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Will Tax Credits Help Clean Diesel?

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The first "clean diesel" vehicles are making their nationwide debut in late September and early October. The diesel vehicles from Volkswagen and Mercedes will start showing up in dealerships in California and other states that had previously not allowed diesels because of strict emissions guidelines. Two new factors could boost sales of these vehicles: a recent drop in diesel fuel prices, and new federal tax incentives for clean diesel vehicles.

Mercedes-Benz recently won the first consumer tax credits for diesel vehicles when the Internal Revenue Service awarded purchasers of the Mercedes GL 320 Bluetec a $1,800 tax credit, and buyers of the Mercedes R320 Bluetec and ML 320 Bluetec Diesel SUVS tax credits of $1,550 and $900 respectively.

In addition, Volkswagen announced today that buyers of the Jetta TDI sedan and SportWagen are eligible for a $1,300 Federal Income Tax Credit. The "Qualified Alternative Motor Vehicle Credit," passed by Congress in 2005, was previously granted only to hybrid gas-electric, compressed natural gas, and propane-fueled vehicles.

Meanwhile, the drop in fuel prices in recent months has reduced the average gap between regular gasoline and diesel to less than 20 cents. As recently as mid-August, that gap was approximately 50 cents—which was virtually erasing the traditional fuel cost savings offered by diesels. (The larger gap between gas and diesel remains in some parts of the country.) The Jetta diesels offer combined city and highway fuel efficiency in the mid-30 mpg range, with the powerful luxury Mercedes vehicles providing mileage in the mid- to low-20s.

J.D. Power and Associates, an auto market research firm, forecasts that diesels will account for as much as 14 percent of the US auto market in 2017—up from 3 percent today. That growth will depend on diesel vehicles passing California’s emissions standards and thereby reaching markets in all 50 states.

The most important economic factor—especially during the current recession—could be purchase price: the MSRP for the Mercedes GL 320 is $57,625, while the R320 and ML320 are both in the high $40,000 range. The Volkswagen Jetta TDI and SportWagen TDI are priced more competitively at $21,990 and $23,590 respectively.



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Will Tax Credits Help Clean Diesel?