The Diesels Are Coming. But Will Anyone Want Them?

New technology has made diesels cleaner and greener than ever, but high pump prices may scare off potential customers
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With the price of diesel fuel 10% or more above regular gasoline, automakers and enthusiasts for diesel-powered cars wonder if the technology will take off as they hope when several manufacturers increase their offerings in the next two years.

One company not so worried, though, is Volkswagen (VOWG.DE), which is close to delivering Jetta TDI sedans to people who have already put deposits down. Howard Cooper Volkswagen in Ann Arbor, Mich., for example, says that a buyer putting money down today will probably have to wait until January to receive his car. Volkswagen of America plans to sell 15,000 TDI Jettas this year. Next year, VW figures to sell more than 30,000.

The diesel sedan starts at $22,640, including shipping, and the station wagon at $24,240, a premium of about $2,000 over a similarly equipped model with a gasoline engine. BMW (BYMOF.PK) is also going ahead with plans to launch a diesel 3 series this fall. It also has plans for an X6 diesel after that. Honda (HMC) is launching a diesel engine in an Acura sedan in 2010.

Mahindra Pickups On the Way

Perhaps the company most fully invested in diesel engines is Global Vehicles of Alpharetta, Ga., which plans to roll out Mahindra-branded pickup trucks at the end of 2009 and the first quarter of 2010. Mahindra is the brand marketed by Indian conglomerate Mahindra & Mahindra (MAHDY.PK). Some 200-plus dealers have signed up to sell the vehicles. Global Vehicles Marketing Director Xavier Beguiristain says the company is undeterred, but not unconcerned.

The pickups Mahindra plans to introduce are expected to get about 30 mpg, more than 50% better than full-sized pickups and 30% better than midsize pickups like Dodge Dakota and Toyota Tacoma. "We are entering a space in the truck market where there are no other competitors—high mpg and 1.3-ton capacity," says Beguiristain. "We compare more to a Ford F-150 in payload than a Tacoma, even though we are closer in size to the smaller vehicle."

Initial demand for diesel vehicles will be soaked up by people who are already enthusiasts. Auto enthusiast magazines and Web sites regularly write about diesel vehicles sold by VW and Mercedes-Benz (DAI). Car aficionados like the low-end torque (power at low engine revolutions), as well as the fuel economy and durability of the engines. It is not uncommon, for example, for some diesel vehicles to get up to 40% better fuel economy than their gas-fueled counterparts, and the engines are known to last 200,000 to 300,000 miles.

Home Brew in the Tank

Another small niche interest in diesel vehicles comes from diesel "home brew" enthusiasts, who recycle vegetable oil from diners and take-out eateries into biodiesel that can be burned in many diesel vehicles, leaving the smell of french fries in their downdraft. Automakers like VW, though, say they will not honor warranties if the owner uses homemade biodiesel. Once the cars are off warranty, though, many diesel owners adapt.

The hope among automakers is that the cleaner diesel engines coming on stream, combined with the cleaner low-sulfur diesel fuel pumped now at U.S. filling stations, will be enough to "green" diesel's overall image. The Volkswagen Touareg TDI (diesel) was recently named the dirtiest vehicle by the Environmental Protection Agency. But the new diesel engines trap the particulates that previously went into the air, and will receive much higher green scores.

Automakers are expanding their offerings to snare customers well beyond today's diesel enthusiasts. They are hoping to attract consumers who are simply looking for better fuel economy, and who are gravitating to hybrid vehicles or small cars. "There is no question that there is a need for engaging marketing to better sell diesel to the American buying public," says independent marketing consultant Dennis Keene.

Not Many Ads to Support Diesel

Diesels typically cost $2,000 to $2,500 more than gas equivalents. But hybrids can cost as much as $8,000 more. The EPA rates the VW gas-powered Jetta at 21 mpg city/29 highway, and the new Jetta TDI at 29/40. But VW's own tests show that real-world fuel economy of the new TDI is more like 38/44. Back-of-the-envelope arithmetic, depending on how long a driver figures to own the vehicle, can pay off much better than a hybrid.

So, far, companies like VW and Mercedes have done very little advertising around diesel, mostly low-key magazine advertising. Honda made an enormous splash in Britain in 2004-2005 when it began a campaign around its then-brand-new diesel engines. Diesel is a already a mainstay in Europe, where more than 40% of new cars sold are diesel-powered. The addition of the diesel engine and the campaign turned around what had been a flagging business for Honda in Britain.

That campaign featured an animated ad that told a story of how Honda engineers disliked diesel engines for years, but then hit on a technology that was clean and environmentally beneficial. The campaign featured a song crooned by National Public Radio icon Garrison Keillor, the longtime host of radio show Prairie Home Companion.

Availability Problems Turn Off Drivers

Honda officials, though, say they do not anticipate importing that campaign from the Britain to the U.S. to usher in its diesel engines here. It might be tough to get Keillor to go along anyway. Toyota Prius has been a major sponsor of his radio program for years.

The growth in the U.S. is expected to move up, too. Johannes-Joerg Rueger, vice-president of engineering for diesel systems at Robert Bosch, projects that 15% of new vehicles sales will be diesel-powered by 2015. That would put annual sales at more than 2 million if the company is right. (Click here to read an interview with Rueger.)

One of the big obstacles to acceptance of diesel by automakers and some analysts is the fact that diesel fuel is not available at every gas station, and many of those where it is pumped are set up for trucks. A lot of people simply don't want to line up behind a tractor-trailer truck to fill up. "The fact is that when you own a diesel vehicle, it goes a lot further on a tank than most, and owners who buy the vehicles simply adapt their behavior and know where all the stations are in their area," says marketing consultant Keene. "If gas stays above $4.00 and diesel stays within 10% of gas prices, there will, I think, be a steady increase in both acceptance of diesel and sales," he added.

Click here to see a lineup of diesels that will (still) save you money.

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