A funny thing is happening in the race to find a fuel-efficiency solution for North America: One of the world’s oldest engines is in position to become the front-runner.

Hydrogen may indeed be the ultimate fuel of the future, and hybrid-electric vehicles and ethanol grab headlines, but in the next 10 years, the diesel engine promises to be by far the most popular alternative powertrain.

Driving its newfound popularity is a dramatic new clean-fuel mandate that kicks in Oct. 15.

That’s when service stations in the U.S. are required to sell ultra-low sulfur diesel fuel. It’s an environmental initiative considered as significant as the introduction of unleaded gasoline and catalytic converters.

Coupled with better emissions-control technology, the new fuel will make possible a flurry of new high-volume light-duty engine programs both from Detroit and foreign-owned auto makers.

Even Honda Motor Co. Ltd., better known as a seller of HEVs, is jumping on the diesel bandwagon along with the likes of DaimlerChrysler AG and Volkswagen AG.

A J.D. Power and Associates study released in April predicts U.S. demand for diesel-powered vehicles nearly will triple during the next 10 years, from 3.2% in 2005 to more than 10% by 2015. Some supplier projections are even more aggressive, predicting 10% market share by 2010 and 15% by 2015.

That means diesels will far outpace HEVs, despite their high visibility. J.D. Power predicts HEVs only will have a 4.9% share of the U.S. market by 2013, up from 1.3% last year.

Anthony Pratt, senior manager-global powertrain forecasting at J.D. Power, says his company does not have a formal HEV forecast for 2015 but says current scenarios do not suggest HEV share will rise much above 5%.

The reasons are simple: Diesels deliver 30% to 40% better fuel economy in all kinds of driving and, unlike ethanol or E85 (a 15% gas/85% ethanol mix) diesel fuel is readily available.

The U.S. Department of Energy says there were 169,000 gas stations in the U.S. in 2005, with only 761 offering E85. Conversely, 70,980 stations, or about 42%, offer diesel.

Diesels also have gobs of low-end torque, and that makes them an ideal alternative powertrain for light-duty fullsize pickups, which are among the highest-volume vehicles in the world.

Last year, General Motors Corp., Ford Motor Co. and Chrysler Group built 2,190,889 light pickups (the Dodge Ram, Ford F-Series, Chevy Silverado, GMC Sierra) for a 13% share of the U.S. market, according to Ward’s data.

“The market really ripe for the picking is the (light-duty pickup) and (fullsize) SUV markets, where we don’t really see any diesels at the moment,” says Julian Dench, Siemens VDO Automotive vice president-North American diesel powertrain systems.

For years, GM, Ford and Chrysler have offered diesels on heavy-duty versions of their pickups, but now word is leaking out they also have new engines in the works for their much higher volume light-duty pickups.

In late August – a day after Ford announced a new ultra clean-burning heavy-duty diesel, GM announced it would introduce a new-generation V-8 diesel aimed at the light-duty market sometime after 2009.

The new engine, targeted at improving the fuel economy of a fullsize light-duty pickup 25%, will be a premium V-8 with class-leading torque, power and refinement. It will have dual-overhead cams, 4-valves per cylinder, common-rail fuel injection and a compacted graphite iron block.

Fullsize pickup sales – crucial to Detroit auto maker profits – have fallen as gasoline prices stubbornly hover at $3 per gallon or more. The first auto maker to market a product that affords the fuel efficiency of diesel technology will capture the industry’s holy grail, suggests Global Insight analyst John Wolkonowicz.

“We will see a ‘dieselization’ going into the pickup truck (and) heavy-SUV market,” says John Moulton, president-powetrain division, Robert Bosch Corp. “It will give consumers an option for a proven technology (that presents better fuel economy with a greater fun-to-drive factor).

“All the North American OEMs are working on programs” for light-duty diesel pickups and SUVs to launch by the end of the decade, Moulton adds.

Diesel fuel has about 10% more energy compared with gasoline. Add that to the more efficient nature of the diesel engine’s compression-ignition design, and diesel vehicles generally achieve 30%-40% better fuel economy than comparable gasoline powerplants.

This inherent efficiency already has made diesels more popular than gasoline engines in Western Europe, and that trend will continue to expand worldwide, J.D. Power says.

Global market share for diesel-powered light vehicles is predicted to rise from 18% last year to 26% by the middle of the next decade.

“As a proven, cost-effective and ‘off-the-shelf ’solution, diesel has a head start over the other emerging fuel-efficient technologies,” says Alastair Bedwell-senior manager, J.D. Power Automotive Forecasting.

Diesels vs. HEVs

Even though auto makers today are investing heavily in HEV technology, and GM and Chrysler will offer HEV versions of their fullsize SUVs and pickups, few think hybrids have the potential to match diesels in popularity.

Modern technologies such as direct fuel injection (DI), variable-geometry turbochargers and other advancements also have allowed diesels to become nearly as clean and refined as conventional gasoline engines.

“We’re very optimistic (about the future of diesels),” says Margo Oge, U.S. Environmental Protection Agency director-Office of Transportation and Air Quality. “This decade will be known for the transformation of the diesel engine, similar to how gasoline engines were revolutionized in the 1970s.”

This is not the first time high fuel prices have sparked interest in diesels. Their popularity took off in 1978, peaking in 1981 when 520,788 new diesel vehicles were sold for a 6.1% share of the market, according to Ward’s data.

Some industry executives predicted diesel’s share would rise far higher, but the first passenger-car diesel offered by GM was a hastily converted gasoline-burning V-8. It quickly developed embarrassing quality and durability problems that tarnished the reputation of all diesels and scared away customers.

Interest waned further when fuel prices headed downward. By 1989, only 12,714 diesel vehicles were sold, accounting for less than 1% of the U.S. market.

The coming resurgence would not be possible without the introduction of ultra-low-sulfur diesel fuel (ULSD).

Available in Europe for years, ULSD prevents the clogging of exhaust aftertreatment systems, such as soot-reducing particulate-matter (PM) filters, and enables new diesel vehicles to meet the EPA’s stringent new Tier 2 Bin 5 emissions regulations that take effect Jan. 1.

The new fuel contains less than 15 parts-per-million of sulfur vs. 500 ppm in the low-sulfur diesel currently found at most U.S. pumps.

As of June 1, the U.S. Environmental Protection Agency began to require 80% of imported or domestically refined diesel fuel for on-highway use in the U.S. to be ULSD, with 100% mandated by June 1, 2010.

The EPA initially is not requiring every service station to offer the fuel, but outlets that already have agreed to sell ULSD must make it available no later than Oct. 15, with all on-highway outlets falling under the mandate by Dec. 1, 2010, says the Clean Diesel Fuel Alliance, a group of 22 industry, government, and consumer organizations advocating the advancement of new diesel technologies.

Nevertheless, experts are quick to warn that HEVs, along with sophisticated gasoline powertrains, benefit from many of the same advancements as diesels and represent formidable competition to diesel engines in the immediate future.

And not everyone – most notably Toyota Motor Corp. – is convinced diesels are a slam-dunk.

“In the light-duty sector, we don’t see (diesels as viable),” says Dave Hermance, executive engineer-Advanced Technology Vehicles, Toyota Technical Center U.S.A. Inc.

However, Hermance says Toyota is “very market-responsive,” and if the Big Three light-duty diesels take off, the No.1 Japanese auto maker will respond. But Toyota is more interested in diesels for ¾-ton or 1-ton applications, Hermance says, noting penetration rates in those segments are quite good in the U.S.

Even so, many insiders doubt HEVs will become as popular as proponents hope.

“There’s been a lot of hype in North America around hybrids, and certainly for big cities there’s a place for them,” says Siemens VDO’s Dench.

Siemens VDO views HEVs as more of a secondary, lower-volume technology than mainstream internal combustion engines for the next decade or so, he says. “I think we will see going forward a number of competing technologies.”

Says DaimlerChrysler AG Chairman Dieter Zetsche: “I’m actually very positive and surprised at the speed of change and acceptance of diesels (in the U.S.) on all levels: politicians, environmentalists, customers and the media.”

Although DC is working on HEV and hydrogen fuel-cell technologies, diesels represent a “no compromises choice (of alternative powertrains), offering performance, fuel economy and comfort,” says Simon Godwin, DC’s manager of regulatory affairs.

Despite diesel’s promise, there are significant hurdles. A confusing bureaucracy of regulations and skeptical public stand in the way of clean-diesel vehicles and widespread acceptance in the U.S.

“We’re at the threshold of a boom in high-efficiency vehicles,” says Casey Selecman, manager-North American powertrain forecasts at CSM Worldwide in Northville, MI. “It’s a testing of the market, (with auto makers) trying to play in a niche for diesel vehicles.”

While most HEVs, which operate at low speeds in electric-only mode, are well suited to navigating congested stop-and-go traffic in cities such as Los Angeles, the overall efficiency gains of a diesel engine likely will appeal to highway-focused drivers who regularly commute over long distances at relatively high speeds, he says.

In addition, the high-torque nature of diesels makes them perfect candidates for powering larger vehicles.

The absence of a diesel in the fullsize light-truck and SUV segments likely is due to the economics of building a new light-duty design, but once a “killer application” is made, most auto makers will follow suit, Siemens VDO’s Dench says.

The catch is diesels are expensive to develop. Costs for a single new diesel engine line can be double that of a conventional gasoline engine, running upwards of $500 million to $1 billion, Selecman says.

Joint-venture development efforts have been used by auto makers in Europe to disperse the cost of diesel-engine programs, sacrificing value for the companies involved, as the engine usually is the proprietary core of a vehicle.

“Joint ventures could make sense if one (auto maker) had technical superiority, but it’s mostly a short-term solution,” Selecman says.

Steep development costs, along with additional amounts for emissions-cleaning equipment, generally are passed on to consumers in the form of higher-priced vehicles.

This is the case with HEVs, as well, but the segment is expected to become more affordable as volumes increase and the cost of next-generation lithium-ion (Li-ion) batteries decreases.

Toyota, for example, plans to double HEV sales to 1 million units by 2012 and is committed to cutting hybrid-system costs by 50% over the next five years.

The Li-ion batteries are to HEVs what exhaust aftertreatment systems are to diesels – continued efforts to reduce cost and improve both technologies is critical to the future success of their respective powertrains.

Pricing will vary by auto maker, but markups for new diesel engines also are expected to be similar to those for HEV systems, at least $2,000 to $3,000. But as electronics and emissions technologies improve, the price of diesel-powered vehicles probably will fall in an effort to stay competitive with cheaper powertrains.

“If you can work up front and clean up the engine combustion initially, that will have the biggest impact (on reducing costs) of diesel engines,” says Siemens VDO’s Dench. “If you have a dirty engine and have to apply lots of aftertreatment with precious metals and exotic materials, that’s really what’s costing the money.”

Efforts to improve the diesel-combustion process ultimately may lead to the creation of a gasoline engine that reliably operates by homogeneous charge compression ignition.

HCCI blends the efficiency of diesel-like compression ignition with the lower emissions of spark-ignited gasoline engines, thereby limiting the need for expensive aftertreatment systems.

However, due to the technology’s need for highly sophisticated electronic controls, HCCI likely won’t be a viable alternative powertrain for several years.

Add to that the additional expense of the new technology and required infrastructure, and HCCI is but one system on a long list of competing technologies for diesels, says Allen Schaeffer, executive director of the Diesel Technology Forum.

Tapping a New Market

Supplying diesels to an almost untapped passenger-vehicle market such as the U.S. poses another challenge. Most of the models tagged for introduction have roots in an already capacity-strained Europe, where diesels are the powertrain of choice, garnering more than 50% of the regional market.

Current production capacity can handle initial small amounts of new diesels for the U.S., CSM’s Selecman says. However additional capacity will be required should the U.S. market see annual demand for 500,000-plus units, about 3% of current light-vehicle sales.

“OEMs remain cautiously optimistic (about investing in the future of diesels) because the cost of making a mistake (in predicting future powertrain trends) is so huge,” Selecman says.

This is similar to the situation with HEVs such as the Toyota Prius, which has experienced recent shortages in the U.S. due to an inadequate supply of batteries and advanced electric motors.

Emerging markets such as China and India could provide some production relief, Selecman adds, but an additional four to five engine plants would be needed to satisfy a potential 10% diesel market share in the U.S. and the resulting 1.7 million vehicles.

“U.S. auto makers will not establish domestic manufacturing capacity for diesels until there is a 100% business case,” Bosch’s Moulton says. “For now, they can bridge the gap by importing.”

DC’s Mercedes-Benz luxury division and Germany’s VW continue to enjoy near cult status with diesels in North America. More than 85% of Mercedes cars sold here in 1981 featured diesel engines, while nearly half of VW models were oil-burners. Both auto makers regard diesel owners as some of their most loyal customers.

VW currently is the leader in the U.S. diesel passenger-car market with its line of turbo direct-injection (TDI) vehicles. DC achieved relative success when it recently launched diesel versions of its Jeep Liberty cross/utility vehicle and Mercedes E320 sedan.

Sales of both vehicles exceeded initial expectations, although Chrysler has since announced the Liberty CRD will exit the North American market at the end of the ’06 model year.

The Players

DC will be the first auto maker to tackle the new U.S. regulations with its Bluetec technology, a suite of scalable diesel components and aftertreatment systems that will debut later this year on the ’07 Mercedes E320 CDI Bluetec, which features DC’s new 3L V-6 turbodiesel.

The technology consists of an oxidizing catalytic converter, particulate filter and what the auto maker calls a “denox” storage converter.

Initially, the E320 will be legal in only 45 states, as California, New York, Massachusetts, Vermont and New Jersey adopted more stringent standards prior to the implementation of Tier 2 standards.

To meet standards in all 50 states, Mercedes plans to add to the Bluetec system its AdBlue urea-injection process, which injects small amounts of a diluted, ammonia-based urea solution into a diesel engine’s exhaust system to convert toxic oxides of nitrogen (NOx) emissions into a harmless mix of nitrogen and water.

However, the auto maker has yet to confirm a timetable for AdBlue, as it continues to wait for EPA certification. The system is expected to debut in the U.S. and Europe in about 2008.

Meanwhile, the E320’s CDI V-6 will be available this fall in the ’07 M- and R-Class CUVs. Both vehicles will do without Bluetec, relying instead only on a particulate filter to achieve legal status in 45 states. A diesel version of the larger GL-Class CUV will appear in spring.

Mercedes “definitely can build engines to meet Bin 5 requirements in California with Bluetec,” DC’s Zetsche says. The challenge remains to bring the cost down, and the cost of diesel fuel also needs to fall, he adds.

Chrysler will employ a setup similar to that of the M- and R-Class CDI CUVs when it rolls out its new ’07 Jeep Grand Cherokee V-6 CRD next year. DC is mum on when Chrysler will receive the Bluetec system, but a Bluetec-badged Grand Cherokee was shown earlier this year at the North American International Auto Show in Detroit.

While Mercedes works to meet U.S. regulations in all states, Chrysler will take advantage of the results for future vehicles. “It’s a horse we’ll ride for a long time,” says Chrysler President and CEO Tom LaSorda.

VW demonstrated its commitment to clean diesels earlier this year when its Audi AG unit became the first auto maker to win the 24 Hours of Le Mans endurance race with a diesel-powered vehicle.

The Audi R10 TDI racecar features a 5.5L, 650-hp V-12 turbodiesel equipped with particulate filters and is one of the fastest, most fuel-efficient and quietest vehicles on the track.

Some 40% of VW vehicles sold globally are TDI-powered, and the technology will continue to be one of its strong points, the auto maker says.

“When new (emissions) technology comes along, barriers will be broken down,” a VW spokesman says, referring to America’s negative perception of diesels, which VW believes is the greatest challenge facing the technology.

“Diesels are a long-term solution, while HEVs are only transitional,” he adds.

Nevertheless, VW will limit its TDI offerings for ’07 while it perfects its aftertreatment systems and waits for widespread availability of ULSD to meet EPA regulations.

The auto maker’s diesel lineup in the U.S. next year only will consist of the ’06 2L Jetta TDI and ’07 V-10 Touareg TDI CUV, which returns to the U.S. in limited numbers after a 3-year hiatus. Both vehicles go on sale this fall and will be 45-state legal.

The limited lineup isn’t expected to create a major problem for the auto maker. VW’s loyal TDI buyers and reputation for offering affordable diesel vehicles will keep interest from tapering off until a new range of 50-state legal VW and Audi TDI vehicles appear for ’08, the spokesman says.

Both the ’08 Touareg CUV and its Audi Q7 sibling will offer the auto maker’s 3L V-6 turbodiesel currently available in Europe. A clean-burning 2L TDI 4-cyl. will be available in most VW brand small cars, including the Jetta, Rabbit and Passat.

Wolfgang Bernhard, chairman of VW Brand Group, estimates the company’s new diesel technologies will add a premium of about $1,000 to the price of a current VW diesel vehicle.

The new engines will do away with VW’s trademark mechanical pump fuel-injection system in favor of a more modern common rail/piezo-hydraulic electric injector arrangement coupled with a PM filter and a NOx-reducing catalyst/trap.

A urea injection system is “a likely solution (to meet EPA standards), but it is not the (only) solution,” VW’s spokesman says.

Until recently, most Japanese auto makers have been skittish about committing to diesel engines for the U.S., preferring to concentrate on European diesel applications and honing their expertise with advanced gasoline engines and HEVs for North America.

However, Honda, which has seen considerable success in Europe with its 2.2L CTD-i turbodiesel, says it is developing 4- and 6-cyl. clean diesels for introduction in the U.S. by the end of the decade.

Fuji Heavy Industries Inc., maker of Subaru cars, reportedly is working on 4- and 6-cyl. diesels that are rumored to debut in the U.S. about 2008. However, the auto maker has not confirmed this.

In the U.S., where most consumers’ exposure to compression-ignition engines is limited to heavy-duty pickups and commercial trucks, domestic auto makers increasingly are becoming aware of the potential benefits of modern diesels.

Chrysler, GM and Ford all plan to replace or significantly upgrade their heavy-duty diesel pickup engines to meet the EPA’s new standards.

The big trucks go on sale later this year and in 2007.

Technology upgrades will include advanced exhaust aftertreatment systems; improved combustion controls; and higher sticker prices to cover the cost of the new technology, which is expected to add at least $1,000 to the already significant option prices for diesel engine upgrades that can run upwards of $5,000.

The improvements will continue the long-standing horsepower/torque war between the three auto makers’ big diesel engines, as well. “Look to us for more power and performance,” a Chrysler spokesman says. “We are going to be in this game wholeheartedly.”

In addition, Ford’s Volvo Car Corp. recently announced plans to spend $1.36 billion over the next five years to develop more fuel-efficient vehicles, including advanced diesel powertrains. The auto maker reportedly is looking at ways it can launch a diesel-powered passenger car in the U.S. by the end by 2010.

What Lies Ahead

Moving forward, clean diesel will need to balance the increased costs of new technology as it continues to evolve with greater performance and fuel economy and further reduced emissions.

To that end, turbocharger manufacturer BorgWarner Inc. is teaming up with the EPA to advance the agency’s Clean Diesel Combustion technology, which focuses on reducing NOx emissions by lowering the temperature of the diesel-combustion process.

The effort promotes the development of improved turbochargers and other advanced components to precisely control airflow and exhaust gas conditions, areas in which BorgWarner has considerable experience.

In addition, engineering firm Ricardo plc is collaborating with a global auto maker to develop an advanced diesel engine capable of meeting U.S. Super-Ultra-Low-Emission Vehicle (SULEV) and Tier 2 Bin 5 requirements.

The research project aims to improve diesel engine combustion so that Tier 2 Bin 5 levels can be reached without aftertreatment systems.

Bin 2 levels will be met with the addition of advanced air-management systems, 2-stage turbocharging, advanced exhaust gas recirculation and closed-loop cylinder pressure-based engine controls.

Ricardo says the developments will maintain or improve the “fun-to-drive” responsiveness of the diesel engine without increasing emissions or fuel consumption.

Meanwhile, ArvinMeritor Inc. and Delphi Corp. both are working on plasma-based fuel reformers, which turn liquid petroleum fuel into a hydrogen-rich gas. The gas is injected into the engine, or the exhaust stream, to improve fuel economy and dramatically cut NOx emissions.

Mating a diesel engine to an HEV drivetrain, as PSA Peugeot Citroen plans to do in Europe by 2010, also is a promising development.

While they offer 69 mpg (3.4 L/100 km) or better, such diesel HEVs would be more difficult to market in the U.S. than Europe because they are double the cost of either HEVs or clean-diesels by themselves.

In the U.S., Bosch’s Moulton argues DI gasoline engines will be the biggest competitor for diesel, particularly for passenger cars, where the lower cost of the vehicle and different performance requirements (less weight, no towing) mean DI gasoline engines may be a better, less-expensive solution.

“We’re at the tipping point of where we might go (with diesels), but it looks positive,” DTF’s Schaeffer says. “This is the best set of circumstances people are going to get.”

And things are likely to get better if American consumers are willing to give diesel another chance.

“I think the education (of consumers) is going to have to be experimental, at least up front, where (the diesels) don’t clatter, don’t clang and don’t put out soot,” says John Mendel, senior vice president-automotive operations, American Honda Motor Co. Inc.

“Among those in the know, (the benefits of clean diesels) will get out pretty quickly. And as that happens, you’ll start to see regulatory pressure on changing the taxation of diesels,” he says, referring to the importance of U.S. diesel-fuel subsidies and diesel-vehicle tax credits.

This won’t cure American’s addiction to oil. But it could be viewed as the first major step in a long, painful recovery.

– With Drew Winter, Bill Visnic, Alisa Priddle, Eric Mayne and Christie Schweinsberg

msutton@wardsauto.com