Diesel: Greener Than You Think

Clean diesel cars offer high mileage and impressive performance, but their reputation as smoky and smelly alternatives could slow U.S. sales

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by Adam Aston

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After a century of propelling highway trucks, construction gear, trains, and buses, diesel technology is set to give hybrids a run for the top spot in the green-car market. For consumers, this means more eco-friendly options.

Defying diesel's lingering reputation as a smelly, smoky alternative to gasoline, a new generation of "clean" diesel cars is rolling into U.S. showrooms—at least a dozen are planned in the next two years. Typically selling for less than hybrids, the diesels offer a nearly paradoxical combination of high mileage and punchy performance that is likely to surprise car buyers.

For European automakers such as Volkswagen (VLKAY), BMW (BMWG), and Mercedes-Benz (DAI), clean diesels promise to help restore their tarnished reputations for eco-cars in the U.S. Detroit's Big 3 are less enthusiastic about diesels' green potential in cars. Still, they're accelerating the rollout of diesels into bigger sport-utility vehicles and trucks, where they hope the mileage gains will command a greater price premium.

Startups are diving in, too. In January, Silicon Valley venture capitalist Vinod Khosla announced he would take a big stake in EcoMotors, a closely held auto-tech company (BusinessWeek.com, 3/24/08) that claims to have developed a fresh approach to the diesel engine that cranks out 50% better mileage than today's engines at a similar price. "Diesel is a dark horse," says Mike Omotoso, senior manager of Global Powertrain at J.D. Power & Associates, an automotive information service. "It has real potential to shake up the green-car market."

The Hybrid Surprise

For consumers, green diesels may prove a surprising alternative to hybrids. A few years ago, with gasoline prices a third lower than today, new diesel cars all but disappeared. Carmakers were waiting for new blends of diesel fuel with radically reduced levels of sulfur—a key culprit in smog—to appear in filling stations. Back then, most manufacturers predicted diesels would return to their traditional niche role powering big vehicles, such as oversize SUVs and big pickups.

Things began to change, of course, when gas prices marched steadily past $3 per gallon. Booming sales of hybrids took many automakers by surprise. In Europe, diesels shot up from 15% to about 60% of car sales over the past decade, in part due to diesel-friendly tax structures. Suddenly, for those with years of experience selling advanced diesels, bringing next-generation high-efficiency diesels to the U.S. market has taken on new urgency. And, after a year of slow transition, supplies of the new blend of clean diesel fuel are reliable and available in about 45% of U.S. filling stations.

No one is expecting hybrid sales to stall out. BMW recently joined the hybrid parade with the debut of the X6, an aggressively styled coupe-cum-SUV, due out in 2009. This year, GM will start selling the much-anticipated hybrid versions of its Cadillac Escalade SUV and Chevy Silverado pickup, to name a few. Overall, hybrid vehicle sales surged 62% last year, making it the fastest growing segment of the auto market in an otherwise tough year.