FRANKFURT – Pressure from European governments pushing for better fuel efficiency may lead to hybrid-electric diesel vehicles, which until now have been considered too expensive for the market.

"We always thought that a diesel was a better choice (than a hybrid-electric) for fuel efficiency, because it is much less expensive," says Andreas Truckenbrodt, in charge of hybrid development at DaimlerChrysler AG.

However, with the success of Toyota Motor Corp.'s hybrid-electric vehicles (HEVs) that run on a electric-gasoline powertrain, a market demand has been created for HEVs that is not related to the price of fuel. (See related story: Carter: Lexus 'Green Image' Real)

Audi Q7

Even at today's U.S. fuel prices, there is no way to pay for the cost of a hybrid from the fuel savings, Truckenbrodt says.

That means the advanced dual-mode HEV system DC, General Motors Corp. and now BMW AG are developing could be mated to Mercedes-Benz diesel engines in the future, so that their owners can demonstrate their interest in the environment, he says.

The three auto makers signed a memorandum of understanding Sept. 7 governing the partnership, which includes a development center in Troy, MI, that will develop the overall modular system and individual components: electric motors, high-performance electronics, wiring, safety systems, energy management, and hybrid system control units.

In addition, the Hybrid Development Center will be responsible for system integration and project management. (See related story: BMW Joins GM, DC Hybrid Program)

Up to now, European auto makers have relied on diesels to save fuel, but HEVs are springing up like mushrooms from the halls of the auto show here.

Hybrid concepts include an Audi Q7, BMW X3 and the 2-seat Smart Crosstown. Mercedes-Benz has two testable mild hybrids with starter-alternators, one mated to a diesel and the other to a gasoline engine with direct injection.

In the supplier hall, ZF Friedrichshafen and Continental AG showed elements of their joint hybrid technology development program for a hybrid drive that, like the GM-DC-BMW project, would fit in the space of a transmission by eliminating the torque converter.

"We're working with a car maker," says Frank Finzel, product manager for ZF's electric motors.

And in the week before the show, Volkswagen AG announced it was working on a hybrid system that will have an internal combustion engine making 147 hp and a 20kW electric motor. (See related story: VW, SAIC to Make Hybrids in China)

Fuel prices are part of the equation. In August, as fuel rose to record levels in the U.S., sales doubled for the Toyota Prius and tripled for the Honda Civic hybrid. With models from Ford and GM, HEVs took 1.6% of the U.S. market.

In France, following the damage from Hurricane Katrina, the price of premium gasoline reached €1.53 per liter, the equivalent of $4.71 per gallon in the U.S.

But more than fuel prices and the need to compete with Toyota are at work in Europe. Governments are pushing, directly and indirectly, for much greater fuel efficiency.

Monaco, the rich city-state on the Mediterranean, has held 21 symposiums on HEVs and is offering a €3,000 ($3683) tax break to HEV buyers. In August, Monaco's Prince Albert II took delivery of the first Lexus RX 400h in Europe from the president of Toyota France, Masahide Yasuda.

Lexus RX 400h

In Germany just before the Frankfurt auto show, Juergen Trittin, the minister of the environment, wrote to the VOA, the country’s auto manufacturers’ association asking auto makers to reduce their fuel consumption to a level of 75 gpm (120 g/100 km) of CO2 by 2012, which is the fuel economy equivalent of 52 mpg (4.5 L/100 km) for a diesel engine.

At the same time, France upped its tax incentive for HEVs from €1,525 ($1,873) to €2,000 ($2,456) and announced it would fund a €100 million ($123 million) program to develop a family car within five years that would travel 67 mpg (3.5L/100 km).

As the best diesels in that size car now get only 52 mpg (4.5L/100 km), "The hybrid diesel is the only solution," says Jean Delsey, a scientist at INRETS, the French national transportation research institute.

The desire for fuel efficiency in Europe has resulted in some countries lowering taxes on diesel fuel because diesels are 20%-25% more efficient than a gasoline engines.

French drivers who pay an average of €1,200 ($1,474) more for a typical diesel get that back in 60,000 miles (97,000 km) of driving.

An HEV typically costs €3,000 to €4,000 ($3,683 to $4,911) more for the same fuel savings, which has limited European interest.

"It is the conviction of all the European auto makers that the hybrid is not a good solution where diesel is well-accepted," PSA Peugeot Citroen CEO Jean-Martin Folz said in an interview last year.

In addition to the changes in fuel prices and market demand, technology continues to advance on electric batteries, the most-expensive part of a an HEV system.

BMW X3

DC still is debating what type of battery to use in 2008, when it puts its full HEV into production, says Truckenbrodt, as lithium-ion and metal hydride batteries both continue to improve.

Mercedes-Benz sees the mild hybrid it is demonstrating on the S-Class as a sort of market introduction to the idea. It may go better in North

America than Europe. PSA is selling very few of Citroen C3s with it Stop and Go hybrid system, even though it is priced the same as a conventional C3. (See related story: Mercedes to Debut Hybrid Technology in Frankfurt)

But even PSA has been preparing for a full hybrid system.

Working with Ricardo Engineering in a €4.4 million ($5.4 million) project, the auto maker has developed a Citroen Berlingo with a diesel engine and electric motor that emits about 56 gpm (90 g/km) of CO2 – the equivalent of 69 mpg (3.4L/100 km), enough to meet the French government goal if only the cost can be contained.