letter to the Obama administration, an auto industry trade group made its
feelings about upcoming fuel efficiency standards perfectly clear. It
says that the strictest proposed annual increases would
be disastrous to the recovering industry, costing it jobs and sales.
I. 62 MPG by 2025 -- a Horrible Idea?
Written by the Alliance of Automobile
Manufacturers -- an organization which represents General Motors
Comp. (F), Ford Motor Comp. (GM), Chrysler Group LLC,
Toyota Motor Corp. (7203), and eight others -- the
letter claims that if the White House accepts a proposal to mandate fuel
economy increases of 6 percent a year that it would "reduce sales by 14
percent" and correspondingly lead to a 14 percent cut to the 1.7 million
auto jobs nationally (a loss of 238,000 jobs).
The advocacy's interim chief John Whatley writes, "Fuel economy and
greenhouse gas targets should not be arbitrary numbers, chosen before the
necessary analyses are completed. [That] would circumvent the rulemaking
process and undermine the ongoing collaborative effort to set sound
standards... [The health of the automotive industry] depends on reasonable
regulations that provide clarity and certainty, without pricing our customers
out of the market or preventing them from choosing vehicles that can meet their
U.S. President Barack Obama currently has several proposals
on his desk. They range from the least severe proposed fuel mandate
-- a 3 percent per year fuel efficiency increase -- and the strictest -- a 6
percent per year increase. The 3 percent increase would demand a
fleetwide efficiency of 47 mpg, while a 6 percent would ask for a whopping 62
mpg fleet-wide average.
Experts working with the White House estimate the 3 percent increase would add
$770 to the cost of manufacturing each vehicle, over the next 10 years. A
6 percent increase would add $3,500.
II. Advocates Push for Strict Standards
Despite the costs, some feel the 6 percent increase would be possible. A
group of 18 U.S. Senators, including Olympia Snowe (R-Maine) and Dianne Feinstein (D-California) wrote a letter last
month to U.S. Department
of Transportation (DOT) Secretary
Ray LaHood and U.S. Environmental Protection
Agency (EPA) administrator Lisa Jackson.
Writes the Senators, "A significant increase in fleetwide fuel
economy — six percent annually — is both technically feasible and cost
effective for consumers."
The auto industry's reticence to improve fuel economy is also irritating global
warming activists. Daniel Becker, director of the non-profit Safe
Climate Campaign, states in a Detroit
"It is sad but typical that the automakers are trotting out the same tired
excuses for not making efficient vehicles to meet the needs of American facing
high gas prices."
Ultimately it's the DOT and EPA's duty to deliver a fuel efficiency proposal
for ratification in Congress. However, President Obama commands
significant authority as he appointed both Ms. Jackson and Secretary LaHood.
III. A Brief History of CAFE
The U.S. has regulated fleetwide fuel economy since the 1970s under the
Corporate Average Fuel Economy (CAFE) program. In 1978 -- the first year
of regulation -- the standard called for an average of 18 mpg for passenger
Fuel economy standards don't force automakers directly to ditch gas-guzzling
models like SUVs or pickups, but they do pressure them to adopt technologies
like turbocharging, direct injection, diesel engines, and electric drivetrains.
Automakers tend to use more efficient models like hybrids to make up for
the lower efficiency members of their fleet.
The first major updates to the plan in some time came in 2007. Former
President George W. Bush (R) pushed the Energy Independence and
Security Act of 2007 which demanded an average combined fuel efficiency
(of both trucks, sedans, and SUVs in the fleet) of 35 mpg by 2020.
Also in 2007, the U.S. Supreme Court ruled in the case Massachusetts v.
EPA that states had the right to set their own stricter mandates, to
the chagrin of President Bush who was a strong proponent of greater power for
the federal government.
In the wake of the decision, President Bush's successor, President Obama, pushed
states to move up the timetable of fuel efficiencies increases, by
extending California's stricter standards nationwide. Under the current
average fuel economy of 34.1 mpg would be mandated by 2016, though
states have some flexibility.
The increases will cost an estimated $51.5B USD, but will reduce oil
consumption by 1.8B barrels and save customers $3,000 USD per vehicle in gas
IV. What's Next?
In the U.S. the price of gas has recently
spiked up to over $4 USD/gallon. This is still well below the price
in certain regions like Europe and is testament to the U.S. government’s price
controls (including incentives). It falls short of even
greater price controls in a handful of nations like China, though.
The current plan only runs from 2012-2016. The Obama administration is
currently working to extend
that plan from 2017-2025. Of course, as President Obama will only be
in office until 2016 if he wins another term next year, his successor would
have a chance to tweak the policy, much as President Obama tweaked President
Lawmakers will likely debate proposals from the DOT and EPA later this year,
potentially coming to an agreement and setting standards targets through 2025.