Edited by Barry Lee Brisco based on contributions by Rick Dill, Christian Gates, David Jones, Charles Navarro, and Eric Nichols
In some parts of the country you are increasingly likely to have to run your 356 on gasoline with 10% added ethanol (E10) or as little as 5%. This is commonly known as "gasahol". (The up to 85% ethanol blend, E85, is uncommon and requires vehicles be specifically designed for that purpose. The few gas pumps offering this are prominently labeled.) It is reasonable to wonder if using this mixture in a 50-year old car that was not designed for it is going to cause problems. Leaving the political and energy cost/balance considerations aside, the comments below should help you make an informed decision.
More water in your gas tank?: Unlike modern cars that get driven regularly, many 356 owners may not drive their car for months at a time. David Jones writes, "Ethanol and alcohol fuels are hygroscopic [water absorbing] which is good and bad. Water will be absorbed in them which means it will not be free in the bottom of your tank. If your car sits for long periods of time then it will absorb more water from the air so you will end up with more water than before in your fuel. That will not help when it comes to starting especially, in winter, because ethanol has a lower vapor pressure and higher flash point than most of the other components in fuel."
David continues: "Pump gasoline in a sealed container will stay stable for at least 3 months and in a cold climate even longer. The bigger problem is losing light gasoline components, not attracting water. If you fill your tank at the beginning of your non-driving season the amount of moisture absorbed will depend on the surface area and airspace of your tank and size of vent line ingress to the tank and amount of moisture in the air (relative humidity) The time when you are most at risk of absorbing moisture is when the outside air warms up relative to the tank temperature and moisture condenses out of the atmosphere.
I have never used a fuel stabilizer and have never had a fuel problem because of water in my fuel even when a car has sat for a year. There is a lot of bullshit out there promulgated by additive manufacturers trying to get your business."
"Phase separation occurs once the ethanol reaches it's saturation level of water. This is probably in the region of 2 to 4 tablespoonfuls per gallon. Do the math if you like, I believe the ethanol portion of E10 will hold up to 10% of water before phase separation occurs, so the amount of water held will depend on the amount of ethanol in your gas. As ethanol is not mandated on a gallon by gallon basis but by a percentage amount (must be 8% of the gasoline market in 2011) this means that not all gasoline will have 10% ethanol in it. The math then suggests that at the maximum figure of 10%, if ethanol holds 10% of 10 % of a gallon then the amount of water is going to be 37.83 cc's which is about 1.5 ounces of water per gallon or about 1.2 pints in a full tank in a 356. Double that number to add the ethanol in to the equation and you have 2 + pints of worthless liquid in your tank at worst case."
Charles Navarro adds, "I add some Stabil to the fuel if the tank of gas is going to take longer than say, a month, to get used up. The shelf life of new fuels with 10% ethanol isn't what it was before the ethanol due to its hygroscopic nature."
Eric Nichols says "Conventional gasoline can contain up to about 0.2 percent dissolved water before the water 'drops' out of solution to the bottom of the storage vessel as free water. E10 fuel can hold more dissolved water than gasoline, approximately 0.5 percent. When an E10 fuel undergoes phase separation, a separate layer of water with a high percentage of ethanol settles to the bottom of the fuel system. The remainder of the fuel in the upper layer is gasoline containing a small percentage of ethanol. An E10 fuel system near its saturation limit may experience phase separation if there is a sudden drop in temperature."
Rick Dill emphatically states, "Don't worry about water in your gas! The ability of ordinary gas to hold water is lower than gas with alcohol. Unless there is a real disaster in storage before the fuel gets to you, it will take care of condensation in your tank better than the non-ethanol fuel."
The bottom line? Unless you store your 356 for months in freezing temperatures, this is probably not an issue. If you don't run your car in the winter, it is often recommended to drain the gas out of the tank anyway.
Fuel efficiency drops: 356Talk member Christian Gates posted "The near-term practical impact is that your fuel mileage and peak horsepower will drop by a few percentage points. Alcohol has about 65% of the volumetric energy capacity of gasoline."
I searched online for real data on the fuel efficiency of E10 and E85 blends, but it's hard to find. It appears that E10 does reduce gas mileage slightly, anywhere from two to five percent. E85 fuel economy suffers even more: ten to fifteen percent, and the cost per gallon is significantly higher than gasoline. But for 356 owners, that's a non-issue: you should not run that blend in your car anyway (so check the gas station pump to make sure that you aren't pumping E85 into your tank!). Read on to know why...
Corrosive effects of ethanol: This is likely the major issue for 356 owners. Rick Dill opines, "The reasons I don't long for ethanol are more its solvent properties which may leach all sorts of things like gasket seal into the fuel and out of the gaskets." Eric Johnson writes, "Alcohol has the ability to dissolve organic material. E10 and E85 fuels have the ability to dissolve the petroleum-based sediment, particulates, and lacquers found in fuel systems that previously used conventional gasoline. In this case, E85 has a greater solvent capability than to E10. From a practical standpoint, a retail station that converts to E10 or E85 should thoroughly clean and inspect its tank system prior to conversion. It is also important that appropriate in-line filters are installed at the pump. If your gasoline retailer recently converted to an ethanol blend, you would be wise to change your fuel filter on a temporarily increased frequency." So if you are running E10 gas, change your fuel filter more often.
Eric refers to this article (in PDF format), "So What about Those E10 and E85 Fuels? A Discussion on Materials Compatibility" that listed elastomer and polymer "incompatible" items. For the E10 blend they include: urethane rubber, Polychloroprene, Acrylonitrile, Zinc, and Polyurethane. Whether any of those materials are in our cars is a question I cannot answer. E85 incompatibility also includes: natural rubber, cork, leather, Methyl-methacrylate, Polyamide, Polyvinyl chloride (PVC), and Polyester bonded fiberglass laminates. Robert Boyle notes that "Cork is used in several places in the  fuel system. The fuel sending unit gasket, the gas cap (some), and the fuel petcock."
In addition, the report lists metal incompatibility. For E10, it shows " Galvanized zinc". For E85, it lists "Brass, Lead, Lead solder, Magnesium, Lead-tin alloy (tin-plated steel), and Zinc". Note that 356 gas tanks are held together with lead solder.
High alcohol fuels in Brazil: Freddy Rabbat reports – "The Brazilian mixture of 25% alcohol (E25) on the gasoline is quite bad for the unprotected parts of the 356. The alcohol can damage the gas tank, gas lines and carbs. All I use in my 4-cam is pure avgas with lead and no alcohol. The majority of the local cars in Brazil are designed to use anything from pure alcohol E100 up to E25. These cars have plastic everywhere there is contact with alcohol. They also have a small gasoline tank for start up on cold days. I am sure these high-alcohol fuels are harmful for the 356. Most of my friends driving their 356s use the E25 mixture, and they have problems with corrosion from time to time in their cars. Avgas in Brazil is quite hard to get and costs twice the price of regular gasoline. E10 is certainly less harmful for the 356 than E25 or E85, but it is certainly worse than pure gasoline.". Brazil has dramatically increased the use of ethanol in recent years (for more information, read this Washington Post story)
Summing up: I would not use any fuel with a higher alcohol content than E10 in my 356. Living in California I have no choice but to run E10, as do hundreds of other 356ers in that state and others. I have not experienced any problems, nor have I received reliable reports of "gasahol" problems from other 356 owners. But I suspect that my fuel filter should be replaced more often, and I replaced the old cork gasket in my gas tank cap with a new rubber one. Which should probably be replaced again a few years from now.