DCX Chairman Dieter Zetsche Urges Americans to Rethink Diesel.

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Next Generation Clean Diesel BLUETEC Reduces Fuel Consumption, Improves Emissions.

DCX - Jan. 23, 2007

Dr. Dieter Zetsche convincing the US to “Rethink Diesel”.

Washington, D.C. - Today at the Washington (D.C.) Auto Show, Dr. Dieter Zetsche, Chairman of the Board of Management of DaimlerChrysler AG and the Head of Mercedes Car Group, called the nation’s attention to the new generation of clean diesels - branded BLUETEC - while encouraging U.S. lawmakers to set regulations that support a diversity of approaches to reducing the country’s dependence on foreign oil.

To emphasize the point, he introduced the 2007 Dodge Ram 2500 and 3500 with 6.7-liter Cummins turbodiesel engine offered with B5 and B20 biodiesel, available to consumers in March. The first to do so and three years before the deadline, the heavy duty truck will meet stringent 2010 truck emissions standards in all 50 states. He also announced the Dodge Ram clean, light-duty turbodiesel engine that will provide up to 30-percent improved fuel economy, meet 50-state, 2010 emissions standards, available after 2009.

• Encourages U.S. policymakers to provide consumers with equal incentives on fuel-saving technologies.
  
• Outlines Company’s commitment in all areas of alternative fuel technologies.
  
• Unveils 2007 Dodge Ram first pick up truck to meet stringent 2010 truck emissions standards in all 50 states, three years before deadline.

With fuel economy improvements of 20 to 40 percent and a reduction of oxides of nitrogen (NOx) by as much as 90 percent, Zetsche stressed that clean diesel technology is a viable solution to reducing dependence on oil and improving air quality. Zetsche also urged U.S. policymakers to stimulate greater demand and consumer choice for fuel-saving technologies - such as diesel - by providing equal incentives on powertrains that achieve lower fuel consumption with clean emissions.

“American policy-makers must adopt a new and unique formula… that encourages more technologies and more (customer) choice,” said Zetsche. “I’ve always thought CAFÉ - in the country that is the world’s model for a free-market economy – to be a bit of a contradiction. It’s an attempt to regulate supply and not to use market forces to stimulate demand for more fuel-efficient vehicles.”

Zetsche reasoned that “trying to sell people what they don’t want is not a winnable business proposition. And it is that ‘anti-free market element’ of CAFÉ that makes life difficult for us. We’ve learned to live with CAFÉ and its modest increases.” He added that we would be open to revisiting the CAFÉ discussion for cars, as they did recently for trucks and make the regulation “size based” and not “fleet based”.

Zetsche offered that the automotive companies should “look to innovation, and to increasingly substituting petroleum products with biofuels.” He pointed to the modern diesel engine which has “plenty of the former, and great potential for the latter.”

He mentioned a current study that expects diesel takes rates in the U.S. to hit 15 percent by 2015. Zetsche also detailed the significant advantages of modern diesel engines where the ultra-modern BLUETEC diesel vehicles provide their owners with clean and economical performance.

The Mercedes brand has been pioneering BLUETEC in Europe, where it’s been on the road for several years. Since 2005, the Company has sold more than 40,000 BLUETEC Mercedes-Benz trucks and buses in Europe, “where they’ve performed exceptionally well in everyday heavy-duty service,” added Zetsche.

Mercedes-Benz intends to systematically broaden its BLUETEC portfolio. In addition to the recently introduced Mercedes E 320 BLUETEC, three additional BLUETEC models will join the line-up, the R-Class, the ML-Class and the GL Class that will all be assembled at the Company’s plant in Alabama.

He also submitted that DaimlerChrysler “is not pursuing diesel to the exclusion of other alternate fuel technologies.” Zetsche listed many on-going initiatives including the Company’s fuel cell activities where DaimlerChrysler has invested more than $1 billion and has more fuel-cell vehicles on the road today than any other manufacturer.

The Company also has about 1,500 Orion VII diesel-electric buses in service or on order for municipal fleets in Toronto, San Francisco and New York City/New Jersey. And, working with GM and BMW, DaimlerChrysler is jointly developing a state-of-the-art, two-mode, full hybrid propulsion architecture for applications in Chrysler Group, Mercedes Car Group, GM and BMW vehicles. The first DaimlerChrysler vehicle to use this system will be the Dodge Durango, coming in 2008.

Unveiled during Zetsche’s keynote address, and available in dealerships next month, was the new Dodge Ram Heavy Duty BLUETEC featuring an all-new 6.7-liter Cummins turbodiesel engine, the first to meet 2010 truck emissions standards in all 50 states. It is the first BLUETEC vehicle from the Chrysler Group.

“Several years ago, when the EPA set stringent 2010 diesel emissions standards for heavy-duty pickup trucks, we didn’t shake our heads and say ‘no’,” said Zetsche. “We went to work with Cummins, the long-time diesel engine partner for Dodge Ram heavy-duty three-quarter and one-ton pickup trucks, to meet the challenge.”

The new 2007 Dodge Ram Heavy Duty engine uses a diesel particulate filter to virtually eliminate particulate matter emissions and an absorber catalyst to reduce NOx by as much as 90 percent and virtually eliminate particulate matter emissions.

In addition to the heavy duty pick up truck, DaimlerChrysler revealed another addition to its diesel lineup. Tom LaSorda, Chrysler Group President and CEO, announced an all-new diesel engine for its light duty Dodge pickup trucks that will be available after 2009. Armed with new Cummins clean-diesel technology, the new engine will provide a dramatic increase in low-end torque, up to a 30-percent improvement in fuel efficiency and a 20-percent reduction in carbon dioxide (C02) emissions when compared to an equivalent gasoline engine. The new clean turbodiesel engine will meet 50-state emissions standards for 2010.

LaSorda also announced pricing on the 2007 Jeep® Grand Cherokee, 3.0-liter common rail turbodiesel (CRD) that will begin to arrive at Jeep dealerships in March. The Manufacturer’s Suggested Retail Price (MSRP) for the Jeep Grand Cherokee Limited CRD will begin at $38,475, including $695 destination. The 3.0-liter CRD engine will be available on the Jeep Grand Cherokee Limited and Overland 4x2 and 4x4 models.

BLUETEC represents the cleanest diesel vehicles in the world. These next-generation vehicles meet the most stringent emissions regulations worldwide, including emissions standards in all 50 U.S. states.

BLUETEC is the DaimlerChrysler-owned brand name that stands for the cleanest diesel engines in their respective classes, i.e., those that meet 50-state emissions standards.

BLUETEC is just one of the many fuel saving technologies from DaimlerChrysler, including advanced gasoline, Flex-Fuel, hybrids and zero-emission fuel-cell vehicles.

DCX Chairman Dieter Zetsche - "Rethink Diesel" - Washington Auto Show Keynote Address - BLUETEC Product Announcement
Washington, D.C. - January 23, 2007

Thank you, Tammy (Darvish), and good morning!

I’m flattered that you’ve come to listen to my speech, when there’s a much bigger one yet to come in this town later today. Of course, that speech is the State of the Union address, which President Bush will deliver to the nation (and the world) at 9:00 o’clock this evening.

Now I know how it feels to be on stage as the “warm up act,” while the headliner is waiting in the wings!

Last year, the President called out the need to break America’s “Oil Addiction.” There’s no serious disagreement from the auto industry that energy is a top public policy issue for the nation. It’s also right up there with health care as a top issue for our industry.

We recognize that national security and climate change are serious concerns that require policies to help reduce the dependence on oil and emissions of CO2. And that it’s necessary to take action now.

We trust that the proposals, which the President suggests and Congress enacts, will enable our industry to help meet those national goals in a way that preserves consumer choice and a healthy manufacturing base in this country.

I know that here in Washington the auto industry has a sometimes deserved - and sometimes undeserved — reputation for just saying “no” to every proposal.

That reputation is “deserved” in that automakers too often have knee jerk “we can’t get there” responses to policy, even before we do our homework. However, it is “undeserved” in that policy makers often don’t listen to the most important voice in the debate - the consumer. (And automakers are closer to customers because they place economic “up or down” votes on our products every day.)

The best progress toward policy objectives come when policy makers and automakers work closely together to achieve the desired results.

Along those lines, I recently had an interesting conversation with a Senator who suggested that we could increase the average fuel economy of new vehicles by 50 percent over 10 years.

My response was twofold.

First, I explained to him that independent, credible studies - from, for example, the National Academy of Sciences - have estimated that the more than 4 percent annual improvement rate to get that 50 percent improvement isn’t feasible based on technology, cost and other factors.

Second, I pointed out that there is a place where we’ve already accomplished that 50 percent improvement … it’s called Europe.

In the U.S. the fleet averages around 24 mpg. In Europe the fleet averages 36 miles per gallon. There’s your 50 percent improvement!

So, why is there such a big disparity? Aren’t we the same companies in Europe that we are in the U.S., with access to similar technologies?

One big difference is in the European approach to energy policy. They’ve made some tough choices. They’ve highly taxed gasoline. They have incentives on diesel fuel, and they pattern emissions standards to accommodate diesel.

In Europe the price of fuel is almost three times that here in the U.S. So, fuel economy is always high on customers’ list, and not just when there’s a spike or shift in gas prices.

There’s no magic at work here. A gas-engine mid-size car in Europe gets the same mileage as a gas-engine mid-size car in the U.S. It’s just that the mix of vehicles in Europe is radically different from here — not just in size but also due to the widespread adoption of diesel technology.

About 60 percent of the vehicles sold in Europe are subcompact or smaller and about 50 percent of vehicles are diesel. (Roughly half of the Chrysler, Jeep and Dodge vehicles that we sell in Europe are diesel powered.) Ultimately, it’s that product mix that drives better fuel economy.

Let me be absolutely clear; I’m not advocating European-level taxes on gas here. It’s neither politically feasible nor desirable from the perspective of manufacturers or consumers. We need a policy that fits the market here.

While far from perfect, Europe has created policies that leverage market forces, not ones that fight them.

Now, to be fair, there are other differences between the two markets that led to this disparity.

In the U.S., consumers demand larger trucks and SUVs because of the way they use their vehicles … as workhorses, tow vehicles, family and long-distance haulers. It just so happens that diesel-powered vehicles are perfect for these uses, but I’ll talk more about that in a minute.

It doesn’t really matter which came first in this chicken-and-egg formula - the cheaper fuel or the way vehicles are used. The fact is, most of this is irreversible, so it’s not realistic to attempt to regulate trucks, SUVs and “crossovers” out of existence in the U.S. Nor am I proposing that Washington simply “copy” the European model of high fuel taxes leading to much more expensive fuel.

The point is, while these differences evolved over decades, American policy-makers must adopt a new and unique formula that fits here… a formula that encourages more technologies and more choices. And with incentives that build momentum in the market. Higher CAFÉ alone simply won’t get it done!

I’ve always thought CAFÉ - in the country that is the world’s model for a free-market economy - to be a bit of a contradiction. It’s an attempt to regulate supply, and not to use market forces to stimulate demand for more fuel-efficient vehicles.

Trying to sell people what they don’t want is not a winnable business proposition. And it is that “anti-free market element” of CAFÉ that makes life difficult for us.

Now, we’ve certainly learned to live with CAFÉ and to deal with modest increases. And if regulators were to re-visit the CAFÉ discussion for cars, as we recently did for trucks - and make the regulation “size based” and not “fleet based - we’d be open to that.

And that would make far more sense than just “picking a number out of the air!”

So, what is the answer other than “draconian” CAFE?

I submit that we look to innovation, and to increasingly substituting petroleum products with biofuels. And one technology that has plenty of the former, and great potential for the latter, is the modern diesel engine.

Now, some people want to simply write off diesel engines as a "100-year old technology." But if you subscribe to that rationale, you’d have to strike other clean energy technologies off the list, such as wind and solar. You’d even have to eliminate gas-electric hybrid cars, as Mercedes built its first hybrid car back in 1902!

Modern diesels can improve fuel economy by 20 to 40 percent, and reduce CO2 emissions by up to 20 percent. Real-world tests show that diesel can even be more fuel-effective than gas-electric hybrids, depending on use.

According to recent data in the EPA’s “YourMPG” database, diesel-powered cars deliver better real-world fuel efficiency than stated on their window stickers, to the tune of more than 4 percent. By comparison, hybrid real-world fuel efficiency is more than 8 percent less than the current EPA estimates.

Why not surprise customers on the upside!

This modern diesel engine technology offers a significant opportunity to reduce fuel consumption and the dependence on oil.

According to J.D. Power, diesel penetration in the U.S. market is expected to hit 15 percent by 2015. But, according to the EPA, if we had a light-duty vehicle population that was one-third diesel or roughly one-half the diesel market now in Europe today, we’d save up to 1.4 million barrels of oil per day in the U.S.

To put that number in perspective that’s equivalent to the amount of oil the U.S. currently imports daily from Saudi Arabia.

We call the next-generation of clean diesel technology “BLUETEC.”

BLUETEC makes you “rethink diesel!”

We’ve been pioneering BLUETEC under our Mercedes brand in Europe, where it’s been on the road for several years now.

We’ve implemented this technology in our corporate fleet from the “top down.”

Since the beginning of 2005 we’ve sold more than 40,000 BLUETEC Mercedes-Benz trucks and buses in Europe, where they’ve performed exceptionally well in everyday heavy-duty service.

We launched our first production BLUETEC passenger car, the Mercedes E 320 BLUETEC, here in the U.S. (as a “45-state” or BIN 8 car) on October 15th of last year.

This market introduction coincided with the nationwide availability of clean, ultra low-sulfur diesel fuel. And we’re thankful to the Administration and Congressional leadership for supporting the speedy transition to this cleaner diesel fuel!

Next year, we intend to bring three more Mercedes-Benz BLUETEC models to the U.S. market. Our BLUETEC R-, M- and GL-Class vehicles will all be assembled at our plant in Alabama.

These BLUETEC vehicles will meet the tough Tier 2/BIN 5 and 50-state diesel emissions standards. We involved the EPA in our research and development from the start to make them better aware of the technical challenges, and to ensure that this technology would meet the standards in a manner that would be acceptable to regulators and consumers. It was a very constructive engagement.

We also formed a BLUETEC alliance with Volkswagen and Audi to help promote and build momentum for clean diesels in the U.S. We’re open to having other manufacturers join in.

I can assure you that DaimlerChrysler is not pursuing diesel to the exclusion of other alternate fuel technologies.

So far, we’ve invested more than one-billion dollars in fuel cell technology, and we have more fuel-cell vehicles on the road than any other manufacturer.

We’re the world leader in hybrid bus production. We have about 1,500 Orion VII diesel-electric buses in service or on order for municipal fleets including the New York MTA, the New York/New Jersey Port Authority, San Francisco MUNI, and the Toronto TTC.

We’re now also marketing hybrid medium-duty trucks and delivery vans. And we have a small concept fleet of plug-in diesel hybrid vans with lithium-ion battery technology in service (you’ll find one on display here at the show).

We’ll soon have hybrid passenger vehicles of our own as well.

Working together with GM and BMW, we’re jointly developing a state-of the art, two-mode, full hybrid propulsion architecture for applications in Chrysler Group, Mercedes Car Group, GM and BMW vehicles. The first DaimlerChrysler vehicle to use this system will be the Dodge Durango in 2008.

Hybrids definitely have a place in the market. But it’s a big mistake to think of them as the only game in town ... or as the only commercialized technology that can deliver lower fuel consumption with clean emissions.

The issue with the diesel engine has never been fuel economy, where the benefit over gas engines is quite clear. The challenge has always been achieving comparably clean emissions. The conventional wisdom has been that diesel engines simply would not or could not be made to run as clean as gas engines. BLUETEC solves that problem.

What we need to avoid in this country is a legislative bias that favors a single technology, be it hybrid or anything else. State and federal governments shouldn’t be in the business of giving certain vehicle drive technologies an edge in the market.

But that’s what happens when, for example, sales of hybrid cars are boosted with tax credits or high-occupancy lane stickers - incentives that provide advantages to that technology that have nothing to do with the technology itself!

The unintended consequence is that we may lose out on other technologies that can move us toward our objectives ... perhaps even faster.

The more effective solution is to provide equal incentives to achieving the desired outcome (in this case lower fuel consumption with clean emissions). And then let the market decide how it will get there.

And that brings me back to how Americans use their vehicles.

The irony in a legislative bias toward hybrids is that diesels have advantages over hybrids or conventional gas engines when it comes to those “workhorse” attributes identified earlier … long-distance driving, hauling or towing, carrying passengers, etc.

Hybrids have advantages as well, primarily when it comes to stop-and-go city driving.

But where does it say that urban drivers in Washington D.C., New York City, or other densely populated areas should be given legislative preference over suburban residents, or rural farmers or ranchers, who would gain more benefit from diesel technology?

That’s why our Chrysler Group also has full access to BLUETEC, and is developing its own models with extremely clean diesel engines.

The Chrysler Group roll out of clean diesel vehicles will continue. And, in just a few moments, we’ll have the first of those vehicles, now ready for production, here for you to see. (How’s that for a coincidence?)

Of course, another great advantage of diesel is the increased potential for use of biofuels.

Speeding up the commercialization of biofuels through research and development is an effort in which we’ve had strong involvement.

It also has great potential for transatlantic cooperation. We’ve made this topic a priority in our discussions with the German Chancellor and the White House.

DaimlerChrysler has been working in cooperation with Volkswagen, CHOREN and Shell to develop a high-quality “biomass-to-liquid” fuel (BTL) we call “SunDiesel.” The raw material for SunDiesel is typically wood chips, but just about any form of biomass can be suitable for its production.

Our life-cycle assessment shows SunDiesel reduces CO2 emissions in comparison to conventional fuels by about 90 percent.

Choren and Shell are building a pilot facility to produce SunDiesel in Freiberg, Germany, with the first deliveries of fuel from that facility expected in the second half of this year (German Chancellor Merkel has agreed to participate in the plant’s dedication).

The next step will be the construction of a large-scale production plant, currently scheduled for 2010.

The potential for producing high-quality SunDiesel here in the U.S. is excellent, and some companies are exploring the opportunity to build a similar facility on this side of the Atlantic.

In the meantime, we currently have several test vehicles successfully running on SunDiesel under real world conditions.

However, where we see greater potential in using plants for biofuels, others see it in animals. Just a few weeks ago there was a story in the “Detroit Free Press” about two entrepreneurs in Missouri who’ve built a $5 million facility to make biodiesel out of waste chicken fat from a local poultry plant.

It almost begs the marketing slogan, “Chicken: the other biodiesel!

Obviously, when companies like Tyson Foods, Perdue Farms and Smithfield Foods are launching alternative energy divisions, the auto industry is not alone in seeing opportunity and potential in biodiesel.

To speed the adoption of biodiesel, and to help harness and direct the diverse research and investment efforts going into its development, we need to expedite setting a national fuel specification for biodiesel, just as we have for other fuels.

We’ve been working with industry partners to move toward defining a specification that would enable all diesel vehicle owners to use B20 fuel - a 20 percent biodiesel mix - regardless of who manufactured the vehicle.

In our 2007 model year Dodge Ram Heavy-Duty diesel pickup, we’ve endorsed the use of B20 for our military, government and commercial fleet customers.

We believe that allowing our fleet customers to use fuel made to the current military specification is helping to accelerate the development and adoption of B20 for general use.

In sum, the modern clean diesel has a lot to offer today, and in the future.

We’ve brought along some additional, tangible proof of that in the form of one of many vehicles DaimlerChrysler will offer by the end of next year.

Several years ago, when the Environmental Protection Agency set stringent 2010 diesel emissions standards for heavy-duty pickup trucks, we didn’t shake our heads and say “no.” We went to work with Cummins, the long-time diesel engine supplier for Dodge Ram heavy-duty three-quarter and one-ton pickup trucks, to see if or how we could meet the challenge.

For nearly 20 years, the Ram-Cummins truck package has been immensely popular with Dodge customers who require powerful pickups with stump-pulling low-end torque to meet their hauling and towing needs.

Their unique needs require a slightly different technical answer than the one we’ve developed for our passenger or commercial vehicles.

Working with Cummins, the objective was to find a way to make our heavy-duty pickups drive as clean as they are powerful.

We believe the result is a real winner ... a BLUETEC heavy-duty pickup truck that meets the 2010 emission standards in all 50 states. And does so three years before the deadline!

With the help of a good friend, it’s my pleasure to introduce the 2007 Dodge Ram heavy-duty pickup, equipped with the 6.7 liter Cummins - the Chrysler Group’s first BLUETEC engine!