Federal administrative court in Leipzig to decide on 15 million diesel vehicles in Germany

Environmental groups say particulate matters in diesel emissions in the majority of German cities exceed the EU threshold.

On Thursday, Germany’s highest administrative court in Leipzig is set to decide on the fate of the 15 million diesel vehicles that run in the country.

Diesel-engine vehicles have come into the spotlight following Volkswagen’s admission in 2015 that it cheated exhaust tests in the U.S., triggering regulatory and legal backlash against diesel emissions, which contain particles known to cause respiratory disease.

DUH, an environmental group, has sued VW in Stuttgart and Duesseldorf over emission levels that exceed European Union limits. While the German states have appealed against ruling leaving the federal administrative court in Leipzig to decide on the legality of banning diesel emission vehicles.

According to environmental groups, particulate matters in diesel emissions in the country exceed the EU threshold in at least 90% of Germany’s towns and cities.

Carmakers have sought to avert a total ban with an agreement to significantly overhaul the engine management software that runs on 5.3 million diesel cars in German cities.

Calling the measure as insufficient, environmental groups have lobbied for cars that comply with Euro-5 and Euro-6 emissions standards, to receive hardware updates of their exhaust treatment systems.

According to ADAC, a German auto safety group, hardware retrofits of Euro-5 vehicles are likely to cost between 1,400 and 3,300 euros; they can cut diesel pollution by up to 70%.

While retrofits would be an expensive proposition for carmakers, an outright ban could trigger a significant fall in the resale value of diesel vehicles, known as residuals, which are used as a benchmark for pricing leasing and finance contracts.

“The decline in diesel residuals toward the end of 2017 showed a clear acceleration, ending the year at 52.6 percent, having started the year at 56 percent,” wrote analysts at Evercore ISI in a note to clients.

According to Evercore ISI’s forecast, a 5% drop in diesel residual values could result in U.S. and European carmakers taking a combined hit of $2 billion (1.6 billion euros) in their operating profits.

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