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Is Dieselgate the Toughest Near-Term Test for Ford Stock?

Dana Blankenhorn

The year 2018 has been a terrible, horrible, no good, very bad year for auto stocks, thanks in large part to diesel engines. Ford (NYSE:F) and General Motors (NYSE:GM) shares are both down over 20%. During the spring Fiat Chrysler (NYSE:FCAU) was riding high, and in April FCAU stock was up 26% for the year. But now a growing scandal over diesel engines, which most observers associate with Volkswagen (OTCMKTS:VLKAY), could sink the industry for good. Fiat Chrysler shares are down over 8% for 2018, but it’s Ford stock that could be in the crosshairs.

Handelsblatt, a German newspaper, first reported a week ago that all the German diesel companies, along with Fiat Chrysler, installed very small tanks for an emissions-cleaning additive called AdBlue in their cars, which meant they didn’t clean emissions as claimed.

All three also used the same Bosch hardware and software to cheat emissions tests. Volkswagen now faces a $10.4 billion shareholder lawsuit over the scandal,  which continues to claim the careers of VW executives.

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Ford Stock: F Doubles Down

Ford, meanwhile, is doubling-down on diesel, adding engines it calls “Ecoblue” to its S-Max and Galaxy cars. There is also a diesel engine in its new “bad-ass” pick-up made for the European market.

Reviews of the new diesel engines focus on their range, almost 900 miles on a fill-up, rather than the additive, called  Diesel Exhaust Fluid (DEF)  and branded as AdBlue.

Ford’s AdBlue tank is 20 liters, about five gallons, and must be re-filled every 6,500 to 10,000 miles, depending on how hard the engine is used.

Ford also saw a $4.2 billion class action suit over the emissions from its diesel vehicles filed eight months ago. It charges the company used the same Bosch system as the Germans to cheat emissions tests.

Despite the scandal, the diesel engine industry continues to push diesel technology, insisting the engines are clean and that consumers prefer diesel engines for heavier vehicles.

FCAU Stock: Marchionne’s Blow Up

Diesels have been popular in Europe because they use less fuel per mile than gasoline cars, and diesel, which has the consistency of cooking oil rather than alcohol, often costs less. But they emit more carbon dioxide than gas cars.

When the “Dieselgate” story first emerged, in 2015, the late Fiat Chrysler CEO Sergio Marchionne reportedly blew up at his public relations team over the company’s reaction, threatening to fire Fiat’s U.S. spokesman for denying the company’s involvement. The 2015 incident was reported this May.

After negotiations early this year, Fiat Chrysler reportedly agreed to pay “substantial” fines for using the Bosch software in testing 104,000 vehicles starting in 2014, then announced in June it will eliminate diesel in all passenger cars by 2021.

BMW, Toyota and Honda have also announced they are ending the use of diesel technology in their U.S. cars this year. BMW is still making diesels for Europe. China is drawing up plans to take all diesel trucks in northern China off the road.

Over time, it may prove more difficult to buy diesel for your car or truck, if fewer companies are using diesel engines.

The Bottom Line for Auto Stocks

Every company selling diesel vehicles is now under a microscope.

The 2015 scandal pre-dates the arrival of Ford CEO Jim Hackett, but his decision to increase sales of diesel vehicles this year could prove his toughest test as CEO.

Ford stock investors who have given Hackett the benefit of the doubt on backing off gasoline-powered passenger cars, moving toward autonomous vehicles and electrics, do not seem very forgiving as Dieselgate envelopes the company’s most popular vehicles.

Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in F.

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