Could Volkswagen scandal be diesel's death knell?

The Volkswagen emissions scandal, which has lowered resale values for thousands of VW owners and spread to other automakers, could also lower demand for what was once thought of as the fuel of the future in North America.

"This is definitely a setback for diesel cars," said Juergen Pieper, an analyst with Metzler Bank.

"Maybe Europe will be OK because we all kind of got used to them and we appreciate their advantages. But I think outside of Europe where it was difficult anyway, I think diesel cars for now are dead, maybe forever."

That obviously is an extreme view.

Dark future

But the future certainly does look bleak, especially compared with just a few years ago.

Manufacturers saw diesel engines, which are 20 to 30 per cent more efficient than gasoline engines, as a way to meet strict new American fuel efficiency standards brought in by the administration of U.S. President BarackObama.

Automakers selling in the U.S. will have to have a combined fuel rating of 54.5 miles per gallon (4.3litres per 100 kms) across their line of cars and small trucks by the year 2025.

In 2013, 22 new diesel models were set to go on sale in North America, and that number was expected to triple in five years. Even Chevrolet, not known for diesel models, introduced a diesel powered Chevy Cruze.

But diesel engines are only about three per cent of the North American market.

With lower taxes keeping gasoline prices relatively cheap, North Americans and Americans in particular haven't had the same incentive to move to diesel as Europeans.

And diesel engines of old had a reputation as loud, smelly and sometimes difficult to start in the cold.

Modern diesels are quieter andmore fuel efficient, start easily in cold weather and they're cleaner.

Volkswagen changed everything

But those facts are lost in the Volkswagen scandal.

And although there is no suggestion of any wrongdoing on their parts, the scandal has since spread to other automakers.

Bild, a German newspaper, reports the BMWX3 diesel has real-world emission levels that are 11 times greater than allowed under European regulations.

And the International Council on Clean Transportation, the same group that discovered the Volkswagen deception, said Renault, Hyundaiand Volvo each have single diesel models that would not pass real-world emission tests.

The European Union is calling for all models to be re-tested.

"We invite all member states, in addition to the ones who are already doing so, to carry out all the necessary investigations," European Commission spokesperson Lucia Caudet said.

"We need to have the full picture of whether and how many vehicles certified in the EU were fitted with defeat devices, which is banned by EU law."

Canadian dealers hurting

Canadian dealers believe they will be hurt by the scandal.

"In the short term yes, I do think it will affect sales," said used car dealer Fred Orr of Orr Motors, whose inventory includes Volkswagen models.

"I think people will be loath to trust a company that is willing to be so blatantly wrong about something like that."

"I'm sad, and I'm sure that the dealers are sad. The car business is a great industry and we don't need this kind of situation," said Jacques Bechard of the Automobile Dealers Corporation of Quebec.

Critics have been quick to pounce.

"I think the reputation of the industry is going to be trashed over this scandal," said Greg Archer, of the Brussels-based environment group Transport & Environment.

But the fact is, even some in Europe had been souring on diesel well before the Volkswagen scandal broke.

Paris ban

Anne Hidalgo, the left-leaning mayor of Paris, has pledged to rid her city of diesel vehicles built prior to 2011 by 2020.

It is a radical plan, considering France has the highest percentage of diesel cars on the road in Europe. Sixty-five per cent of new cars sold in France in the first six months of the year were diesel.

But Paris suffers from some of the highest air pollution levels in western Europe and Hidalgo said particulate matter from diesel is a big reason why.

Large trucks are responsible for much of that pollution in Paris, but the ban would cover passenger vehicles as well.

Diesel still has defenders

Defenders of diesel and there are many say it will suffer unfairly from the Volkswagen scandal.

Automotive journalist Jim Kenzie has owned Volkswagen diesels for years and currently has a 2003 Jetta TDI and a 2005 Passat.

He said they're still more efficient thangas engines, even if later Volkswagen models are not as clean as the company claimed.

"A comparable diesel engine, say to a comparable gas engine, will use about 20 per cent less fuel. So all the other pollutant levels are, in fact, lower. It's the oxides of nitrogen that are the issue," Kenzie said.

"Personally, if Iknew as some people are saying that the [Volkswagen] Golf SportWagen has lost $10,000 of its value overnight, give me a call. I'll buy a Golf SportWagen in a heartbeat. I'd also go out and buy Volkswagen stock at a 40 per cent discount, because I don't think the company is going away. They are hip deep in cash in Europe," Kenzie added.

"This will certainly be a setback to them. But I don't think it's a diesel killer. I don't think it's a Volkswagen killer."

What to do if you own a VW

The Automobile Protection Association (APA) said Volkswagen will eventually issue a recall and fix the emissions systems, although that may reduce engine power or increase fuel consumption.

The APA said VW will likely have to provide compensation for any reduction in performance or may even offer to buy back vehicles for their current market value, plus a small premium.

If you're considering buying a VW, either gas or diesel, the APA suggests you postpone your purchase.

It said big rebates from VW to spur sagging sales are likely in the next month or two.

And it said current VW owners shouldn't "lose sleep over the loss of market value."

"The longer the new 2015 and 2016 models stay off the road, the scarcer good, used diesels will become. After a brief freeze-up in the market, the APA believes resale values will likely return nearly to their traditional levels."