Outlook is Cloudy, for Diesels in U.S. Market

(MoneyWatch)  The recent drop in fuel prices poses a risk to the auto industry's newfound dedication to smaller, stingier vehicles, assuming people become convinced that gas prices will stay low for a while.

That risk goes double for a bunch of new diesel engines becoming available in the U.S. market from German manufacturers, like the diesel-powered BMW 3 Series; Mercedes-Benz diesels in the E-Class, M-Class, R-Class and GL-Class, plus diesels from Audi and Volkswagen.

American consumers are still stuck on the idea that diesels are noisy, smelly, smoky and underpowered, based on diesels from the late 1970s and early 1980s. Today's diesels are none of those things. I was becoming convinced that diesels were headed for a significant comeback, back when gasoline was $4 per gallon last summer, and mileage was foremost in the minds of consumers.

Even though diesel fuel was more expensive than gasoline, most modern diesels eventually still paid for themselves at last summer's fuel prices, assuming you held onto the diesel for at least two or three years.

Since then, gas prices have fallen, and so have the advantages for diesels. Psychologically, if gas prices stay relatively low, fuel economy may stop being so important to U.S. consumers, who were reluctant to consider diesels in the first place.

At the same time, diesel fuel prices since last summer have not fallen as much as gas prices, according to the AAA. That means it takes even longer to start saving money by buying a diesel. Diesels are more expensive to build, so automakers charge a premium for diesel models -- in the case of Mercedes-Benz about $1,000. So you have to save $1,000 on fuel before you start saving any real money. With fuel prices falling and the price premium for diesel fuel rising, it will take longer to earn that $1,000 back.

In Europe, clean-burning, quiet, high-performing diesels account for a majority of sales in some markets. European automakers scratch their heads, at the reluctance of American consumers to give them a try. For a while, that looked like it could change, but now I'm not so sure.