The Wall Street Journal-20080114-The Detroit Auto Show- Running on Alternative Fuels- GM Takes Stake In Ethanol Firm- Diesel-s New Push
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The Detroit Auto Show: Running on Alternative Fuels; GM Takes Stake In Ethanol Firm; Diesel's New Push
The auto industry is betting that more American drivers are ready to put good-old gasoline in their rear-view mirrors.
Here at the Detroit auto show, a wide range of car companies are setting out plans to push alternative fuels, particularly ethanol and diesel, as a means of increasing fuel economy, cutting greenhouse-gas emissions and burnishing their green credentials with increasingly environment-minded consumers.
Yesterday, General Motors Corp. announced it is taking an undisclosed stake in a new cellulosic-ethanol company, Coskata Inc., based in Warrenville, Ill. Coskata, backed by billionaire investor Vinod Khosla, is one of more than a dozen U.S. companies rushing to develop efficient production of cellulosic ethanol, a fuel that can be made from many materials, including wood, orange peels and tires.
At the same time, Volkswagen AG's Audi unit, Daimler AG's Mercedes- Benz division and BMW AG all vowed to introduce an array of diesel- powered vehicles in the U.S. market this year. Their new models are powered by advanced, "clean" diesel engines that get about 15% better mileage than comparable gasoline motors and meet emissions standards of all 50 U.S. states, a critical new development.
The effort to promote ethanol and diesel reflects the pressure on car companies because of new fuel-efficiency requirements in the recently passed energy bill. The new law's Corporate Average Fuel Economy standard, also known as CAFE, calls for auto makers to produce fleets that average 35 miles per gallon by 2020, up from the current target of about 25 miles per gallon.
"We have to adhere to CAFE," Daimler Chief Executive Dieter Zetsche said in an interview. "Diesel is a means to get there."
About half the cars sold in Europe have diesel engines, thanks in large part to tax systems in several countries that make diesel fuel significantly less expensive than gasoline. But Americans have shunned diesel, in part because of memories of the sooty diesel cars auto makers pushed in the 1980s. Only about 3% of all cars sold in the U.S. are diesel.
Auto makers, especially the German companies, are gambling that American drivers are now more open to diesel. Mercedes will offer new diesel engines in its M, R and GL-Class sport-utility vehicles. Audi will bring out a version of its Q7 SUV with a three-liter, V6 diesel engine. At the Detroit show, Audi is also showing a sports-car concept with a massive V12 diesel motor in hopes of generating excitement for diesel.
BMW's three-liter V6 diesel will debut in its X5 SUV and 3 Series sedan. Honda Motor Co. and Kia Motors Co. have diesels scheduled to arrive in the U.S. in 2009 and 2010.
All face a stiff marketing challenge. Their advanced diesel models are more expensive than gasoline versions, while diesel fuel itself is more expensive than gas in many states. In New Jersey, for example, premium gasoline sells for about $3.05 a gallon; diesel costs about $3.25 a gallon.
Jesse Toprak, an analyst for car-shopping Web site Edmunds.com, said the new diesels from German makers are likely to draw interest from "early adopters" who understand the technology's benefits. But he added that auto makers "will have a challenge convincing middle-class families who don't care about technology and just want to save money on fuel."
Mr. Toprak was less optimistic about ethanol because few gas stations carry it. "If people can't find it, they can't buy it," he said.
In Detroit at the auto show, GM CEO Rick Wagoner called on the federal government to do more to make ethanol more widely available, saying existing tax incentives are "not doing the job."
GM has been aggressively marketing ethanol as a way to complement its growing fleet of vehicles that can run on the 85% ethanol-15% gasoline fuel blend called E85. Coskata hopes that allying with GM will give the company brand recognition and an immediate platform for its fuel once it hits the market, which isn't expected to be until 2011 at the earliest.
So far, cellulosic ethanol has been a pipe dream despite years of continuing research in the field. Only a handful of companies are producing the fuel on a pilot scale, and none yet is operating on a large commercial level because it is still too expensive to make. A protracted bout of high oil prices and significant government support is likely to give the fuel a boost and speed up commercialization.
Last month, President Bush signed a bill that requires oil refiners to blend a total of 36 billion gallons of renewable fuels into the nation's gasoline supply by 2022. Of that, 21 billion gallons must be "advanced biofuels," which include cellulosic ethanol. About seven billion gallons of ethanol now are used annually in the U.S., and nearly all comes from corn.
Whoever figures out how to make cellulosic ethanol profitably first might send fuel and autos to a new level that may achieve Henry Ford's dream of fueling cars not on petroleum but on a range of farm products such as apples, sawdust and weeds.
Nonetheless, investors have been wary of sinking money into cellulosic ethanol, because past research in the field has withered when oil prices fell. Coskata Chief Executive Bill Roe said he believes now is different because of the government's support for the fuel and because demand for energy is increasing at a rapid clip in emerging economies such as China. New technologies also may help make the fuel more cost-competitive.
