Business Case for Light Duty Diesels

Diesel Engine Emissions Reduction Conference, August 24th, 2005 Dr. Simon Godwin Business Case for Light Duty Diesels

1. Introduction: Why Diesel? 2. Factors affecting diesel sales - Cost of technology - Consumer demand 3. Diesel image : impressions of policymakers and consumers 4. Conclusion

2 Why Consider Diesel?

MB diesel sales history in US Total MB passenger car & diesel sales in the US 180 160 Total sales Diesel 140 120 Problems with diesel 100 particulate filter 80 Oil crisis 60

40 Introduction of CDI

Thousand units per year Thousand units per 20 technology Mercedes Car Group 0 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 „ Mercedes-Benz has a strong history of selling diesels in the US „ The price of oil has been a decisive factor in demand „ Technical issues have been influential in the supply of diesels

3 Why Consider Diesel?

European Experience Diesel market share in EU 15 Diesel share by country 50 JD Power GB A F 40 27 19 D 71 17 67 62 57 39 30 E 30 1991 46 32 % 15 20 53 59 % 2001 I 2003 10 23 48 % Diesel penetration (%)Diesel penetration 37

0 9 1990 2000 2005 2010 ACEA;AAA JD Power

„ High fuel prices and CO2 agreement have driven EU diesel growth „ Improved technology and low sulfur, high quality fuel are the enablers for growth

„ National diesel share correlates well with breakeven point 4 Breakeven Distances: EU Countries

5 Why Consider Diesel?

DaimlerChrysler’s diesels Current European diesel products

„ In Europe, most Mercedes models have a high-selling diesel version „ ’s diesel sales in Europe represent over 50% of total sales

6 Why Consider Diesel?

DaimlerChrysler’s diesels Current U.S. diesel products E320CDI Dodge Ram 2500/3500 (Cummins) Liberty CRD

4,000 sold in 2004 (Apr. – Dec.) 6,000 sold in 2005 (Feb-July) F.E. ↑ 30% vs. gasoline 140,000 sales per year (~80% share) F.E. ↑ 25% vs. gasoline Torque ↑ 43% vs. gasoline F.E. ↑ 25% vs. gasoline Torque ↑ 25% vs. gasoline Torque ↑ 62% vs. gasoline Towing ↑ 2,000 / 6,000 lbs vs. gas. „ The E320CDI and CRD are selling well in the U.S. „ The Dodge Ram has a 80% diesel share (medium duty) „ Fuel economy (↑ 25-30%) & torque (↑ 25-60%) are main attractions „ Improvement in fuel economy is a significant corporate objective 7 Why Consider Diesel?

DaimlerChrysler’s diesel marketing

Jeep Liberty CRD Factory fill B5 biodiesel Local production, local fuel

3 E-320CDIs, Laredo, Texas 30 days, 100K miles, 140 mph, 1 DPF ------Laredo – Tallahassee (1039 miles) 2 days, 1 tank, 59 mpg „ MB Diesel press events – good response from journalists „ MB durability and fuel economy demonstrations „ Biodiesel association with Jeep Liberty CRD

8 Cost of Diesel systems?

The engine Modern PC diesel engine Cost-difference drivers for diesel engine - Technology: direct injection system and turbochargers - Components: higher mechanical load (crankcase, cylinder head etc). - Volume effects

„ These drive the price premium of diesel over gasoline in Europe „ The difference drops if gasoline engines include more technology

9 Cost of Diesel Systems 0.6 Aftertreatment – emissions regulations 0.5 Tier 2 emissions challenge 0.4 Bin 10 Current DCX diesels

(g/mi) 0.3 x DPF Engine-out NO 0.2 improvements 0 0.01 0.02Bin 0.03 8 0.04 0.05 0.06 0.07 0.08 0.09 0.1 NOx Aftertreatment 0.1 Bin 5 LEV 0

PM (g/mi) „ From 2007 (cars) / 2009 (trucks), maximum Bin 8 is permitted „ For volume production and California sales, Bin 5 is desirable „ Tier 2 rule codifies emissions equivalency of gasoline/diesel and

car/truck 10 Cost of Diesel Systems

Aftertreatment – components Diesel particulate filter (DPF) & NOx storage catalyst (NSC)

„ DPF over 95% efficient in reducing PM emissions „ NSC is the primary technology for Tier 2 in MY07 „ These components add to cost of diesel system

11 Cost of Diesel Systems

Aftertreatment - components Selective Catalytic Reduction (SCR)

„ SCR has a high NOx conversion rate and good durability „ Potential exists for Bin 5 for light trucks up to 8,500 lbs „ Manufacturers need SCR as an option for light duty diesel „ Provision of urea and refill compliance are challenges

12 Cost of Diesel Systems

Cost potential

Optimisation

+ Higher volumes Tax credit

or differential differential Cost Cost Time „ Cost reduction comes with higher volume „ Cost potential with new aftertreatment technology „ Tax credits partially offset extra cost, encourage higher volumes

13 Demand for Diesels

Market studies Diesel market share in US What “owners” think 25%

20% 80% of diesel owners prefer diesel due to: 1. Familiarity (main reason) 15% 2. Fuel economy & reliability

10% 20-30% of gasoline owners prefer diesel due to: 1=. Reliability 5% 1=. Fuel Economy 1=. Performance Diesel Market Share Market Diesel JD Power 2004 0% JD Power 2004 CAAP 2000 2005 2010 2015 2020 2025 „ Diesel penetration of up to 15% by 2015 predicted by JD Power „ Fuel cost will be an important driver in short and long term „ Impression of diesel differs for diesel and gasoline drivers

14 Demand for Diesels

What are we selling?

Fuel economy Performance

Diesel image

„ Economic benefit depends on fuel price – variable motivation „ Performance – fixed motivation „ Diesel image – different for diesel enthusiasts & general consumer

15 Demand for Diesels

Which U.S. products?

EU Diesels by segment Target market: SUVs & trucks Potential in other segments p ) %

( 90

80

70 60 JD Power 50

40

30

Dieselisation Dieselisation 20

10

0

V c V ll c d d ry rt MP SU po Exe Sma Basi S U. MeL. Me Luxu „ Much OEM interest in the US has focused on SUVs and trucks „ Minivans & large cars are important European diesel segments „ Early adopters are looking for incremental sales of diesels

16 Diesel Image

Is “clean diesel” widely accepted?

Perceptions of diesel Diesel advocacy

Policymakers, media, opinion leaders Public DTF Stratacomm

„ “Clean diesel” is not yet accepted by opinion leaders and the public „ Advocacy activities have improved the situation considerably „ The comparison with attitudes to hybrids is informative

17 Diesel Image

Consider hybrid comparison

Interest of consumers in purchasing hybrids or diesels 100 Diesel 80 Hybrid sted or y

tere 60 n i y obabl 40 pr %

definitel 20 JD Power 2005

0 Van Van Car SUV Pickup Pickup SUV Fullsize Fullsize Midsize Midsize Full/Lux Compact Entry/Mid Sporty Car Luxury Car Fullsize Car Fullsize Midsize Car „ Hybrid is an “easy sell” – electric motors are clean „ Hybrid interest higher in smaller car segments, diesel in trucks „ Hybrid owners also have a cost/benefit decision to make

18 Diesel Image

What steps can be taken

≡

„ Tier 2 launch is chance to show that diesel is a “normal” technology „ Continue to tell the message to U.S. public & policymakers „ Association with biofuels is win-win proposition for diesels

19 Conclusion

A diesel future

„ The market for diesels in the U.S. already exists and is growing „ Market projected to grow to over a million in next decade „ Emissions and cost issues are being addressed „ SCR is an option we wish to have available „ Diesel image must be improved – a market enabler „ Diesel’s future is being written right now!

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