliance. Pending resolution of this conflict, FCA isn't selling any 2017 model year light vehicle diesels in the U.S. market right now.

So with Volkswagen, Audi, Porsche and Mercedes completely absent from the U.S. diesel market, and BMW (OTCPK:BMWYY) having pared back, availability of diesel cars must be fighting for a pulse, right?

Well, actually not. As it turns out, not at all.

What we are now seeing is a sudden resurgence to fill the diesel void left by Volkswagen, Audi, Porsche, Mercedes and (almost) BMW. This new diesel trend is coming from Mazda (OTCPK:MZDAY), Chevrolet (NYSE:GM), GMC, Ford (NYSE:F), Jaguar and Land Rover.

Let's discuss the specifics of these new diesel offerings. I am not counting the commercial-oriented heavy-duty trucks ("250"/"2500" weight classes and up), but rather the lighter trucks and cars.

First, General Motors:

GM launched the diesel versions of the Chevrolet Colorado and GMC Canyon midsize pickup trucks in late 2015. Reviews have been rave and glowing. With up to 30 MPG highway, they are the most fuel-efficient pickup trucks in the U.S. market today. The diesel versions appear to start at $36,185, as I am unable to configure a less expensive version on Chevrolet's website.

GM is about to launch the diesel version of the popular Cruze compact car. It has already been rated for fuel economy - up to 52 MPG highway and 37 MPG blended. That may be the most frugal non-electrified/hybrid car in the U.S. market today. It will begin arriving in U.S. dealerships this year, and the price starts at $24,670.

GM also is launching two similar SUVs with diesel - the Chevrolet Equinox and GMC Terrain. They will start showing up in U.S. dealerships in the third quarter, and there is no pricing or fuel economy data yet available. The base price of the gasoline version of the Chevrolet Equinox starts at $24,475, but the diesel is likely going to carry a premium.

Second, Ford:

Ford went directly for The Big Dog: The F-150, the best-selling pickup truck in the U.S., including the best-selling vehicle overall for income levels over $200,000 and $500,000 in the U.S. It is getting a diesel in the first quarter of 2018 with origins from a cooperation with Jaguar Land Rover, but has clearly been further developed and optimized by Ford for F-150 pickup truck duty.

What's Ford's market potential for diesel in the F-150? FCA at times talked about a diesel take rate for the RAM pickup truck as high as 20%. Translated to the Ford F-series, that could mean 160,000 or so diesels per year, although that's such a large number for the U.S. market that it would boggle the mind. It would dwarf all the rest of the U.S. light-duty vehicle market.

For further analogy, Nissan (OTCPK:NSANY) recently stated that the diesel take-rate on the Titan XD pickup truck - which is at least partially a higher weight class than the one we have been discussing here - is over 30% in its first year of sales. This is still interesting, because Nissan had not sold a diesel pickup truck in the U.S. market before, and this Titan XD is at least somewhat sitting just below the traditional "250"/"2500" weight class offerings.

However, with RAM out of the market at least temporarily out of the "150"/"1500" class diesel market, it could mean that Ford could rake it in here. Nissan seems to be doing its job in that regard with the Titan XD, one fractional weight class above.

Third, Jaguar Land Rover:

Jaguar Land Rover jumped into the diesel pool with full force after the Volkswagen, Audi and Porsche debacles. It now has five diesel models in the U.S. market, with a sixth one arriving by June 2017. Here are the starting prices:

- Jaguar XE (compact sedan), $38,220

- Jaguar XF (midsize sedan), $50,270

- Jaguar F-Pace (midsize SUV), $47,270

- Range Rover (large SUV), $88,645

- Range Rover Sport (midsize SUV), $68,645

- Land Rover Discovery (very large SUV), $59,945 (coming in June)

Their fuel economy ratings are:

- Jaguar XE: 32 MPG city, 42 MPG highway, 36 MPG combined

- Jaguar XF: 30 MPG city, 40 MPG highway, 34 MPG combined

- Jaguar F-Pace: 26 MPG city, 33 MPG highway, 29 MPG combined

- Range Rover: 22 MPG city, 28 highway, 24 combined

- Range Rover Sport: 22 MPG city, 28 MPG highway, 24 combined

- Land Rover Discovery: 21 MPG city, 26 MPG highway, 23 MPG combined

As you can tell, there is no question that Jaguar Land Rover is offering the broadest range of diesel sedans and SUVs in the U.S. market right now, ahead of BMW. This is unlikely to change until at least early 2018.

Fourth, Mazda:

Mazda is launching a replacement for its best-selling vehicle in the U.S. market, the small-to-midsize CX-5 SUV, at the end of March 2017. In the fall of 2017, it will be joined by a diesel version. As such, and given the overall price point of this car, it will compete most directly with the two GM SUVs that will be in the market in the third quarter of 2017.

It will be Mazda's first diesel in the U.S. market. Fear not, however, as Mazda has already been dominating diesel sales in its Japan home market. For the year that ended March 2016, 45% of Mazda's sales in Japan were diesel. In calendar year 2015, Mazda had a 67% diesel market share in Japan.

There is no pricing or fuel economy numbers for Mazda's upcoming diesel CX-5 yet, but one suspects that while it will surely show meaningfully improved fuel economy over the gasoline version, Mazda may instead emphasize performance. According to Mazda, diesel isn't only about superior fuel economy - it also has to be something that at least matches the "fun to drive" aspect of the gasoline version.

Mazda is badly in need of a new differentiator that could help re-ignite U.S. sales, as it was down over 6% in the U.S. in 2016, driven by declines in the sedan models (the SUV sales held up). Becoming the first and only player side by side with GM in that particular best-selling SUV class, to offer a diesel, might be such an opportunity.

Why is this diesel renaissance happening?

With hybrids stalling out at around 2% of U.S. sales, below even the 2013 levels, it's clear that the consumer is looking for alternatives to good fuel economy cars and light trucks. Diesel has characteristics that are different than gasoline hybrids and they are suitable for those who drive a lot of highway miles. Witness the Chevrolet Cruze yielding 52 MPG on the highway and the Chevrolet and GMC pickup trucks offering 30 MPG on the highway.

We may also see a change in U.S. government policy: here.

If this change in policy means a combination of reducing electric car subsidies/mandates, it could be favorable to the automaker economics of providing diesels instead. If these new policies are implemented - and we may find that out already this year - it could further drive offerings of even more diesel models for sale in the U.S. market, followed by actual sales numbers in the coming months and years.

Impact on the stocks: Positive

The U.S. has had a much lower adoption of diesel compared to Europe, where it has been around or even above 50% in some countries. However, the U.S. market has discouraged diesel in favor of electric cars as a result of regulatory actions and Congressional incentives. If that changes, which seems to be imminent, then automakers should benefit through higher sales and more importantly, higher profits.

And that would be good for General Motors, Ford, FCA, Mazda, Jaguar Land Rover, Nissan and others who choose to join the U.S. diesel party in the next couple of years. Diesel fans, rejoice.