Honda's Green (Diesel) Machine

Its new engine is clean and efficient but still could be a tough sell in America

Honda Motor Co. (HMC ) has long sought to prove it's the greenest of automakers. In 1999 the company became the first major car manufacturer to launch a hybrid in the U.S., the Insight, and it has been a leader in developing fuel-efficient -- and peppy -- engines. But in recent years, archrival Toyota Motor Corp. (TM ) has stolen the green mantle from Honda with its popular Prius and other hybrids.

Now Honda is trying to take it back. Its technology of choice: the stinky old diesel engine. Or make that a not-so-stinky new diesel. By 2009, Honda plans to sell "clean diesels" in the U.S. These cars will likely go some 30% farther per gallon than gasoline models. The 2.2CTDi diesel-powered Honda Civic, sold now in Britain, delivers 43 miles per gallon in town and 55.4 mpg in combined city-highway driving. The hybrid Civic manages only 50 mpg in combined driving, while a gas Civic averages 33 mpg. "We're leading the way to cleaner diesel engines," says Honda Chief Executive Takeo Fukui.

That effort will get a boost from the U.S. introduction of a cleaner diesel fuel this fall. The new government-mandated blend has 15 parts per million of sulfur, down from 500. Honda's engines have a catalytic converter that filters out enough nitrogen oxide (NOx) emissions to meet California's new standards -- the most stringent in the nation -- due to come into effect in the state next year and nationwide in 2009. Unlike other diesels that will meet California's standards, such as a Mercedes-Benz (DCX ) BlueTec expected to go on sale in late 2007, Honda's doesn't require a separate tank of urea, an organic compound that helps absorb NOx but needs to be replenished occasionally. Instead, its diesel converts some of the NOx into ammonia, then recombines that with what's left of the NOx to make relatively harmless nitrogen. Honda says the technology will reduce exhaust emissions to levels on a par with gasoline engines. "The Honda system is quite elegant," says Christopher Richter, a Tokyo analyst at CLSA Asia-Pacific Markets.

Elegant or not, diesel may prove to be a tough sell to Americans. Diesels represent more than 40% of new car sales in Europe, where the cleaner brand of the fuel has been available since 1997. But stateside, diesel still conjures up images of smoke-belching 18-wheelers. Americans of a certain age haven't forgotten Detroit's flirtation with diesel during the 1970s, which left behind a trail of lemons such as an ill-fated version of the Oldsmobile Cutlass. To clean up diesel's reputation, industry executives have advocated infusing the fuel with botanicals to make it more aromatic and even dropping the name "diesel" in favor of something along the lines of "compression ignition engines." Price will also be a key factor in getting U.S. drivers to make the switch. Honda hasn't said how much it plans to charge for the new vehicles, but a hefty premium would undoubtedly dampen interest.

BUNNIES AND FLOWERS

To sell skeptical Americans, Honda may borrow a page from its British marketing handbook. The carmaker introduced diesel-powered cars there in 2004 with an award-winning 90-second animated TV spot. The ad shows bunnies, flowers, and rainbows destroying smelly diesel engines as Garrison Keillor, host of National Public Radio's A Prairie Home Companion, croons a tune about "positive hate." "I can't recall any piece of advertising that changed the whole perception of a thing and a brand as fast and completely as those Honda ads," says Kenneth Hardy, an independent marketing consultant in London.

Diesel's American proponents are hoping Honda will achieve a similar feat in the U.S. "Honda will be extremely welcome to the cause," says Allen Shaeffer, executive director of the Diesel Technology Forum, which promotes the fuel in the U.S. Honda says it hasn't yet decided how it will market its diesels in the U.S. If it does decide to pick up the British spot, though, it will likely have to find another pitchman. Toyota's Prius hybrid is a big sponsor of Keillor's popular radio show, and the writer coined the term "Prius Envy" to describe people who wish they were driving the Toyota hybrid. "Diesel envy" may get fewer laughs, but Honda hopes it will sell cars -- and boost its green credentials.

By David Kiley and Ian Rowley

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