DETROIT –Toyota Motor Corp. CEO Katsuaki Watanabe says he has challenged his engineers to achieve the new U.S. corporate average fuel economy standard “well in advance” of its deadline.

As part of a wide-ranging speech announcing new powertrain initiatives at the 2008 North American International Auto Show here, Watanabe, making a rare public appearance, says he believes Toyota can reach the 35-mpg (6.7 L 100/km) fleet fuel-economy standard before the 2020 target date the U.S. government has imposed.

“I believe it can be done, it should be done, and that Toyota is capable of doing it,” he tells the media.

Technologies that will help Toyota in this effort include a clean-diesel V-8 engine, coming in the current-generation Tundra fullsize pickup truck and Sequoia fullsize SUV; a plug-in hybrid, due in 2010 that will be powered by a lithium-ion battery and leased to customers globally; the addition of a dedicated assembly line for automotive Li-ion batteries at Toyota’s joint venture plant with Panasonic Corp.; and two new dedicated hybrid-electric vehicles, one for Toyota and one for Lexus, that will debut at next year’s Detroit show.

Bob Carter, group vice president and general manager-Toyota Div., says the diesel mill “is an internal development,” and while much of Toyota’s diesel expertise comes from its heavy-truck subsidiary Hino Mfg USA Inc., “the engine itself comes from in-house.”

Toyota is behind its chief Japanese competitors in announcing diesel plans, as both Honda Motor Co. Ltd. and Nissan Motor Co. Ltd. divulged in 2006 and 2007, respectively, plans to bring diesels to the U.S.

Honda will start with a diesel engine in its Acura brand next year, while Nissan is planning a diesel option on its new Maxima large sedan in 2010.

Despite the announcement, and the fact Toyota sold 600,000 diesels-powered vehicles globally last year, Carter says hybrids remain the auto maker's focal point in the U.S.

“The question is how applicable is it to the U.S. market?” he says of Toyota’s existing diesel mills sold overseas. “In the U.S., we’re particularly interested to continue to expand hybrids.”

Toyota sold more than 277,000 hybrids in the U.S. last year, up 44% from 2006.

When asked if there is concern the new hybrid models could cannibalize sales of the Prius HEV, which last year sold 181,222 units in the U.S. to become the No.8 best-selling passenger car according to Ward's data, Carter says no.

“We wanted to have a dedicated powertrain or an optional powertrain on every model we sell. So there’s plenty of room to expand (hybrids). We just can’t get enough of them,” he says, adding Toyota is just “scratching the surface” when it comes to hybrid proliferation.