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U.S. Automakers Support Administration's Fuel Economy Plan

Source: WSJ - Sharon Terlep


Posted on 28 Jul 2011

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Under a deal the White House announced Wednesday with auto makers and environmentalists U.S. fuel economy standards would double by 2025.

If upheld, the plan would lead to the biggest gains in fuel economy since government began setting mileage regulations in the 1970s and could lead to substantial changes to the cars and trucks most Americans drive.

The seven largest U.S. auto makers have told the White House they will endorse a plan that would push corporate average fuel economy to 54.5 miles a gallon between 2017 and 2025, people familiar with the talks said. Mazda Motor Corp. and Daimler AG oppose the plan, one of the people said.

"Our current understanding of the proposal raises some concern and we're continuing to review it," a spokeswoman for Daimler's Mercedes-Benz unit said on Wednesday.

The proposal calls for a 5% average annual increase in fuel economy for cars and a 3.5% increase for light trucks through 2021. After 2021, both would face a 5% annual increase. Credits for technologies such as solar-panel roofs and battery-powered vehicles could allow auto makers to comply without reaching 54.5 mpg. The plan also offers credits for hybrid trucks, alternative fuels and other ways of improving fuel economy in ways that often don't register in traditional Environmental Protection Agency mileage tests.

In a key concession to auto makers, the White House also agreed to review the rules part way through the implementation cycle to determine if they are overly harsh or lenient given fuel prices, consumer behavior and technological advancements.

As of Wednesday, Toyota Motor Corp., General Motors Co., Ford Motor Co., Chrysler Group LLC, Honda Motor Co., Hyundai Motor Co., Nissan Motor Co., BMW AG and Volvo had told the administration they would support the plan, those people said.

The California Air Resources Board, which had threatened to set its own tougher targets, in the absence of U.S. rules, said that while details of the plan are "still under development between California and our federal partners, we feel this is overall a strong program that achieves real-world reductions and includes incentives to drive technology."

The leeway for trucks had been a sticking point for Japanese auto makers, which sell fewer pickups and large sport-utility vehicles than the Detroit auto makers. Winning over the major non-U.S. auto makers including Toyota was important to the administration as it sought to fend off criticism that its plan favored Detroit.

The support likely clears the way for the administration to officially propose a plan by its Sept. 30 goal. President Barack Obama will announce the deal Friday during a ceremony at the Washington, D.C., convention center along with auto maker CEOs and environmental groups.

The White House has said the regulations will save drivers as much or more in fuel costs than it adds to the prices of cars over time, but industry officials remain skeptical that customers will accept more expensive, or smaller, vehicles absent tax credits, or high gas prices. Once proposed, the rules face a public comment period and revisions before being sent to regulators for enforcement. The duration of the public comment period has not yet been determined.

An executive with a European auto maker said the plan is unlikely to motive auto makers to build vehicles capable of running on diesel fuel. Volkswagen AG, Daimler and BMW have heavily invested in advanced diesel engines, arguing that their fuel economy, especially on long journeys, is superior to that of hybrid vehicles.

"It's clearly inequitable and favors manufacturers of full size trucks," the executive said. "It could have an adverse effect on real world [gasoline] consumption by driving consumers to trucks."

The approvals came after the White House lowered its target to 54.5 mpg from 56.2 mpg and offered concessions for trucks. The current fleet fuel economy standard is 27.3 mpg. The auto industry last year agreed to a 35.5 mpg fleet average by 2016.


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