Carmakers wait to see if mpg rules will stick

Keith Laing
Detroit News Washington Bureau

Washington — The auto industry is waiting for a new report from federal regulators that will be used to determine whether stringent gas mileage rules requiring them to produce car and truck fleets that average more than 50 miles per gallon by 2025 will stay in place.

The new rules, known as Corporate Average Fuel Economy (CAFE) standards, are beginning to take effect with the 2017 model year. They call for ramping up from the current fleet-wide average of about 34 miles per gallon for cars and trucks that were required in 2016 to an eventual goal of about 50 miles per gallon by 2025.

The increase, which some automakers have said might be too ambitious, starts with a rise to an average of over 35 miles per gallon for the 2017 models that already are being rolled out.

The U.S. Environmental Protection Agency, National Highway Traffic Safety Administration and the California Air Resources Board are preparing to release a draft of a technical report this month that will be used to determine the feasibility of the final four years of the fuel economy rule.

Alan Baum, principal of the Baum and Associates automotive research consultancy firm in West Bloomfield Township, said automakers are on the hook for the mileage requirements until the end of 2021 no matter what.

He said they will have an opportunity to push for lower mandates when regulators conduct a mid-term review in 2018 of the rules for the model years that will occur between 2022 and 2025.

“The regulations are in place without any questions until 2021,” he said.

The mileage rules, which were put in place by the Obama administration in 2012, call for automakers to achieve a fleetwide average mileage rate of more than 36 miles per gallon for cars and trucks in 2018.

The standard then increases to more than 37 miles per gallon in 2019 and nearly 39 miles per gallon in 2020, which is before automakers will have a chance to weigh in on the need for any course corrections. By 2021, automakers will be required to hit a combined average of 41 miles per gallon for their cars and trucks.

If the rules for model years after 2021 are left in place when they come up for review in 2018, the emission standard will increase to about 43 miles per gallon combined for cars and trucks in 2022, before jumping to about 45 miles per gallon in 2023. The final years of the mandate will see a required average of about 47 miles per gallon in 2024, and finally more than 55 miles per gallon for cars and about 40 miles per gallon for trucks in 2025.

Auto companies that do not meet the higher emission standards will be fined $5.50 for each tenth of a mile-per-gallon their average fuel economy falls short of the standard for a model year, multiplied by the total volume of vehicles that are in the fleet that fails to meet the new requirements.

Work starting now

Baum’s firm conducted a study that found the major U.S. automakers can be profitable under the average of 55 miles per gallon required in 2025 at gas prices from $1.80 per gallon to $4.56 per gallon. Automakers have argued that lower gas prices could make fuel-efficient cars less desirable to customers who are looking to buy larger vehicles such as SUVs and trucks.

Baum said the auto companies will have to be working now to develop technologies to achieve the more than 41 miles per gallon fleetwide average required in four years.

“If you’re going to meet 2020, you’re making those decisions in the next year,” he said. “Automakers can get there, but obviously it’s going to cost money.”

The EPA said in its report on emissions for 2014 model-year vehicles that “most large manufacturers achieved fleet ... compliance values equal to or lower than required by their unique 2014 standard.”

The agency said only two manufacturers — Mercedes and Kia — fell short of their required mileage rates for the 2014 model year.

Those deficits can be addressed with credits from future years or purchased from other auto companies. NHTSA also says credits can be “banked and carried forward for up to five years, or carried back up to three years to cover a deficit in a previous year” under emission rules.

Shannon Baker-Branstetter, policy counsel for energy and environment for the Consumers Union, said most automakers have already been beating the emissions mandates during the first phase of the fuel economy standards that covered 2012 to 2016.

The Consumers Union said its polling shows 75 percent of Americans support the idea of increasing the fuel economy standards for cars.

Baker-Branstetter said she does not expect a lot of changes to be made to estimates for the cost or feasibility of the gas mileage rules when they come up for review in 2018.

“There are lot of pathways to compliance,” she said. “Even if there is a shift (toward trucks and SUVs) ... the standards are flexible, so they already take that in account.”

Thrifty may not sell

The Washington, D.C.-based Alliance of Automobile Manufacturers says future CAFE requirements may be overly optimistic based on historical data.

The auto alliance group, which represents Fiat Chrysler Automobiles, Ford Motor Co., General Motors Co., BMW Group, Jaguar Land Rover, Mazda, Mercedes-Benz USA, Mitsubishi Motors, Porsche, Toyota, Volkswagen Group of America and Volvo Car USA, has said the upcoming mid-term evaluation of the mileage rates should take into account how well fuel-thrifty cars are selling.

“This is a chance to see if the government program — and its original assumptions — align with the marketplace realities of today,” said Wade Newton, director of communications at the Auto Alliance, in an email Friday. “After all, compliance isn’t based on what we put in showrooms, it’s based on what consumers put on their driveways.”

Obama administration officials have said they are bullish on the fuel economy standards despite the complaints about the impact of low gas prices on the economic viability of more-efficient vehicles.

“We’re extremely committed to the CAFE standards and doing a thorough job of laying out the progress that’s been made,” U.S. Secretary of Transportation Anthony Foxx told reporters Thursday.

The Washington-based Consumer Federation of America said its research shows 81 percent of car buyers say gas mileage is an important consideration in their car-purchasing decisions. The group said the same percentage of potential buyers indicated support for the increasing federal fuel economy standards.

“It’s no surprise that fuel efficiency is still a top priority, as consumers have had a long history with volatile gas prices,” said Jack Gillis, director of public affairs for the Consumer Federation.

However, Jumpstart Automotive Group, a San Francisco-based automotive marketing and advertising company, said its research shows just 29 percent of potential auto buyers identified gas mileage as a top priority.

“Throughout the research, quality/reliability was of higher importance than fuel economy,” the group said. “Perhaps this stems from a recall-heavy environment today combined with low gas prices over the last few years.”

Carol Lee Rawn, who directs the transportation program for the Boston-based sustainability nonprofit Ceres, said the fuel economy standards will protect automakers from future fluctuations in gas prices.

“U.S. automakers have been caught flat-footed before, when prices at the pump rose and they weren’t ready with the kind of fuel-efficient vehicles buyers wanted,” she said. “Strong fuel economy standards offer insurance against future gas price spikes.”

Baum also said automakers will benefit in the long run from the fuel economy standards, even if they seem too onerous to meet now.

“If there were no standards, would they be doing all that they’re doing?” the auto analyst said. “Probably not. But here’s the problem: It’s a global industry and the rest of the world is moving in that direction. The Big Three need to have a global fleet.”

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Twitter: @Keith_Laing