CHICAGO – Despite the addition of diesel power to four vehicle lines this year, overall diesel market share in the U.S. likely will drop, say industry insiders attending the auto show here.

DaimlerChrysler AG’s Mercedes-Benz unit begins selling its diesel-powered E320 CDI this April and the auto maker’s Jeep line adds a diesel variant of the Liberty SUV late this year.

Stalwart diesel advocate Volkswagen AG will offer a diesel-powered Passat sedan and Touareg cross/utility vehicle beginning this spring.

But overall diesel market share will take a hit because new emissions regulations that began Jan. 1 for California and four Northeast states – including New York – that have adopted California’s new LEV II (low-emission vehicle) standards mean auto makers cannot sell diesel light vehicles in those states. California and New York represent large vehicle markets that effectively have restricted manufacturers from selling current-technology diesels.

Volkswagen adds diesel V-10 to Touareg lineup this spring.

“It’s tough when you take away those states,” says a VW spokesman. He says the company sells even more diesel-powered vehicles in New York than California, the nation’s single largest vehicle market. Removing those two states from the mix means VW’s total diesel-vehicle sales will fall this year – despite the addition of two new diesel-powered models.

A Mercedes spokesman says the E320 CDI “represents incremental volume” because Mercedes has not sold diesels in the U.S. since 1999. And a DC source says that although Jeep’s addition of a diesel Liberty also will add volume, the total number will be small due to fourth-quarter introduction and a deliberately limited production run.

Auto makers, of course, would prefer to offer diesels nationwide. But to meet the ultra-rigid California LEV II emissions standards – now the world’s most stringent – their diesel vehicles would require complex and expensive exhaust aftertreatment systems that in turn require low-sulfur diesel fuel. The average sulfur content of today’s diesel fuel is about 10 times what the aftertreatment systems can tolerate.

Relief is coming in the form of a federal mandate to reduce diesel-fuel sulfur to the level needed by the aftertreatment systems, but that regulation does not begin to phase-in until calendar 2006.

Mercedes is hopeful that once the low-sulfur fuel is available, it and other auto makers will be able to sell diesel-powered light vehicles in all 50 states.

Volkswagen says it expects about 10% of this year’s Passat sales to be diesel, and perhaps about 1,500 of the 40,000-odd Touaregs it projects it will sell in 2004 will have oilburners. Mercedes and Jeep won’t project how many diesel-powered vehicles they will sell.

The Touareg provides an example of diesel’s fuel-economy advantage. Powered by a gasoline V-8, the CUV gets 14/18 mpg city/highway (16.8L-13L/100 km). The V-10 diesel Touareg, which is more than 200 lbs. (91 kg) heavier, delivers 17/23 mpg (13.8-10.2L/100 km) – at least a 25% improvement.

General Motors Corp. recently said it has little interest in marketing diesel vehicles that cannot be sold nationwide. Its director of diesel engineering says GM is unlikely to offer a diesel-powered light vehicle before the rollout of low-sulfur fuel in 2006.

bvisnic@primediabusiness.com