Diesel: Greener Than You Think

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Still, overall diesel light-vehicle sales are larger than those of hybrids today. And diesels are projected to outgrow hybrids as they expand from their traditional role, powering trucks and SUVs, and start powering more sedans. Last year, 470,000 diesel vehicles were sold, or 2.9% of total U.S. sales, vs. around 353,000, or 2.2%, for hybrids. To be fair, most of those diesels were still brawny pickups, vans, and big SUVs. But analysts expect to see a spurt of sales of diesel-equipped cars and small SUVs. Over the past year, a dozen car companies—including General Motors (GM), Volkswagen, Mercedes, Toyota, Honda, Kia, and Mahindra—have announced or introduced nearly 20 new diesel-powered models and concept cars (BusinessWeek.com, 3/24/08).

Positive Forecasts

The arrival of a raft of these new light-duty diesel designs will account for most of diesels' accelerating growth. By 2015, diesel's share of total U.S. automotive sales will climb to 15%, from 6% today, according to forecasts by Robert Bosch, a German components maker which supplies parts for both gas and diesel engines. Hybrid sales are expected to expand to 6%, from 2%. The share of gas-powered vehicles in that period will shrink to less than 79%, from 92% today.

The biggest attraction of these new diesels is their ability to deliver exceptional mileage and very unhybrid-like performance. Thanks to a spate of innovations in diesel engine technology—including direct injection, higher compression ratios, and cleaner fuel—they deliver 10% to 40% or better mileage than similar gas engines. Even factoring in that gas is about 16% cheaper today than diesel fuel, diesel's efficiency edge means per-mile costs are up 20% lower than gas-powered cars.

Plus, because diesels are a more mature technology being produced in greater volumes, they come at a lower price premium compared with hybrids and their advanced batteries, transmissions, and electronics. For consumers, this adds up to a quicker payback. Take the 2007 Camry Hybrid vs. the gas-powered model. Edmunds.com found that the hybrid Camry carried a price premium of $2,000 to $3,800. With gas at $3 per gallon, the amount of time it would take a buyer to recoup the higher cost—through lower gas consumption—varied from three-and-a-half years to more than eight, depending on the model and the miles driven each year.

By comparison, Edmunds.com estimates that Mercedes' E320 Bluetec diesel, which goes for about $1,400 more than the similarly powerful gas-fired E350, will pay for itself in less than 24 months. Over five years, the diesel costs about $2,500 less to own than its gas-powered twin.

This comes as a shock to some hybrid buyers. "Some consumers have unrealistic expectations of hybrids," says Omotoso. In surveys, J.D. Power found that consumers on average expect to get an 18.5-mpg improvement in fuel economy and to pay about $2,500 extra for a hybrid. In reality, they'll pay a premium closer to $5,000 and get improvement of about 9 mpg, he says.

Changing Perceptions

Diesels hold their resale value better, as well. When it comes time to sell an aging hybrid, uncertainties over the longevity of and cost to replace battery packs can depress the prices of older hybrids. Used diesels, meanwhile, have been appreciating in value in recent years. In part that's due to a supply shortage. But low-revving diesel engines tend to run longer, with less wear, than their gas siblings.

Despite all those advantages, carmakers will have to invest heavily in marketing that changes buyers' negative perception of diesels as a 1970s-era dirty, fussy alternative to gas. Since then, diesel technology has matured dramatically thanks to its dominance in European markets. Consider the evolution of VW's four-door diesel Golf. From its first generation in 1976 to today's fifth generation, the Golf's horsepower is up nearly threefold, its acceleration time to 60 mph has fallen by half to under 9.2 seconds, and its fuel consumption has improved from 36.2 mpg to 42.3 mpg. All that even though the car's weight doubled to improve its safety. "Modern turbo-diesels have come a long way," says Norbert Krause, engineering and environmental office director at Volkswagen of America. Later this year, VW plans to start selling a diesel version of the Jetta, which relies on the same platform as the Golf, in all 50 U.S. states.