Given the recent hysteria in the United States caused by fuel prices surging towards $3 a gallon the first overhaul of fuel economy standards in three decades might have been expected to cause a considerable stir. However, the proposed new rules, which were recently issued by the National Highway Traffic Safety Administration, have raised barely a whisper of interest outside the usual environmental groups, writes David Robertson.
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The reason for this appears to be that the new fuel economy measures will not really make much difference at the petrol pump – or the dealer forecourt. Even the Bush Administration admits that the new rules will save only 10 billion gallons of gas over four years, compared with 11 billion gallons consumed per month at present.
What the new fuel economy rules will do, however, is allow Detroit’s big three auto manufacturers to compete more effectively with the likes of Toyota, Honda and Nissan. Industry commentators have questioned whether the new fuel economy rules are, in fact, backdoor protectionism rather than a serious effort to alter America’s gas-guzzling culture.
The 1970s oil embargo by OPEC prompted the first set of fuel economy standards in the US. Called the Corporate Average Fuel Economy Program (CAFE) the rules were designed to encourage automakers to wring more miles from each gallon of petrol consumed.
When CAFE was introduced in 1975 the typical American car was getting just 13.1 miles per gallon (mpg) but this increased to 22.1mpg by 1987, according to the Environmental Protection Agency.
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By GlobalDataThis year, automakers in the US have to meet a fuel economy average of 27.5mpg for cars and 21.2mpg for light trucks, which includes Sports Utility Vehicles (SUVs) and pickups.
Environmentalists have long complained that the difference in fuel economy requirements for light trucks and cars is one reason that automakers have marketed their larger vehicles so heavily. (In 1975, 80 per cent of the autos sold were cars but today more than half are light trucks.)
Under the National Highway Traffic Safety Administration new proposals light trucks will have to reach a fuel economy of about 24 miles per gallon by 2011 (cars will stay the same).
But the Administration is complicating the system by splitting the light trucks category into six subcategories, each with different fuel economy requirements.
So, for example, a small SUV like the Honda CRV will have a fuel-economy requirement of 28.4mpg. A small pickup like the Ford Ranger will need to hit 27.1mpg. But at the other end of the size-scale, a Chevrolet Suburban will only need to get 21.9mpg and the Dodge Ram, 21.3mpg.
Light trucks weighing more than 8,500lbs like the Hummer H2, which gets 9-12mpg, will be completely exempt from the fuel economy requirements because they are classified as commercial vehicles.
Not surprisingly, environmentalists are unhappy with these proposals – and particularly the exemption, or low requirements, for huge SUVs. After all, they argue, SUVs and light trucks account for 40 per cent of all the oil consumed in the US and produce more than 20 per cent of the country’s total carbon dioxide emissions.
“These proposals really do not go far,” said Don MacKenzie, a vehicles engineer at the Union of Concerned Scientists. “Not even close.”
The US Department of Transport will spend the next three months consulting on these proposals and it will issue its final recommendations next April. The new rules will then be phased in from 2008.
When the first CAFE rules were introduced in 1975, automakers responded by reducing the weight of many models. There have been sporadic bursts of publicity ever since about the safety hazards of doing this with some research claiming fuel-economy regulations have cost more 1,000 lives a year.
As a result, the new requirements will prevent automakers from reducing weight to gain fuel-economy. Instead, each of the six new light truck classifications will be determined by the vehicles “footprint” – established by multiplying the length of the vehicle’s wheelbase by the tire track width.
The US Government is hoping that this will force fuel economy improvements in the engine, or encourage the introduction of more hybrid electric systems, or encourage more efficient transmissions.
However, these new rules may also encourage auto makers to upsize their products: if a small change in a vehicle’s dimensions will allow it to slip into a lower fuel economy category this might be an easier solution than tinkering with its engine or transmission. For example, an extra inch on the Ford Sport Trac would cut its fuel-economy requirement to 23.3mpg from 24.5mpg.
Given that these new proposals will save just a month’s worth of gas over four years, and that there are numerous loopholes that could encourage even bigger vehicle design, why has the US Government bothered rejigging CAFE?
The answer lies in Detroit, where the Big Three: General Motors, Ford and Chrysler, have been struggling.
The Japanese-owned manufacturers have historically not moved into the light truck category in a big way, offering only smaller pickups, minivans and smaller SUVs. This has left the profitable heavy pickup/SUV market to GM, Ford and Chrysler – but this is changing.
Toyota, for example, is building a factory in San Antonio, Texas, to increase production of its heavy pickup, the Tundra. And because the Japanese manufacturers have historically produced smaller vehicles with better fuel efficiency, they have easily hit the light truck CAFE requirement and built up a large number of “CAFE credits”.
An automaker can use these credits to offset against future increases in fuel economy requirements.
Detroit is worried that the Japanese manufacturers will move into the lucrative heavy pickup/SUV market using these credits to offer big horsepower vehicles at a time when the US-owned manufacturers are cutting horsepower and engine size in order to meet tougher fuel economy requirements.
By splitting the light truck category into six subcategories the heavy pickups and SUVs built by GM, Ford and Chyrsler will only have to reach a fuel economy of 21 or 22mpg rather than 24mpg. Also, the Japanese-owned manufacturers will no longer get so many extra credits because their lightweight trucks will be competing against higher mpg targets.
Charles Preuss, a spokesman for General Motors, explained: “If you sell a substantial number of vehicles in the 16mpg range, and that’s where the bulk of our heavy pickups are, that is going to heavily weigh on your CAFE number. Six new categories means a vehicle only has to hit the average for its subcategory, not the whole sector.
“We are being penalised because we have been supplying the market for many years and haven’t built up these credits. That’s a threat to us and it’s a job threat to the US. We are not limiting anybody’s ability to compete in this market; we simply want a level playing field.”
Some commentators believe these new CAFE proposals could be considered protectionist as they remove a competitive advantage that Toyota, Nissan and Honda have been building up, in credit form, for many years.
“The Administration is clearly addressing the concerns of the US-owned manufacturers with these new proposals but unfortunately they haven’t done anything for consumers,” said Don MacKenzie.
All this effort to rewrite the fuel-economy rules in favour of Detroit might, however, be undone by the State of California.
Three years ago California passed legislation that demanded auto manufacturers cut emissions that contribute to the greenhouse effect. This effectively means that automakers will have to reach a combined fuel economy for cars and trucks of 33mpg by 2016.
Seven other states in the North-East USA as well as Washington and Oregon plan to follow California’s lead.
If they do, it would force GM, Ford and the others to improve fuel economy regardless of what the Federal mandates are.
The automakers are challenging California’s right to impose emission requirements and they got some help from the National Highway Traffic Safety Administration, which added, at the end of its 150-page report on the proposed new fuel-economy requirements, a section attacking state-by-state limits. This Federal support may help the auto industry overturn California’s law.
Of course, the new Federal fuel-economy rules and even California’s tougher standards might become unnecessary if gas prices continue to rise. As consumer awareness increases so does the marketplace pressure on manufacturers to start adding fuel economy measures as standard.
“More will happen if there is a significant shift in fuel price than any government can dole out,” admitted General Motors spokesman Charles Preuss. “If consumers want more fuel efficiency our very survival will be predicated on providing that option.”
As often happens, Government regulation may yet be overtaken by consumer demand.
