Fuel Prices Spoiling Debut of Clean Diesel

(MoneyWatch)  Diesel fuel hit an all-time high of $4.04 per gallon on March 22, according to the AAA Fuel Gauge Report. Besides hurting long-haul truckers, the high price of diesel could also spoil the party for the U.S. debut of diesel-powered passenger cars from German automakers.

Starting this fall, German brands Audi, BMW, Mercedes-Benz and Volkswagen have been hoping their modern, clean-burning diesels would counter the runaway popularity of gasoline-electric hybrids, like the Toyota Prius or the Lexus RX 400h. Before this year, stricter emissions rules in California, New York, Maine, Vermont and Massachusetts made it impossible to sell diesels in those states. Without those states, especially New York and California, it wasn't economical for the Germans to offer diesels here, even though diesels are best-sellers in Europe, where gas prices are much higher than the U.S. market.

The window for diesels in America started to open in 2006, when the U.S. government mandated cleaner-burning, low-sulfur diesel fuel in the United States, matching cleaner, European diesel fuel. That, and improved diesel technology have now made it possible to offer diesels in all 50 states.

Unlike noisy, smelly diesels of the 1980s, when emissions rules were looser, today's diesels are hard to tell from gasoline engines, except that they get 25 to 30 percent better mileage than the same size gasoline engine.

The bad news is, at $4.02 per gallon for diesel as of April 8, diesel now costs about 21 percent more than regular gasoline at $3.33 per gallon. That cuts sharply into the cost savings from better mileage.

The comparison is a little more favorable for premium gasoline, at a national average on April 8 of $3.67 per gallon, according to AAA. But the last time diesel sales took off in the United States, following the second oil embargo of the early 1980s, diesel was not only more energy-efficient, it was cheaper than gasoline.

The Germans don't have that advantage this time around. Any premium they charge for a diesel engine only makes the comparison worse. For instance, Mercedes-Benz USA LLC charges $1,000 extra for its diesel-powered E320 Bluetec model at $53,025, against the comparable gasoline model, the E350.

Comparing the two E-Class sedans, it would take about three years worth of fuel savings just to pay off the extra $1,000, at $4 per gallon for diesel, versus $3.67 for premium gasoline, at 10,000 miles per year. If diesel cost the same as premium gasoline, it would still take more than two years.

For someone who keeps their car long enough, the diesel still pays for itself in fuel savings. But fuel prices sure aren't helping.