Early in November, Toyota announced it was entering into a capital tieup with Isuzu Motors, a move that surprised many.
Toyota, the industry giant, has a reputation for moving slowly in making such deals. Its agreements with Daihatsu and Hino were 30 years in the making. But in the case of Isuzu, a deal was signed in short order and clearly at Toyota's initiative.
Why the urgency?
In a word: Diesel.
Isuzu is an old hand at diesel and offers Toyota the chance to catch up in an area it appears to be lagging in. But what is it about diesel that should make Toyota so excited?
Diesel has been making a resurgence on the world stage recently. Due to favorable legislations and key technological developments, diesel has shed its old, dirty image and is now a strong performer in Europe, where its cleanliness, power and efficiency have helped it claim half the market there. Outside this efficiency- and emissions-minded region, however, diesel has so far been less successful.
But change is in the air. In 2009, the United States will introduce the world's toughest emissions standards for carmakers and thus radically change the regulatory environment in the world's largest automobile market. Now in a transitional phase, the new Tier 2 standards will compel manufacturers to radically reduce emissions of greenhouse gases and turn the U.S. market into an environmentally safer place.
The lack of availability of low-sulfur fuel previously had been a factor in giving diesel engines their dirty and noxious reputation. But that, too, is being legislated into history. Ultra-low-sulfur fuel is already being refined in the U.S., and the new standard of 15 parts of sulfur per million will be available nationwide by 2007. European sulfur levels have been at or around that level for a few years already, allowing manufacturers to develop engines with low emissions.
Also, diesel fuel has more potential energy than gasoline, which is the main reason why engines burning it can use less. Less fuel burned means less carbon dioxide from the tailpipe -- a reduction of 25 to 30 percent. Since carbon dioxide has been identified as one of the main culprits in global warming, a large shift to cars that emit less of it will have a big impact on any country's ability to meet clean-air standards such as those spelled out under the endangered Kyoto Protocol. In this context, diesel suddenly takes on a new luster.
But what about hybrids? Gasoline engines are pretty clean already. They comply with the Tier 2 standards, and the lead in gasoline itself was removed in the 1970s. Combine them with rechargeable battery-powered engine systems and you have a fuel-efficient, low-emissions vehicle.
Or do you?
When it comes to hybrids, the comparisons are usually made with gasoline engines. Hybrids and diesels, however, do not differ much in actual mileage and emissions. But hybrids need expensive batteries and electric motors, costs that consumers must bear up front. Diesels, however, use established technologies and can sell for substantially less.
Honda, another manufacturer of hybrids, has also tossed its hat into the diesel arena. In May the company announced it would develop super-clean diesel engines within three years. Although they will continue producing hybrid cars, the diesel announcement surprised some industry watchers, in particular Toyota. Honda was among the first to benefit from the change to unleaded fuels over 30 years ago; their interest in diesel signaled that this too could be the start of something huge in the industry.
Now that Toyota seems to be ready to place its bets on diesel as well, how will this play out in the futures of the former giants of industry, such as ailing General Motors? A number of European makers have plenty of experience with diesels in Europe, and they will have considerable strengths to apply in North America, where the rewards have been so rich for the likes of Honda and Toyota.
The diesel market in North America is relatively small, accounting for 3.2 percent of the passenger vehicles sold in 2005, but this is still two diesels for each hybrid sold.
The diesel market is expected to grow to 10 percent by 2015, and if Europe is any example, even higher after that. Just last week at the Los Angeles Auto Show, Volkswagen and DaimlerChrysler launched new diesel models under the name Bluetec to refer to the cleaner diesel technology under their hoods.
In Japan, the size of the diesel market is negligible -- of the nearly 6 million cars sold in 2005, only 2,086 were diesel. With companies such as Mercedes launching diesel models this year, however, a growing number of manufacturers, including Japanese ones, are betting this proportion will change. The Yano Research Institute predicts a rise to 11 percent in 2015.
The stage is being set for an interesting battle of fuel efficiency. The combatants will be the Europeans, who have years of diesel experience on their side, the Japanese, with all their manufacturing ingenuity and sheer size, and the Americans, who seem to struggle to make cars that suit the new competitive landscape.
One of the battlefields in the global realignment of the auto industry is future engine technology. With the fuel cell still a long way down the road, diesels are looking increasingly strong when pitted against hybrid technology.
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