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Clean Diesel Is Coming! Clean Diesel Is Coming!

With diesel fuel prices down and rivals' diesel programs halted, German carmaker Audi has launched a U.S. marketing push

Around 20 people—including three former members of Congress; environmental advocates; former Bush, Clinton, and Reagan White House advisers; and lobbyists—gathered at the Watergate Hotel in Washington for a dinner organized for German automaker Audi (NSUG.DE) on May 27. An evening of conversation about alternative fuels, energy policy, and specifically "clean diesel," the event, one of several like it around the country, had the flavor of a campaign stop of a largely unknown third-party political candidate looking for support for a long-shot run at the White House.

The candidate, in this case "clean diesel," with Audi executives serving as campaign managers, has about as good an image with the public as "clean coal" and higher taxes. If the dinners have a theme, it might be "Diesel. It's No Longer a Dirty Word," which happens to be the slogan for a new consumer ad push the German automaker has kicked off just before the big July 4 driving weekend. Unlike past ads from Mercedes-Benz (DAI) and even Audi's sister company, Volkswagen (VOWG), Audi is not just pushing green trees and feel-good environmentalism, or even its Formula One racing wins with a diesel engine. Rather, it's flogging a quasi national security theme, repeating the Environmental Protection Agency statistic that if one-third of Americans drove vehicles that run on "clean diesel," the U.S. could save 1.5 million barrels of oil a day, roughly the amount imported daily from Saudi Arabia.

Audi's Energy Security Ad Campaign

Audi of America, which recently moved its headquarters from beleaguered Detroit to the outskirts of Washington, reckons that consumer resistance to buying diesel vehicles can be broken down if key political influencers understand it better as new energy policy is hashed out at the federal and state levels. "It's very difficult to get an elected or even appointed official today to stand next to a clean-diesel vehicle, unlike a hybrid or electric vehicle," says Audi of America President Johan de Nysschen.

The first ad in the TV campaign, produced by San Francisco ad agency Venables Bell & Partners, shows thousands of oil barrels rolling down streets, eventually converging at an oil tanker, ready to be put back on the ship that brought it. Foreign car companies pushing more fuel-efficient vehicles haven't pushed the energy security button as directly before. "We are out to change the conversation," says de Nysschen. Beyond TV, the campaign has gone to social networking sites, specifically, by way of ads and soon a game that gets people to compare the carbon footprint of their current vehicle vs. an Audi TDI (diesel) on the same trip. Even gas pumps at Shell stations that have digital ad screens will carry the energy security message.

Audi, of course, is self-interested. It is introducing diesel-powered versions of the Q7 SUV and A3 compact this year. In Europe, diesel accounts for almost half of new car sales, as European Union countries tax regular gas more than diesel to encourage people to opt for diesel, which gets about 20% to 35% better fuel economy. The more diesels Audi, together with Volkswagen, can sell in the U.S., the easier it will be to hit newly passed fuel-economy regulations without worrying about much pricier hybrids and electrics.

CAFE Rules May Help Boost Sales

Environmentalists have long battled against diesel. But between the low-sulfur diesel the U.S. pumps today and pollution traps that companies like Audi and Mercedes employ on the cars, the exhaust is cleaner than from most regular gas-fed engines. J.D. Power & Associates predicts that new Corporate Average Fuel Economy (CAFE) regulations could push diesels from 5% of total sales now to at least 10% or more by 2015 if Honda (HMC) and Ford (F) make good on plans to bring some diesels to showrooms.

Audi figures the energy security pitch may crack through consumer bias against diesel as a dirty fuel that creates black plumes of smoke from big-rig trucks and fueled noisy, glitch-filled cars in the late 1970s.

But just as Audi has ramped up its effort to get Americans thinking about diesel, some of its rivals are dialing back plans, which could set the whole effort back a few years. Honda, Chrysler, Ford, General Motors, Nissan (NSANY), and Toyota (TM) have all halted diesel programs because of the rising costs of technology, the softening economy, and other problems. Since the Germans make vehicles with high profit margins that better cover the costs of diesel engines and pollution traps, they will achieve even greater economies of scale if they can get Americans to bite.

A diesel engine, say experts, typically delivers fuel economy 20% to 30% better than that of a gas engine. But a diesel can also add between $3,000 and $8,000 to a vehicle's price.

Unpredictable Price at the Pump

And those automakers still holding out on bringing diesels to market point to tax and supply system issues in the U.S. that make the cost of diesel at the pump too unpredictable for most consumers. While diesel can be cheaper than gas during some parts of the year, it can be 30¢ or more per gallon higher than gas at other times. During last summer's surge in gas prices, diesel frequently cost even more than premium.

Roland Hwang, vehicle research director at the Natural Resources Defense Board, has spent years battling the ills of diesel engines in trucks and farm vehicles that don't employ the latest technology, as well as arguing for the cleaner, low-sulfur diesel standard the U.S. adopted in 2006. He says Audi, as well as other carmakers, have gotten diesel vehicles nearly as green as hybrids and greener than most gas engines. What's needed now, he says, is "some energy policy that will keep diesel prices competitive with gasoline, and a better image with consumers."

Audi figures the way to do that may just be to get lawmakers and consumers to appreciate diesel as a cause, even a candidate to help bring energy independence to the U.S., and maybe they'll vote for it the next time they go to buy a car.

Click here to see what diesels will be coming to a dealer near you.

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