Spending Clunker Cash: Diesel vs. Hybrid

If you want to upgrade to a more fuel efficient car, why not go all out and get one that gets you up to 50 miles per gallon?

Now might be the time thanks to the government’s Cash for Clunkers program.

Formally known as the Car Allowance Rebate System, the incentive could give you as much as $4,500 to help offset the price of a new car. But if you’re looking to use the incentive to make up for the premium you’ll have to pay for a real fuel-sipper, are you likely to buy a hybrid car like the Toyota (Stock Quote: TM) Prius, or a diesel vehicle, which also stretches your gas money far?

The Perks of Diesel

Diesel gets you more for your money than gas, especially now since prices of both are about $2.55 as of the beginning of August, according to the U.S. Energy Information Administration. (A year ago, a gallon of diesel averaged about $4.50 a gallon while retail gasoline was about $3.94 a gallon.)

One reason for the usual price difference is that today’s diesel is much cleaner than diesel used decades ago. 

“Nearly all of the sulfur is now removed from on-road diesel,” says Tom Kloza, Chief Oil Analyst at the Oil Price Information Service. While this process could make diesel cost more than gas, the difference may be tamped by demand for the fuel, which has many other uses including jet fueling and home heating.

“A $2.75 a gallon diesel price isn’t the same as a $2.75 per gallon gasoline price, usage-wise,” says Tom Kloza, Chief Oil Analyst at the Oil Price Information Service.  With diesel, “You get more bang for your BTU buck,” he says.

It’s unclear whether diesel prices will stay relatively low, however.

“Diesel prices are likely to be volatile,” predicts John Wolkonowicz, auto analyst at research firm IHS Global Insight.  Demand is currently high, but there are other ways to achieve or exceed the fuel efficiency of a diesel car with gasoline, he adds.

Why Hybrids are Winning

“We are forecasting that by 2020, at least of half of the new vehicles sold will be some kind of a hybrid,” says Wolkonowicz.

In Europe, diesel cars have been popular for years and automakers there are more equipped to manufacture them. In the U.S., however, Volkswagen is the only company making affordable diesel cars, says Wolkonowicz.  Beyond that, luxury brands like Mercedes (Stock Quote: DAI) and BMW offer diesel cars in America, he adds.

Earlier this year, U.S. automakers General Motors (Stock Quote: GM), Ford (Stock Quote: F), and Chrysler dumped plans to develop new diesel vehicles because of high development costs and other problems.

And many consumers and experts alike still consider hybrid vehicles cleaner. 

“If you watch a diesel accelerate hard, it will still belch some smoke,” Wolkonowicz says. Still, there's some extra zip in diesels, he adds. “They sock you back in the seat when you accelerate off the line. They’re really fun.”

How They Add Up

A 2009 Toyota Prius gets an EPA estimated 46 miles per gallon, while a 2009 Volkswagen Jetta running on Diesel gets you 34 miles per gallon according to the EPA.  EPA estimates involve tests using the same apples-to-apples driving conditions for all cars, however, Wolkonowicz says.  Drivers, however, report that you can get as much as 57 miles per gallon out of a Jetta TDI (the TDI denotes diesel) and as much as 64 miles per gallon out of a Prius, according to fueleconomy.gov. The MSRP for a 2009 Prius is $22,750, while a 2009 Jetta TDI sedan starts at $22,970 (although the Jetta TDI may qualify for tax incentives).

Diesel vehicles are getting more popular.  Volkswagen says 40% of Jettas sold run on diesel, and since it’s been selling more than expected, they may be in short supply until the next model year.  Some industry experts predict that diesel car sales will match hybrid car sales by the year 2016, notes VW spokesman Steve Keyes.

If that’s the case, and Wolkonowicz is right about hybrid sales, all of the cars on the road would either be diesel or hybrid.

Related Stories:

Toyota Prius: Reasons to Steer Clear

Are Green Cars Worth the Gas Savings?

Summer Gas Prices Already Surpass Predictions

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