Greener Luxury Cars, and Not Just Hybrids

Daimler's diminutive Smart car is a global hit and BMW's Mini has redefined the sporty small car, but the fact is that luxury carmakers remain deeply skeptical that their hard-core customers are really willing to downsize. Instead, automakers are doing their best to drive down fuel consumption and carbon dioxide emissions in the same plush, roomy, make-way-I'm-coming-through vehicles to which luxury buyers are accustomed. "A vow of poverty is not the solution," says Friedrich Eichiner, the BMW management board member responsible for corporate and brand development.

Eichiner draws an analogy to refrigerators. It's not often that you hear a top BMW (BMWG.DE) exec comparing his company's products to a kitchen appliance, but his point is that a few years ago refrigerators were seen as an environmental hazard because of their ozone-destroying coolants and power consumption. The white goods industry quickly found new coolants and developed ways of cutting electricity usage and, voil, nobody had to give up their automatic ice makers.

The latest example of this philosophy at work is the new generation of BMW's top-of-the-line 7 Series, which goes on sale in Europe this fall and the U.S. in February. A diesel version, priced at $94,400 in Europe, gets an impressive 39 miles per gallon (6.06 liters/100km)—better than some compact cars. A $102,600 six-cylinder gasoline version is rated at 28.5 mpg (8.25 liters/100km). Unfortunately, at the moment BMW only intends to export the 25 mpg, $122,000 V8 version to the U.S. Yet, in any variant, the 7 still offers the performance that is integral to the BMW brand, as well as over-the-top luxury features such as rear seats that give passengers a massage.

The launch of the latest 7 Series comes a few weeks after Daimler (DAI) unveiled a 30 mpg (7.84 liters/100km) hybrid version of the Mercedes S-Class (BusinessWeek.com, 9/11/08), which it will begin selling in Europe in June 2009 and the U.S. the following September. Toyota (TM), of course, was the first to market with a "green" luxury car when it launched its first hybrid Lexus in 2005.

Behind the Wheel

In recent weeks I've had an opportunity to drive all three cars and came to some conclusions about the advantages and disadvantages of each. Observation No. 1 is that if you really want to be green, buy a small economy car and drive it as little as possible. But I also recognize that a lot of jobs depend on the auto industry, and carmakers earn a disproportionate share of their profits from big vehicles. So I can't really fault their efforts to continue to give buyers larger luxury options.

Let's start with the new 7 Series, which I drove for several hours on a crisp fall morning outside Dresden in a hilly, forested region known as Saxon Switzerland. (For my colleague David Kiley's look at the 7's design, see "BMW 7 Series: A Slimmer Bimmer," (BusinessWeek.com, 9/9/08)).

The 7 is not a hybrid—there is no electric motor boosting the engine as with the Lexus and S-Class. Yet the 7 has hybrid-like features, such as the ability to recover energy while braking and feed it to the car battery—the better to power the rear-seat massagers or the twin video entertainment systems.

Hybrid Challenger

In fact, the 7 Series offers a serious challenge to hybrid technology. Several years ago, BMW engineers sat down and systematically looked at the whole vehicle and how to reduce fuel consumption.

The German Hybrids Are Coming

A Mercedes Hybrid at Last