Would a $2,000 price cut - and all-wheel-drive - boost demand for the BMW 335d and other diesel models?

Struggling to boost the appeal of diesel-powered products, BMW of North America hopes to win approval from the German automaker’s board to directors to cut prices and add new features, such as all-wheel-drive.

Though sales of the maker’s first two diesels, the X5 35d Sport Activity Vehicle, and the 335d sedan, have been reasonably strong, says BMW of North America CEO Jim O’Donnell, there’s significant room to boost volumes, he tells TheDetroitBureau.com.

“We’re trying to convince our colleagues in Germany that if you price diesels right, there’s a market for it,” despite the traditional concerns about the technology among American motorists, says O’Donnell.  “It was an experiment and we think we’ve been asking too much of a premium.”

That would likely mean absorbing some of the costs associated with using the more complex powertrain technology, the executive acknowledged, though higher volumes would help offset those costs.

How much of a cut might BMW be looking at?  The current premium for the X5 35d, he noted, is about $4,000, but something “under $2,000” would likely resonate with the market, according to O’Donnell.  That would make it possible to offset the added cost within the first 36,000 miles of driving, the executive estimates.

Cutting prices would be just the likely first step in the maker’s campaign to expand the appeal of diesels in the U.S.  BMW may have made a mistake, O’Donnell suggested, by bringing in a 335d sedan that is available only in rear-wheel-drive.  He is pushing to have a next-generation 3-Series model with all-wheel-drive, perhaps as early as 2011.

“I think it would work very well,” O’Donnell explains, “because one of our major markets is the Northeast and some people in that market won’t buy a rear-drive car simply out of principle.”

The BMW CEO insists that American motorists are beginning to see the advantages of diesels, including their durability – and the fact that they tend to maintain higher residuals than gasoline-powered vehicles.

There’s an intense and ongoing debate over the viability of diesels in the U.S. market.  Detroit and Japanese manufacturers have been reluctant to enter the segment, leaving it largely to Europeans, such as Volkswagen, Mercedes-Benz, Audi and BMW.

The Bavarian maker intends to keep trying to find the right formula, O’Donnell says, adding that, “The diesels we have today may not be the diesels we have (in the States) in five years.”

Click here to find out why BMW is Going Green – with an array of alternative powertrain technologies.