Running on Alternative Fuels

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."

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.

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.

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