For years diesel engines have been the rage in Europe. They're powerful, use relatively cheap fuel, and can propel a car 40 miles on a single gallon. But they've never really caught on in the U.S., where memories of 1970s-era soot-belching diesel cars still linger. Now, DaimlerChrysler (DCX) is trying to clear away that old image. The company has engineered a new emissions technology that promises to make diesel as clean-burning as gasoline. Daimler also has just announced plans to unveil its clean-diesel exhaust system in the U.S. in the latest Mercedes E-class sedans.
Daimler's system, called BlueTec, uses a catalytic converter and specialized filters to reduce harmful nitrogen-oxide emissions. The company is betting BlueTec will turn U.S. drivers on to diesel and give hybrids fresh competition. The reason: Mercedes clean-diesel cars will cost less than an equivalent hybrid while offering greater power and acceleration, plus up to 40% better mileage over conventional gas engines. That's a lure for Americans who love big cars and off-road vehicles. And diesels can go 500 miles without a fill-up.
Diesel has floundered in the U.S. because oil companies haven't offered the clean fuel required in Europe. Since diesel pollutes more than regular gas in the U.S., such big markets as California and New York refuse to register new diesel cars. Later this year, though, the feds will require oil companies to switch to the low-sulfur diesel long available in Europe, eliminating the soot problem.
But Daimler's exhaust-treatment technology will go a big step further, cleaning up to 80% of the remaining nitrogen-oxide emissions. That, combined with good mileage, will make diesel a truly green U.S. driving alternative for the first time. DaimlerChrysler CEO Dieter Zetsche likens Mercedes' emissions-control solution to Silicon Valley tech breakthroughs. "It's our intention that customers regard BlueTec for diesels [as] similar to 'Intel (INTC) Inside' for PCs," says Zetsche.
That sounds like a stretch. But many industry experts believe a new generation of clean-diesel cars will eventually win over Americans and that diesel will become the dominant technology for fuel-efficient autos. While hybrids get better mileage only in the city, diesel cars consume less fuel in all driving conditions. Market researcher J.D. Power & Associates (MHP) (like BusinessWeek, a unit of The McGraw-Hill Companies) forecasts diesel will take 11.8% of the U.S. market by 2015, up from about 3% now. Says Anthony Pratt, a senior J.D. Power analyst: "We think it will fly, and the Europeans have the most to gain."
Daimler isn't the only one to recognize the opportunity. Volkswagen, which is working on two different clean-diesel technologies, saw its U.S. diesel sales double in 2005, to 25% of total sales. It already sells Jetta, Golf, and Beetle diesel models in the U.S. The first VW clean-diesel model will be a Touareg SUV, slated to launch this year. BMW and Audi also have plans for diesels, as do Nissan (NSANY) and Honda. (HMC) If the Japanese mass marketers put their muscle behind diesel, it will suddenly have much broader appeal.
Daimler, which also intends to put BlueTec into Chryslers, appears to have an early jump, but hurdles remain. Perhaps the biggest: Oil companies need to update their filling stations with modern, user-friendly pumps for passenger cars. And some diesel critics note that the cost of the equipment to clean up diesel's emissions will bring the premium for clean-diesel cars close to that of a hybrid, especially in smaller models.
Mercedes insists that the premium over a gasoline E-Class will be less than $2,000, compared with at least $4,000 for a hybrid. Even that added cost could be partially offset if the U.S. government proceeds with plans to offer diesel the same tax benefits hybrids now enjoy. Toyota Motor Corp. (TM) may have stolen the limelight on fuel efficiency with its hybrid Prius. But if the new crop of Daimler clean diesels catches on, the real debate about green car technology may be just beginning.
By Gail Edmondson, with bureau reports