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updated 5/27/2004 3:28:02 PM ET 2004-05-27T19:28:02

European auto makers are gearing up their biggest efforts in years to convince American consumers that modern diesel engines are an attractive antidote to $2-a-gallon gasoline.

Executives at Volkswagen AG and DaimlerChrysler AG's Mercedes-Benz and Chrysler Group units are hoping that when American consumers experience modern European diesels they will forget the less-attractive generation of diesels sold during the early 1980s, the last time gasoline prices reached inflation-adjusted levels of $2 a gallon or more. In the process, the European brands also aim to counter some of the marketing momentum that Japanese rivals Toyota Motor Corp. and Honda Motor Co. are gaining from growing sales of their efficient, and cleaner-running gas-electric hybrid vehicles.

Volkswagen, the world's leading producer of diesels for light passenger vehicles, last month began selling diesel versions of its midsize Passat sedan and wagon in the U.S. That marked a significant expansion of its diesel lineup in the U.S. VW already sells diesel-powered Jetta, Golf and Beetle models, but the the Passat is VW's mainstream family car, and a competitor to the Honda Accord, Toyota Camry, Nissan Altima and other models.

Separately, DaimlerChrysler's Mercedes division last month began selling a diesel version of its E Class luxury sedan. And later this year, DaimlerChrysler's Chrysler Group plans to offer diesel-powered Jeep Liberty models.

The two European manufacturers, who have invested billions in diesel technology to serve booming demand in Western Europe, are taking a chance that Americans fuming about rising gasoline prices will give diesel a second chance. The diesel engines offered in some passenger cars in the U.S. during the early 1980s were more fuel-efficient than comparable gasoline engines, but they tended to be dirty, noisy and in some cases unreliable. When gas prices eased in the 1990s, demand for diesel cars in the U.S. all but dried up.

"We've got to bust these myths in America about diesel," says Len Hunt, head of the Volkswagen brand in North America.

VW hopes to boost sales of diesel Passats to between 10 percent and 15 percent of total U.S. Passat sales, or as many as 12,000 vehicles a year (based on last year's U.S. Passat sales). The arrival of the new Passat makes that car the only midsize model sold in America with a diesel engine.

Volkswagen is selling the diesel Passat for $23,060, and next month will roll out new advertising to promote the car's highway mileage of 38 miles per gallon and highway range of 623 miles between fill ups. By comparison, a similar-model Passat that is gasoline-fueled is rated at 21 mpg in the city, 30 mpg on the highway, and starts as low as $22,355.

European light diesel engines face considerable hurdles to meet tough new U.S. clean-air standards that take effect in 2007. On top of that, diesels currently can't be sold in California and four Northeastern states because they don't meet their clean-air standards. The Japanese hybrid gas-electric cars, by contrast, meet clean-air standards in all 50 states, and don't emit the kind of sooty particles that have been identified by the Environmental Protection Agency as potential cancer-causing agents.

Another problem for Euro-diesel: Current exhaust-cleaning technology can't handle diesel fuel in the U.S. because of its high-sulfur content. The fuel also isn't easy to find at corner gas stations here, although industry executives say that is changing.

The relatively low-priced diesel Passat is part of a broader effort to revitalize the VW brand's image in the U.S. after a year of sharply sliding sales and red ink. The renewed emphasis on affordability comes after a period in which VW sought to portray itself as a near-luxury brand moving to compete with the likes of BMW AG. That effort produced a 10.5 percent slump in sales last year and a 25 percent drop during the first three months of 2004. Now, Mr. Hunt is shifting gears to focus on value. He's also focusing on trying to fix nagging quality problems that have undermined the brand's reputation in the U.S.

Nonetheless, VW hasn't completely abandoned pricey vehicles. In February, it began selling a diesel version of the Touareg sport-utility vehicle, starting at $57,800. VW says it will average 17 mpg in the city and 23 mpg on the highway, compared with 14 and 18 for the comparable gasoline-powered model.

The new Mercedes E320 CDI diesel, meanwhile, is rated at 27 mpg in the city, and 37 mpg on the highway, compared with 19 and 27 for the gasoline-powered E320. The first official sales report for that model won't come in until early June, but Mercedes-Benz USA spokeswoman Michelle Murad says "dealers are selling everything they can get their hands on." Mercedes has committed to bringing only 3,000 diesel E Classes to the U.S. this year.

Chrysler plans to build an estimated 5,000 diesel Libertys a year, a tiny slice of the Liberty's annual sales of about 163,000 vehicles.

Total diesel light-vehicle sales in the U.S. have been climbing steadily since 1998. They now account for about 3.6 percent of total light-vehicle sales (through the end of April this year), double the share in 1998, says Walter McManus of J.D. Power and Associates, a California market-research firm.

Mr. McManus estimates that car makers sold 567,998 diesel-powered light vehicles last year, compared with just 47,525 gas-electric hybrid vehicles, and he says the diesel figures could grow as more models arrive in the U.S. Diesel's share of the U.S. light-vehicle market could be as high as 15 percent if more models were available, he says. The bulk of diesel-powered light vehicles sold in the U.S. are pickup trucks, particularly large, "heavy duty" pickups like Chrysler's Dodge Ram or the Ford F-250.

VW officials, briefing reporters at a meeting earlier this week in Reston, Va., said the company's engineers and key diesel-technology supplier Robert Bosch Gmbh haven't yet conquered all the technical hurdles required to meet the toughest clean-air standards. Those standards call for diesel engines to emit about one-eighth the soot and less than one-sixth the smog-causing oxides of nitrogen emitted by current European diesels.

But both VW and Mercedes say they are confident they can resolve the remaining issues by the time 2007 rolls around.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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