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Diesel Surges to Forefront of Alternative Powertrains

3/5/2012
Diesel-engine technology, long considered an unwelcome entrant in the U.S. powertrain market-even though diesels are wildly popular in places like Europe-has been making gains in America over the last 5 years, and may acquire even more momentum in the years to come.

Thanks to new "clean-diesel" technology that complies with even the most stringent emission standards of the State of California, a handful of automakers have championed diesel versions of their automobiles and have fueled a clean-diesel boom in the U.S. At a time of high gasoline prices (and lukewarm consumer interest in hybrids and EVs) diesel's ability to offer up to 40-percent better mileage than gasoline becomes very appealing. This, along with performance characteristics that hybrids can't match, means that diesel technology has garnered about a 3-percent share of the U.S. market, a share of sales that is nearly equivalent to that of hybrids.

Two big problems that formerly plagued diesel as an alternative fuel no longer are in play.

The first was poor perception of diesels due to the poor performance of the previous generation of diesel-powered vehicles offered in the United States; vehicles that were sold in the late 1970s and early 1980s. The engines in these vehicles were often loud, unrefined, and often emitted foul-smelling emissions. Today's clean-diesel technology, by contrast, means that diesel engines are much quieter, much smoother, and their use of ultra-low-sulfur diesel fuels means unwelcome odors and emissions have been kept to a minimum.

"In the beginning, we got more pushback from consumers because of the problems with diesel vehicles from the Seventies," said Lars Ulrich, North American marketing director for Bosch , a supplier of components for diesel and gasoline powertrains. "But the take rates"-the percentages of consumers now opting for diesel versions over gasoline powertrains-"indicate consumers have moved past that."

The second problem endured by old diesels was wild swings in the price of diesel fuel, especially relative to gasoline. Typically, over the last several years, diesel fuel has commanded a 15- to 20-percent price premium over gasoline during cold-weather months, when there also is great U.S. demand on diesel as a heating fuel. At points during 2008, when gasoline prices themselves rose above $4 a gallon, the diesel price premium was as much as 30 percent higher-a discomforting thought for diesel owners or consumers considering a diesel vehicle.

However, over the last several years, the winter price premium on diesel has decreased to about 5 to 10 percent; and during the summer, diesel prices were typically lower than gasoline prices. Finally, during the most recent episode of $4-a-gallon gasoline in the United States, in the first quarter of 2011, diesel prices didn't balloon as they had three years earlier.

"The pattern has been broken," Ulrich asserted, "and we see this new pattern being continued. We're very optimistic going forward that we have a fairly stable [diesel pricing] environment."

The direction of diesel and hybrid technologies is in contrast. Diesel-powered auto sales increased by 27 percent in 2011 compared to a year earlier, while the overall U.S. auto market increased by just 10 percent-and as hybrid sales declined by more than 2 percent. Diesel's growth has come despite the lack of comparable federal incentives enjoyed by buyers of hybrids and electric cars. One primary reason is that, while price premiums for hybrids can range up to several thousand dollars more than prices of their conventional equivalents, diesel-power premiums typically range between only $1,000 to $3,000.

By 2015, diesel sales will grow to 6 to 6.5 percent of the entire U.S. market-about double their share of today, according to a study conducted for the Diesel Technology Forum. J.D. Power and Associates' own forecast is for diesel sales to rise to 7.4 percent of the market by 2017.

"I like diesel very much for all the properties it's well known for," said Tim Dunne, head of the global automotive practice for J.D. Power. Diesel's attributes include not only unparalleled fuel economy on the highway, but also strong torque properties that make clean diesel especially appropriate for performance sedans and large SUVs that require low-end power.

Dunne explained that "the technology development by diesel in the last decade has been tremendous, and there's very little difference between diesel and traditional vehicles in terms of noise, vibration and harshness. All of that is quite promising. But our studies do show that some Americans are still suspect of diesel because of their experiences in the late Seventies and early Eighties."

Still, diesel's most important advocates are espousing the technology ever more confidently.

"If we are to meet future compliance targets" for higher federal mileage and emissions standards, "we can't be corralled into a single technology," said Johan de Nysschen, president of Audi of America. "Hybrids and diesels are complementary; both have areas where they perform better than the other. Diesel will continue to grow and will probably match hybrid volumes in time."

No one may be happier about this than de Nysschen and other executives of Audi of America. They and their counterparts at their sibling brand, Volkswagen , took a huge chance a few years ago in not only advocating clean diesel as a relevant, non-gasoline propulsion technology for the U.S. market, but also in investing development funds into a significant variety of models using Volkswagen AG's Turbo Diesel Injection technology.

Their commitments came at a time when only premium brands BMW  and Mercedes-Benz  joined Volkswagen AG in offering clean-diesel autos in the U.S.-and when American automakers, policymakers and news media were in full-blown support of hybrids and all-electric vehicles as vastly preferred alternative-fuel technologies despite their drawbacks.

Then, Audi  went beyond even that proactive stance for diesel by investing millions of dollars in pro-diesel advertising on American TV, ranging from its humorous "Green Police" commercial during the Super Bowl telecast in 2010 to a spot that illustrated the gasoline-saving wonders of diesel by showing barrels of oil "rolling back" from across America onto a transport ship at harbor.

Nowadays, diesel sales account for half the U.S. sales volume for the Audi A3  sedan and Audi Q7  SUV where clean diesel is an option, and company executives promise to continue their diesel push. "Based on our experience so far, we'll be expanding diesel options across our whole lineup," de Nysschen said. "We see it growing to around 20 percent of the sales of our overall portfolio."

Meanwhile, Volkswagen has seen sales of its diesel versions climb as well, accounting for a significant minority of sales of its new Jetta  compact in the United States and nearly all sales of the Jetta Sportwagen  version. VW also has experienced strong demand for the diesel version of its new Passat  mid sedan since the company began building the all-new, 2012 model at its new assembly plant in Chattanooga, Tenn., last year.

"Diesel is really making a breakthrough in the [mid sedan] segment, with very high turn rates, and, really, overachievement for what we expected already," Jonathan Browning, CEO of Volkswagen of America, told automotive reporters early this year.

Meanwhile, Mercedes-Benz and BMW, like Audi, continue to step up their promotion of clean diesel in the United States with new models, even as they continue to advance with hybrids and EVs. Mercedes-Benz, for instance, plans to return diesel power to its S-Class  after a 17-year hiatus, with its new S350 BlueTec clean-diesel model.

Slowly but surely, other automakers have been joining the German brands in stepping up their clean-diesel investments for the U.S. market. General Motors recently committed to develop a diesel version of its popular Chevrolet Cruze  compact for introduction next year. Mazda  will become the first Asian car manufacturer to sell diesel cars in the U.S. when it introduces its Skyactiv-D 2.2-liter clean-diesel engine here.

Jeep  will begin producing a diesel Wrangler  for American buyers in addition to the one that it now produces in the United States and exports to Europe. And in 2013, Chrysler plans to begin producing a diesel Grand Cherokee  for the U.S. market as well as possibly other Jeep diesel models later.

As the global auto industry continues to debate its future fuel of choice-and squeeze every mpg out of a drop of fuel it can-clean diesel is well positioned to increase its market share and continue to erase old stereotypes.