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Volkswagen shares have taken a stock market hit after it was revealed that the German auto maker may have used software to fool emissions testing. About 22 per cent of Volkswagen Canada Inc. sales are diesels.

Fred Lum/The Globe and Mail

When the iCar goes on display at an Apple store near you later this decade, it will not have a diesel engine.

"Diesel is a 20th century technology which is in decline and is probably in terminal decline," declared Greg Archer, clean vehicles manager at Transport & Environment, an environmental group based in Brussels.

The scandal engulfing Volkswagen AG – selling diesel-engine cars with emission control systems designed to fool regulators – is certain to accelerate the slide in sales of diesels and eliminate any hope the technology will ever take off in the United States.

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The inability to catch on in North America is the big failure of diesel technology, which at some points was the engine of choice in almost 50 per cent of the cars sold in Europe.

"Noisy. Smelly," veteran industry analyst Joe Phillippi, head of Auto Trends Consulting Inc. in Short Hills, N.J., said on Tuesday, offering a partial explanation of why diesels never did well in the U.S. market.

But it was also about the price of fuel, Mr. Phillippi noted, pointing to gas prices of about $2 (U.S.) for regular in the United States. The comparable price in France, to pick one European example, is about $6 a gallon.

Diesels have better fuel economy than traditional internal combustion engines, and the price of diesel fuel is subsidized in Europe so that it costs less than a gallon of gas – about $4.90.

In Europe, "most countries have increased taxes on gasoline and reduced taxes on diesel fuel," said Xavier Mosquet, North American leader of the automotive practice of The Boston Consulting Group. "If you look at countries like France or Germany, you have a close to 20 per cent price advantage for diesel fuel as opposed to gasoline."

Diesel costs more than gasoline in the United States, but is a few cents a litre cheaper than regular in Canada.

Passenger vehicles with diesel engines represent about 3 per cent of the Canadian and U.S. markets.

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In Canada, "the only major player in the diesel space is Volkswagen," said industry analyst Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc. of Richmond Hill, Ont. About 22 per cent of Volkswagen Canada Inc. sales are diesels.

Canadians buy about twice as many diesel vehicles – about 45,000 a year – as electric and hybrid vehicles, Mr. DesRosiers said.

But electric and hybrid vehicles pose the biggest threat to diesels, apart from the expected negative impact the Volkswagen scandal will have on the technology.

"I think what's very clear is that we will see a steady decline in the numbers being sold in Europe and the rest of the world," Mr. Archer said. Of the 70 million vehicles sold last year, about 10 million were diesel and about 7.5 million of those were in Europe, he said.

The value equation for European consumers who buy hybrids is improving, he noted, with the prices falling and hybrid technology being expanded to subcompacts and other segments.

In England, the price difference between hybrids and diesels is still high £20,435 ($41,111 Canadian) for a Volkswagen Jetta 2.0 TDI diesel, compared with £33,755 ($68,795 Canadian) for a hybrid version of the smaller Volkswagen Golf.

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But the Golf's fuel economy is more than double the Jetta diesel's 4.0 litres to travel 100 kilometres.

The other issue diesels face is government regulation of emissions. European governments are moving closer to the more strict U.S. regime, and regulations everywhere are moving closer to permitting zero emissions, which will give a boost to hybrids, battery-powered vehicles and eventually, fuel cell cars.

"If you want to go to zero emissions anyway, there is no conventional or diesel engine that can reach it," Mr. Mosquet said.

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