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"The recent price hike is a major blow for the companies' initial plans to offer more cars with diesel engines in the U.S.," said Global Insight analyst Roman Mathyssek. He said more-focused marketing efforts along with the diesel engine's superior fuel efficiency still might be able to win over American customers, if the price for diesel eases again.

Less than 5% of the cars on the road in the U.S. have diesel engines. That compares with about 55% in Western Europe.

"As far as diesel is concerned, I've become more skeptical. There's not much happening in the U.S.," said Karl-Thomas Neumann, an executive board member of auto-supplier Continental AG.

Crude oil for September delivery fell $2.23, or 1.8%, to $123.26 a hbarrel on the New York Mercantile Exchange on Friday, up 60% from 52 weeks ago.

According to the U.S. Energy Information Administration, the average price per gallon for diesel fuel rose $1.88 over the past 12 months to $4.73 as of July 7, compared with a rise of $1.13 to $4.11 for regular gasoline. Since September 2004, the price of diesel fuel in the U.S. has been higher than the price of regular gasoline amid rising demand for diesel fuel in China, Europe and the U.S., which increased pressure on the tight global-refining capacity.

Additionally, the transition to low-sulfur diesel fuel in the U.S. has pushed up production as well as distribution costs, and the federal excise tax on diesel fuel is six cents higher per gallon, at 24.4 cents, than the tax on regular gasoline.

Volkswagen, Daimler and BMW, which invested heavily in the development of modern diesel engines, said the fuel economy of diesel engines, especially on longer journeys, is superior compared with a hybrid car. Hybrid cars are powered by an electric engine combined with a conventional combustion engine, which leads to lower fuel consumption, particularly in urban traffic. But for highway travel, hybrids depend on their combustion engines.

Charlie Freese, General Motors Corp.'s director of diesel engines, said the business case for diesels in the U.S. has sagged under the high cost for that fuel. "As far as the economic justification for buying a diesel, it's just not there for many people."

He said hybrid-electric vehicles make sense in many cases in the U.S., especially for people who drive mostly in congestion. Heavier vehicles such as trucks, which need a lot of power, are an ideal fit for diesel.

GM will begin offering lighter versions of its pickup trucks with diesel engines in 2010. It already has several heavier-duty trucks available with diesel engines. Mr. Freese declined to say whether the company will bring diesel-powered passenger cars to the U.S. market.

Despite the sharp increase in fuel prices, European auto makers are determined to persevere with their diesel plans in the U.S. for now.

Volkswagen Chief Executive Martin Winterkorn said he still sees significant potential for diesel cars in the U.S. "We've received great feedback from our dealers on our diesel models," Mr. Winterkorn said.

That sentiment was echoed by BMW. "There are a couple of different issues that pushed the price for diesel up in the U.S., but there's still very clearly a logic behind launching diesel in the U.S.," BMW executive board member Ian Robertson said.

"We'll stick to our plans....We don't expect the recent trend to continue. The price gap between diesel and gasoline will narrow again," Mr. Robertson said. BMW later this year plans to launch cars with diesel engines under the BluePerformance label.

Daimler shares that assessment. "We monitor the diesel price in the U.S. very closely, and the circumstances could be better, indeed," said Daimler spokesman Christoph Horn.

"Diesel has been a success for us in the U.S. as demand is rising, and there is no sign so far that this trend would reverse," he said, adding that diesel cars already account for about 25% of the M-Class vehicles the company sells in the U.S., even though no major marketing effort has been made.

Mercedes-Benz sold around 5,500 cars with diesel engines in the U.S. in the first five months of the year, compared with roughly 4,500 in the same period last year. Overall, Mercedes-Benz sold 99,703 cars in the U.S. in the January-to-May period.

Mercedes-Benz sells diesel versions of its M-, R- and GL-Class models in 45 states and is rolling out a new diesel-engine generation, dubbed BlueTec, for sale in all 50 states in the fall.

Daimler promotes BlueTec as the world's cleanest diesel engine, using filters and traps to reduce soot and nitrogen-oxide emissions.
European auto makers' efforts to persuade more Americans to buy cars with diesel engines are turning into an uphill battle due to rising prices at the pumps.

German manufacturers Volkswagen AG, Daimler AG and BMW AG have launched initiatives to make diesel cars more popular in the U.S. as they bet Americans will eventually overcome the perception that diesel engines are loud, smelly and polluting. But their plans appear to be stalling on the back of soaring oil prices.

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I think the point is that the major diesel advocates were expecting a big diesel push but that it won't happen due to a depressed economy and high diesel prices. People just see $4 or $5 and don't know about the mileage. There'll always be a few nuts who must have that car, the general public never warmed up to diesel...but this article mentions 25% of M class Benzes were diesel!
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