Americans are giving diesels a second look

November 30, 2012: 12:16 PM ET

After years of trying, automakers are again taking a stab at selling diesel-powered cars in North America.

By Doron Levin, contributor

121129072525-vw-jetta-monsterFORTUNE -- Mazda grabbed a moment in the spotlight by announcing this week that it's importing a diesel-powered Mazda6 sedan next year to the U.S. -- a rare move for an Asian automaker in a land where diesel-powered cars occupy a tiny niche.

Next year is also the projected date for General Motors (GM) to stick its toe in the water with a diesel-powered Cadillac ATS and Chevrolet Cruze. GM last marketed diesel cars in the U.S. almost 40 years ago, a debacle of questionable quality and consumer outrage.

But today, along with hybrids and electrics, the latest generation of diesels occupies a fast-growing albeit tiny sliver of the U.S. vehicle market. The high-mileage categories are growing in importance as stricter federal fuel efficiency standards loom. By 2025 cars will be required to meet a 54.5 mile-per-gallon average, a standard that some automakers have called unrealistic.

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Allen Schaefer, a spokesman for Diesel Technology Forum, a manufacturers' trade group, noted that 14 car and SUV models using the technology currently are available, a number that nearly doubles in the next 18 months. "Diesel has to overcome a negative history," Schaefer said. Many American consumers still equate diesel with smoke, foul odor and noise -- all of which have been minimized or erased with modern versions burning a cleaner version of the fuel.

In Europe, by contrast, diesel cars have captured about half the market, the consequence of relatively expensive gasoline, made so deliberately by a taxation regime created for that purpose. Hence, Volkswagen, Daimler, Renault, Peugeot and BMW and other European manufacturers have invested heavily in diesel engines; Asian and U.S. automakers much less so.

According to Schaefer's group, of nearly 12 million new cars sold so far in this year, 103,822 are diesel, an increase of 25% over the previous year, compared with 355,806 gas-electric hybrids, up 68%. The market is up almost 14% overall.

As with gas-electric hybrids, diesels are more expensive than their conventional counterparts. Hence, the price of fuel and the mileage of the vehicle are important metrics to determine how soon the savings from using diesel compensates for the added price of the car.

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The 2012 Volkswagen Jetta, for example, costs about $16,500 equipped with a 2.0 liter, four-cylinder engine. The same Jetta equipped with a 2.0 liter turbodiesel costs about $23,500. But the fuel economy of the diesel is 30 miles per gallon city, 42 miles highway, compared to 23 miles per gallon city, 29 highway for the gasoline version. According to an analysis by Edmunds.com, the automotive website, the total cost of ownership over five years is $36,782 for the diesel, assuming a typical amount of driving. For the gasoline Jetta, cost of ownership for five years is $35,411 -- which suggests that the payback period for diesel is longer than five years.

Still, there are other reasons to own diesel, such as the longer range on a tank of fuel. For the Jetta it's 609 miles on a trip, versus 493 miles for the gasoline version. As the legacy of older diesel models fade further into the past, the opportunity for new models like Mazda's looks much better.

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