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Cleaner, Meaner Machines

Clean diesels deliver powerful-and environmentally conscious-performance.

The luxury-car market remains a shambles and the direction of fuel prices as uncertain as ever. So why have the three top-end German automakers selected this moment to flood America with a total of six new “green” models powered by various “clean diesel” powertrains?

Simply because the technology and the U.S. regulatory landscape weren’t ready until now for Audi, BMW and Mercedes-Benz to launch their diesel blitzes here. And in the meantime, the clearest competitors to the new upscale diesel models—luxury hybrids—haven’t lit a fire under American consumers, leaving a broad opening for diesel to reach environmentally conscious buyers who can afford fine rides.

“You can take a 600-mile vacation on a single tank of gas,” Jeri Ward, Audi of America’s general manager of marketing and strategy, says about the new Audi Q7 TDI diesel-powered SUV. “And enthusiasts don’t have to sacrifice because you still get off-the-line performance and the torque feel that makes driving so much fun.”

In time for the summer driving season, Audi of America launched a new marketing campaign under the tag line, “Diesel is no longer a dirty word.” Painting diesel green may help it catch on here as it has in Europe, where about half of new vehicles sold are diesel powered.

“Diesels provide better fuel economy on the highway, and they provide more torque than gas, so they’re a better choice for luxury-car buyers,” said Michael Omotoso, senior manager of global powertrains for J.D. Power & Associates.

As luxury sales struggle to recover overall, clean diesel could quickly pick up slices of the market. In fact, Westlake Village, Calif.-based J.D. Power predicts that diesels and hybrids each will grab nearly a 5-percent share of U.S. auto sales by next year.

The new diesel-powered models are versions of the Audi Q7, the BMW 3 Series small sedan and X5 utility vehicle, and the Mercedes-Benz R-Class crossover, GL-Class SUV and ML-Class SUV.

These clean-diesel models offer 20 percent to 40 percent better mileage than their gasoline-powered counterparts and cut greenhousegas emissions by up to 25 percent. These are the first diesels that can meet even the ultra-stiff pollution standards of California and New York, meaning they automatically beat the other 48 states’ diesel-particulate regulations too.

The new diesels’ fuel-economy and emissions gains are bigger than what luxury hybrids typically produce compared with conventional vehicles. That’s in part because, with pricier hybrids, automakers often simply apply the extra available juice to boosting a vehicle’s power rather than just improving fuel economy.

In other words, the highest-priced hybrids often are more about easing a buyer’s conscience, or wearing a green “badge,” than actually taking it easier on the environment. Early versions of the Cadillac Escalade hybrid, for example, bore the word “Hybrid” on decals or nameplates in a total of no fewer than 10 different places inside and outside the vehicle. Throw in the fact that future hybrids driven mostly by electricity will have to be plugged into the power grid, and the technology’s “carbon footprint” looks even less attractive.

Yet, demand for clean diesels may be crimped by the unreliability of diesel fuel’s price relative to gasoline. During the summer of 2008, for example, diesel in the U.S. spiked at about $4.80 a gallon, offsetting much of its efficiency advantage over gasoline, which stopped rising at over $4 a gallon.

But so far this summer, prices of the rival fuels generally stayed within two bits of each other, either way. And executives of the German brands note that diesel prices for their vehicles really should be compared with prices of premium gasoline, which is what high-end internal-combustion powertrains typically demand—and which can be priced 30 cents a gallon higher than regular.

Diesel’s attractiveness here faces two other obstacles as well. Fewer than half of U.S. filling stations have yet to offer diesel, though more are stepping up. And as much as today’s low-sulfur diesel fuel and advanced engines have slashed emissions and cleaned up their act overall, many American luxury buyers are old enough to remember GM’s clunky diesel car models of the ’70s and early ’80s. It’s also difficult to avoid the fuel’s continuing association with the smelly, loud diesel engines that power most big commercial trucks.

Of course, both the new clean diesels and hybrid versions of luxury vehicles command substantial price premiums, as much as several thousand dollars over their conventional counterparts—though on average, diesel premiums are less, according to J.D. Power. And both types of powertrains in new vehicles qualify for federal tax credits aimed at rewarding green-car purchases.

Still, most of the Japanese and domestic automakers continue to hitch their wagons largely to current or nearly market-ready hybrid technologies to boost their environmental credentials and to gird for the Obama administration’s tougher environmental restrictions on their vehicle lineups.

They either have forsworn clean diesel or, over the last year, have shelved plans to dip into the diesel market—except for pickup trucks. “Diesel works in trucks,” insists Al Weverstadt, GM’s executive director of environment and energy, “but not in cars.”

About Dale Buss

Dale Buss
Dale Buss is a long-time contributor to Chief Executive, Forbes, The Wall Street Journal and other top-flight business publications. He lives in Michigan.