Will American Drivers Buy Diesel Cars?

In the market for a fuel-efficient, environmentally friendly, and performance-oriented car? Chances are your first impulse isn't to run out and buy a diesel. The common perception for decades has been that diesel engines are dirty, noisy, and inconvenient; foreign diesel manufacturers have struggled to meet relatively strict U.S. emissions standards. That, along with limited selection and high per-gallon prices, means diesel engines have gained little traction with American drivers.

But while Detroit and Japanese automakers like Toyota and Honda aren't veering from their commitment to hybrids, European automakers are coming out with series of incentives and ad campaigns designed to improve perception, promoting the fact that new diesels' emissions are on par with their gasoline-powered counterparts, get up to 30 percent better mileage, and are in some ways greener than hybrids, which suffer from problematic battery-disposal issues.

To sweeten its message, BMW is currently offering a $4,500 credit toward the purchase of its latest diesel models: the BMW 335d Sedan and X5 xDrive35d. The program will run until Nov. 2, the date that Cash for Clunkers was originally supposed to end. The new cars and program are designed to "show the environmental benefits of modern, clean diesel," says BMW spokesman Dave Buchko, who adds the company is intent on challenging the old diesel stereotypes. So far, the program has worked, boosting sales by 58 percent from June to August, so they're now in limited supply. Jim O'Donnell, CEO of BMW Group's North American sales operation, speaking at a Sept. 1 Automotive Press Association meeting about the company's plans to broaden the fleet in the U.S., said if diesel fuel stays relatively in line with gasoline prices, the engines will fare well in the U.S.

With its 2010 E Class, Mercedes-Benz is also entering the American diesel-sedan market. The company has reason to be optimistic with its spring launch. Mercedes was the first German luxury brand to bring diesel products to all 50 states last year, with its sport-utility lineup made up of the ML320, R320, and GL320. Volkswagen has also had luck with its TDI diesel engine, which it introduced stateside in August 2008. Steve Keyes, a Volkswagen spokesman, says sales of the TDI Jetta were 20 percent above the company's expectations. "We're in a sold-out situation," he says, pointing out that many of the customers were younger buyers, new to VW with no "preconceived notion of diesels."

William Underwood, 40, is one of those buyers who recently purchased his first diesel, a 2009 Jetta TDI, which he saw advertised on YouTube. He considered a hybrid but was attracted to the Jetta's mileage, which he says averages 40 to 42 city/highway combined, and its high performance. "When I test-drove the Jetta, the pickup was phenomenal," he says, adding that its acceleration was better than on the hybrids he tested. "It's a great car."

For Mercedes, BMW, and VW, the news could get even better. Some analysts think that diesels could become far more popular over the next 10 years. "As we get a new generation [of drivers] who like imports and don't remember the bad old diesels from the '70s and '80s, diesel won't be such a hard sell," says Michael Omotoso, a forecaster with J.D. Power and Associates. A recent survey of 4,000 consumers by Morpace, a market-research and consulting firm, found that consumer attitudes toward diesel engines are becoming more favorable, with more than 62 percent of new vehicle owners saying that diesel-powered vehicles have improved over the past 10 years. More than one third say they will consider clean diesel technology for their next vehicle.

But while diesel sales for European manufacturers are higher than they were in the past, they still account for only 2.5 percent of U.S. light-vehicle sales. Jonathan Linkov, editor of Consumer Reports' auto coverage, says that perception obstacles are still tough to overcome. That, coupled with other factors—including the fluctuating price of diesel, which is often higher than gasoline, and the "halo effect" of hybrids, which are seen as "happy and clean and good"—will make it hard for mainstream buyers to accept diesel, he says. J.D. Power's Omotoso adds that hybrids are "more politically correct in the U.S., and consumers seem to prefer them."

That's why both American and Japanese manufacturers have shelved plans to bring more diesels to the U.S. Honda had planned to introduce a diesel Acura here, but has held off due to the negative public perception and the higher cost of diesel fuel. Instead, the company is focusing on hybrids. "We see hybrids as the answer," says Honda spokesman Chuck Schifsky, a sentiment shared by Toyota as well. "The economic model says it really isn't going to be the mainstream North American powertrain. The payback isn't there," says Gary Arvan, chief engineer of the GMC and Chevrolet Duramax Diesel engine. He says that diesels are more costly to produce because of their expensive fuel systems, sophisticated turbochargers, and emission-control treatments, which can hike engine costs by up to $5,000 more than U.S. consumers want to swallow when diesel fuel prices are higher than gasoline. In contrast, hybrids typically sell for $4,700 more than traditionally powered models.

Gerald C. Meyers, a business professor at the University of Michigan, says that though American manufactures "are scared to death" of diesels, if one automaker shows the way, like Toyota did with hybrids, others could follow slowly. Right now, he says, the issue is capital, "which is so short that no one wants to go first." The possibility of gas at $4 a gallon in the future is "the 800-pound gorilla" that could drive the move toward diesel.

And if that happens, manufacturers will be ready. Though Ford has no plans to install diesels in U.S. passenger cars, confining them solely to SUVs and trucks, it has "world-class diesel technology in European cars," says spokesman Alan Ford, "so if there is a shift in energy policy and consumer demand toward diesel, we can efficiently and fairly quickly change our powertrain mix." Chrysler's partnership with Fiat will allow it to take advantage of that company's advanced diesel powertrain system, should diesels become hot, says spokesman Nick Cappa. Right now, he says, that demand simply isn't there, with hybrids far more popular with consumers.

Those consumers include Katherine Walls of Milwaukee, who considered purchasing a diesel but was deterred by high diesel-fuel prices. The fuel economy of the Toyota Prius won her over. "I wanted a safe car with the best gas mileage, and when you boil it down that simply, it was clear that the Prius was the right choice for me." It's that kind of sentiment that remains a big hurdle for European manufacturers as they roll out their diesels in the near future.