A few years back I made a bet with a former Director of Engineering at General Motors. I bet him five bucks that Americans would fall in love with modern diesel engines and would want them in their cars. Specifically, I predicted that diesel sales in passenger cars would reach 1 million units by 2012. He bet it wouldn't happen.
Last year I ran into him and he ruefully conceded he was probably going to lose the bet. But that was last year. Now I'm pretty sure I'm the one who's going to lose. What a difference a year makes!

John McElroy is host of the TV program "Autoline Detroit". Every week he brings his unique insights as an auto industry insider to Autoblog readers. Follow the jump to continue reading this week's editorial.

Today, a combination of emission standards, fuel prices and competing technologies are conspiring to put a dark cloud over the diesel's future.

Any enthusiast who's driven modern turbo-diesels like they offer in Europe immediately falls in love with them. What's not to like? Torquey, smooth and fuel-efficient – they are nothing like the slow, smoky, clatter-boxes of years past. Depending on the kind of driving you do, they can offer the same or better fuel economy than a hybrid. And at lower cost. European automakers love them because they offer the least expensive way to lower their CO2 footprint.

For nearly a decade now, over 50% of new cars sold in Europe are equipped with diesel engines. But this year that's running under 50% and automakers expect a long, slow decline in diesel sales. What's happening in Europe is probably a good predictor of how diesels will fare in the American market.

First off, in many European countries this year the price of diesel fuel has matched the price of gasoline. It used to be up to 20% cheaper in most markets. The same thing has happened in the U.S., only to a greater degree. In the last year here, diesel fuel shot substantially above the price of gasoline.

Like the U.S., Europe is cracking down on diesel emissions. The current Euro 5 standards are weaker than the EPA's Tier II Bin 5 bogey. But that's going to change. When they get to the Euro 6 standard in 2015, Europe is going to close the gap substantially. And that's when costs go through the roof.

Up to now European car buyers consciously paid a premium to buy a car with a diesel because they knew it would pay for itself over the life of the car. But thanks to higher diesel-fuel prices that's no longer the case. And thanks to upcoming emission controls, the premium they pay for a diesel engine is going to jump from roughly $1,600 to something more like $3,000 to $4,000. That could be the final nail in the coffin.

Or, I should say, the final nail in mass-market diesels. In the luxury segment, where buyers are far less concerned about the cost of fuel, they'll happily pay a premium to get the kind of performance that diesels provide. But in the middle and lower ends of the market, buyers are being lured away with direct-injection, turbo-charged gasoline engines. Soon they'll get stop-start technology (micro-hybrids) and other bits and pieces that will provide excellent fuel efficiency at a much lower cost.

Of course, all this is happening just as 50-state diesels are becoming available in the U.S. market. This shouldn't affect Mercedes-Benz or Volkswagen too badly since they already have a solid base of diesel customers. Remember, up until the mid-1980's nearly 75% of all the cars Mercedes sold in the U.S. were equipped with diesels. But other brands without that kind of owner base, like BMW and Audi, are likely going to find it harder to sell diesels. And the American and Japanese brands will probably have an ever harder time.

Of course, look how much the situation has changed in just one year. Who knows if it will change back by 2012? But at this snap-shot in time, it sure looks like I'm going to have to cough up five bucks, because the way things are going I'm on my way towards losing that bet.

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