Autos: Is Diesel a Good Alternative to Hybrid?

While carmakers lament their overflowing lots full of unsold cars, slow demand isn't a problem for Volkswagen's 2009 Jetta TDI, the first passenger car with a clean-diesel engine that gets 40 miles per gallon on the highway. "We're selling every one we get," said Jim Gill, a spokesman for Volkswagen Group of America. The performance-oriented and fuel-efficient engines are also making their way into the company's Rabbit and its Touareg SUV.

Diesels aren't exactly new. They've been widely popular in Europe where they secured 50 percent of the overall market last year. But they've been slow to catch on in the United States, capturing only 2.3 percent of the market. That's despite the fact that some new diesel engines offer roughly 25 to 30 percent better fuel economy than hybrids and have a cheaper price premium—$1,000 to $2,000 instead of $4,000 to $5,000. Another added benefit: diesel's pep. "You get great fuel economy gains without sacrificing performance," says Rob Moran, a spokesperson for Mercedes-Benz, which recently introduced its BlueTec clean-diesel engine in several models sold in America. "People are starting to see that diesel is another option that's out there."

Automakers do have reason to be optimistic about diesel's future. J. D. Power and Associates predicts that by the year 2015, they will slightly outsell hybrids, 1.5 million to 1.45 million. But to fulfill that prediction, diesels will have to overcome their environmentally unfriendly image. For decades, it was tough for car manufacturers to meet tighter U.S. emission standards for pollutants—specifically nitrogen oxides, or NOx. But technological advances have made some performance diesels like the Jetta run almost as cleanly as some unleaded cars.

Still, perception is a huge drawback, says John DiCicco, a senior fellow for automotive strategies at the Environmental Defense Fund. Diesels still get a bad rap from consumers who remember the engines as loud, dirty and smoky, while hybrids "have won the perception war," he said.

Then there's the issue of falling fuel prices. Unleaded may have topped $4 a gallon during the summer of 2008, but prices have more than halved in much of the country. Even though the up-front costs for a diesel engine are less than for a hybrid vehicle, the current price disparity between the types of fuels (diesel is currently about 40 to 70 cents more per gallon than regular gasoline) could cancel out much of the financial benefits of buying a diesel car.

"Until the price of the two fuels gets in line with each other, the acceptance of diesel in the U.S. will be limited," says Chuck Schifsky, a spokesman for American Honda Motor Co. In the short term, Honda will be investing in hybrid technology, not diesel engines, as the key way to get better fuel economy and environmental benefits. That's the same reasoning used at GM and Ford, both of which are focusing their future efforts on hybrids.

That's fine for companies like Volkswagen, which will offer even more diesel models next year. "We're confident they'll do well," says VW's Gill. That kind of optimism is rare among automakers. But if VW's sales remain strong, the rest of the industry might just have to rethink how it gets its motors running.