Diesel: the smarter alternative? As gas prices rise, new high-peformance diesels bear attention.

It seems safe to say that the soaring price of gasoline isn't much of a factor when a CEO goes shopping for a luxury car. But that could change with the arrival of a new breed of diesel cars that offer vastly better fuel economy than equivalent gasoline-fueled models, with little if any difference in performance.

[ILLUSTRATION OMITTED]

The 2005 Mercedes-Benz E320 CDI is just such a car. The $49,000 diesel model performs just as smoothly as its gas-powered twin, as a friend and I experienced on a hundred-mile test drive through the Texas hill country around San Antonio. We averaged an astonishing 41 miles per gallon, using a few tricks to attain the high mileage, such as putting the transmission in neutral and coasting down hills. But even in conventional driving mode, you still get a stellar 37 mpg on the highway and 27 mpg in city driving, compared with 27 and 19 with the gasoline engine.

Other high-performing diesels are available from Volkswagen, the leading seller of diesel cars in the United States. VW offers five diesel models, including an SUV that's powered by a monster V-10 engine. "You would have to buy a yacht to get a bigger diesel," says a VW engineer. Also new this year is a diesel Chrysler Jeep Liberty that will debut late in 2004.

The fuel efficiency of the E320 CDI is spectacular for a performance car that weighs nearly two tons. If you drive 15,000 miles a year, its 30-percent better fuel economy would save about 160 gallons of fuel. At today's $2-plus-per-gallon gas prices, that would be a savings of up to $400. That may be insignificant to most luxury car owners. But, as Karen Makris, marketing manager for the Mercedes E-Class, says, it's not so much the money as the convenience that matters. An E320 CDI driver would need about eight fewer fill-ups per year. For time-pressed executives, that can be more important than saving a few dollars.

Another reason to buy diesel is that it's simply a smart choice. If Americans start facing long lines at the gas station later this year, wouldn't it be great to be able to avoid all the tedium and frustration? The E320 CDI is powered by a new turbocharged 201-horsepower engine. CDI stands for Common-rail Direct Injection. It employs an innovative technology that feeds fuel into the injectors from a single electronically controlled pump with the precise pressure and timing that fuel injection requires.

Mercedes introduced the first diesel-powered car in 1936, and at one time 80 percent of the cars the German automaker sold in the U.S. had diesel engines. The E320 CDI, however, is the first diesel car the company has sold here since 1999. In the face of tightening federal emissions regulations that prohibited existing diesel systems, Mercedes withdrew diesels from the U.S. market until its new technology was ready. It is testing the waters with this new model, hoping to sell 3,000 cars a year.

The E320 CDI comes without any of the negatives associated with your uncle's old oil burner. There's no detectable diesel smell. No chugging sound of the motor. Most of all, there's no black, smoky exhaust. If not for the CDI logo on the trunk, most buyers wouldn't know the car is a diesel.

If you're interested in an even more powerful diesel engine, Volkswagen's Touareg is worth attention. VW offers an astonishing new 5-liter, V-10 diesel option for the SUV. The engine develops 308 horsepower. During a visit to Germany last year, I drove it for a short test run. The V-10 is powerful and smooth. It can satisfy any speed enthusiast and do it with car-like performance. Its acceleration is swift, thanks to the abundance of low-end torque. Be prepared to pay a premium of more than $15,000 for the V-10 Touareg. Its price is $57,800, versus $42,640 for the V-8 gasoline engine, although the V-10 comes with additional standard equipment such as a navigation system, special wood and leather, a heated steering wheel and keyless access.

VW also offers two moderately priced diesel engines. The Golf TDI, Jetta TDI and New Beetle TDI all have 1.9-liter, 4-cylinder engines that generate 100 horse-power. A Passat TDI that just went on sale runs on a stronger 2-liter engine rated at 134 horsepower. VW charges a premium of about $1,000 for its diesel models. The overall prices range from $17,200 for the Golf to $25,666 for the Passat.

[ILLUSTRATION OMITTED]

VW engineers have focused on diesels because they are so popular in Europe, and their expertise shows. All of Volkswagen's passenger cars are a pleasure to drive. Diesels account for more than 10 percent of VW's annual sales in America, the most of any brand in the U.S. But it's a far cry from the popularity of diesels in Europe. The European Automobile Manufacturers Association reports that 43 percent of all light vehicles sold across the pond come with diesel engines.

GM, Ford and the Japanese carmakers have no immediate plans for a diesel entry in the U.S. market. Volkswagen's upscale sister division, Audi, is considering one. BMW has been lending out a diesel-powered car to U.S. journalists for test drives, but a spokesman says the company has no intention of putting one on sale in America at this time.

Interest in diesel cars is likely to increase as 2007 draws closer. That's when cleaner diesel fuel has been mandated by the Environmental Protection Agency. The more stringent emissions standards will require a cleaner diesel fuel than what is currently on the market. And that cleaner fuel should enable automakers to create diesels that can meet the emissions standards of the five states that now prohibit them--California, New York, Massachusetts, Maine and Vermont. Many more car buyers could swing in the diesel direction, especially if gasoline prices keep climbing. Maybe it's time for smart CEOs to get out in front of the trend.