With Toyota in Trouble, Mercedes Rolls Out a Diesel Hybrid

(MoneyWatch)  Toyota (TM) has been king of the hybrids, but the unintended-acceleration train wreck, which includes a recall of its Prius, could create some opportunities for competitors. To wit: Mercedes-Benz (DAI) is promoting a diesel-electric hybrid.

Until now, the Prius has dominated the hybrid space and Toyota is rolling out its gasoline-electric hybrid technology to its Lexus luxury division. But with Toyota faltering, Mercedes-Benz is presenting a diesel hybrid model, the Mercedes-Benz E300 BlueTec Hybrid, at this week's press preview for the Geneva auto show. It's a variant of the Mercedes-Benz mid-sized sedan, the E-Class, and will get almost 60 miles per gallon (or 100 kilometers per 4.1 liters). It is expected to go on sale around the world in late 2011.

The U.S. market is a logical place to offer the new diesel hybrid, even though diesels have never really caught on in American passenger cars. Diesels typically get 25 to 30 percent better fuel economy than the same-sized gasoline engine, and with tougher U.S. fuel-economy standards coming, global automakers are all introducing more efficient models.

Diesel passenger cars had their U.S. heyday in the early- to mid-1980s, when the oil crisis of the late 1970s and cheap diesel fuel made them an irresistible proposition. For a few years, diesels made up a majority of U.S. sales for Mercedes-Benz.

The bad news is, Americans still base their opinions of diesel on the smelly, smoky, underpowered vehicles of that era. U.S. automakers did nothing for the fuel's reputation when they had brief and disastrous fling with diesels that performed poorly and broke down often.

Today's diesels are much cleaner, quieter and more powerful, and for the last couple of years, modern diesels have met emissions regulations in all 50 states. They are also hugely successful in Europe for BMW (BAMXY.PK), Mercedes-Benz and Volkswagen (VLKAY.PK), accounting for a majority of sales in some markets.

For a couple of years, the Germans tried to market diesels in the U.S. as an alternative to hybrids, but this flopped. Eventually they got on the hybrid bandwagon, with models that have both a gasoline engine and a battery-powered electric motor.

The latest entry from Mercedes-Benz shows that the next step could be a marriage between the two ideas, a modern diesel with a hybrid powertrain. The concept could earn a profitable Mercedes a profitable niche while Toyota is preoccupied with its troubles.