Clean diesel cars offer high mileage and impressive performance, but their reputation as smoky and smelly alternatives could slow U.S. sales
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.
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).
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.
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.
Another thing that has changed since the '70s: The Environmental Protection Agency has tightened emissions standards. Advocates point out that when burning new, cleaner blends of fuel in advanced engines, a modern diesel built to meet U.S. standards "acts like an air filter, spitting out exhaust that has fewer particulates than the ambient air in many cities," says Timothy Johnson, director of emerging technologies and regulations at Corning, which makes filtration gear for auto-exhaust systems.
But "clean" is still a relative concept for diesel technology. Modern diesels still emit significantly more smog-forming compounds—especially nitrous oxide—than gasoline engines or hybrids. In the 2008 model year, EPA data predict a Mercedes E320 Bluetec with a 3-liter engine will dump 10.75 lbs of smog-forming pollutants into the air every year. That's about twice what a Toyota Camry 3.5-liter gas engine will emit and nearly four times what the 2.4-liter Camry Hybrid puts out. Although most of the new generation of diesels are legal in all 50 states now, diesel makers will have to further cut their nitrogen oxide, or NOX, emissions to continue selling in markets that follow California's emission rules, which will tighten in years to come.
What automakers are really counting on selling, though, is the combination of power and mileage that comes from the technology's performance edge. One reason diesels go further on each gallon is because the fuel contains 11% more energy per gallon than gasoline. And when combusted in a piston, diesel burns more completely than gasoline, delivering more bang each time the fuel is detonated. This autumn, BMW will bring the 335d diesel sedan, not yet priced, to U.S. showrooms. Its 3-liter, six-cylinder engine will deliver 265 hp, and get 23 mpg in the city and 33 mpg at highway speeds—about 27% better than the gas-powered 335i. "Diesel is a good answer for us. The hybrids so far have for the most part tended to go to pure fuel-savings side, not high-performance vehicles," says Rich Brekus, general manager of Product Planning & Strategy for BMW North America. "Clean diesel can do both."
Japan's Honda is also turning to diesels to round out its green offerings. Although the Accord is one of the best-selling models of all time, the hybrid version was a flop. It carried a relatively high price and delivered minor mileage gains compared with a gas-powered Accord. Honda killed the hybrid model last year. Its replacement, due out in 2009, will be an advanced diesel adapted from its European market. At the Detroit Auto Show, Honda announced it will also introduce a 2.2-liter, four-cylinder diesel version of the Acura TSX this year. The following year, Honda is expected to launch a six-cylinder clean diesel in its Acura TL and MDX models.
Honda's move into diesels speaks volumes about just how clean the technology has become. Awarded the title of Greenest Car Maker by the Union of Concerned Scientists, a left-leaning think tank, Honda earned the mantle by relentlessly making incremental performance gains from existing technology. For example, to clear the latest, most stringent U.S. air quality standards, Honda created a groundbreaking design that cuts smog-forming NOX emissions by creating its own supply of ammonia on board. Ammonia neutralizes the NOX. Existing diesels from Mercedes and BMW crack this problem less elegantly, by adding a small, refillable tank of ammonia that is spritzed into the exhaust stream.
It's the kind of innovation that's likely to convince more drivers to add clean diesels to their shopping list of green cars.