On that playing field only Toyota came close to beat the German diesels so it's not only a sunken cost fallacy, they have an advantage on diesel technology that makes it understandable (from a business perspective) on them pushing for it.
That's because there are tax advantages for Diesel. Originally a subsidy for agriculture (because their machines all ran on Diesel), it made Diesel motors a favorite for those who need to drive a lot (incl huge corporate fleets).
Changing any of that is a highly contentious political issue. Merkel's political style doesn't deal well with these.
2. Taxes in Germany: Diesel fuel is taxed at a much lower rate than other gasoline. In turn, the cars themselves are taxed a bit higher. If you drive a lot, a Diesel car is more economical for that reason.
2. Have ever had a chance to drive a car with a Diesel engine? The power over RPM curve is so different that the experience feels very different and arguably much more convenient.