U.S. President Barack Obama has had to weigh the noisy cries of automakers and environmentalists. In the end he's tentatively proposed a 56 mpg standard for 2025.  (Source: Getty Images)

The move could hurt sales of light SUVs (like the pictured Jeep Liberty), sportscars, light vans, and light trucks  (Source: Chrysler LLC)

The move could boost hybrid and electric vehicle sales, though (pictured: 2012 Ford Focus Electric).  (Source: Ford Motor Company)
Bargaining continues, but two sides are far from an agreement

On Monday the U.S. White House pulled the curtain on an ambitious proposal to update the Corporate Average Fuel Economy (CAFE) standards.  Under the plan, automakers would have to bump their average fuel economy from 34.1 mpg by 2016 (currently mandated by law) to 56.2 mpg by 2025 (proposed).

That's an average increase of about 5 percent per year.  The proposal applies to the average fleet economy over automakers car, light van (under 10k lb.), light SUV (under 10k lb.), and light truck lineups.  One thing's for sure -- neither environmentalists nor the automakers seem entirely satisfied with the proposal, for different reasons.

I. What the White House Wants

U.S. President Barack Obama wants to try to toe the line between the agenda of his most ardent environmentalists supporters and his corporate partners in the plan -- international automakers.

The administration brags that while the increases to fleet efficiency won't be free on the vehicle end, that they will save  4.7B barrels of oil and $705B USD in fuel costs by 2030.

The current proposal is not an official one, meaning that it won't go to Congress for approval quite yet.  In unveiling the proposal early, President Obama presumably wants to allow time for negotiations and field any complaints about the plan before it heads to Congress.

White House spokesman Clark Stevens wrote in an email to The Washington Post, "We continue to work closely with a broad range of stakeholders to develop an important standard that will save families money and keep the jobs of the future here. A final decision has not been made, and as we have made clear we plan to propose that standard in September."

The White House already showed its ability to compromise, brokering the previous 2009 mandate (34.1 mpg by 2016).  It will likely follow a similar route this time, trying to find something everyone can live with.

II. What the Auto Industry Wants

If they were honest, many in the auto industry would probably wish there were no CAFE restrictions.  After all, those restrictions inflate the prices of sportscars, SUVs, and vans -- all vehicles consumers want.  Gloria Berquist, the spokeswoman for the Alliance of Automobile Manufacturers, an industry advocacy group, argues that environmentalists significantly overestimate how much consumers want "green" vehicles.

The restrictions also have been shown by some studies to increase the dangers associated with crashes, due to the use of less metal, and other factors.

However, the auto industry has accepted the reality that they must comply with CAFE.  That said, they are proposing a target of between 42.6 and 46.7 mpg by 2025 -- an average annual increase of 2 to 3 percent in the eight years from 2017 to 2025.

Ms. Berquist notes that in 2010 pickup trucks outsold all 30 hybrids combined.  She comments, "[W]e need to preserve affordability, vehicle choice, jobs and safety as we improve fuel economy."

The Center for Automotive research claims a mandate of 62 mpg by 2025 would add $10,000 USD to the cost of new vehicles.  They say such a mandate could kill the recovering industry.

Even David Vieau, chief executive of battery maker A123 Systems (AONE), a party you would expect to support moves designed to boost EVs comments, "Nobody in business wants someone putting a regulation on them. You don’t want someone saying, 'You must do this in a specific period of time and to this point.'"

Ford Motor Company (F) was probably the most cheerful about the proposal, with its spokeswoman Christin Baker writing, "Ford is proud to continue offering our customers the very best fuel economy and supports increasing fuel economy requirements with one national program that is data driven and factors in the impact of this rule-making on jobs, the economy, consumers and safety."

Ford claims to be the only automaker to currently offer four vehicles in the U.S. that get in excess of 40 mpg.

III. What Environmentalists Want

Environmentalists were moderately happy with President Obama's proposal.  However, some complain that it doesn't go far enough.  They were hoping for 62 mpg -- an increase of 6 percent a year.

Famed ultra-wealthy "environmentalist", former Vice President, and Noble Peace Prize winner, Al Gore, recently blasted President Obama on environmental policy, stating, "President Obama has thus far failed to use the bully pulpit to make the case for bold action on climate change."

Still, some say the proposed five percent increase represents a decent compromise.  States Roland Hwang, transportation program director for the non-profit environmental advocacy Natural Resources Defense Council (NRDC), "[We are] cautiously optimistic.  [But] the devil is in the details for us."

Mr. Hwang echoes a sentiment held by many environmentalists -- that the auto industry owes it to the American people to increase efficiency, after how much the government loaned it to keep automakers afloat during the recession.  He points out that the government loaned a total of $86B USD to automakers during this period.

He remarks, "[We are] overwhelmingly disappointed with the automakers for putting such low numbers on the table. That's extraordinary when you consider how much money we’ve provided them to build fuel-efficient cars. And now they say, 'You can’t have them.'"

The NRDC is known as a moderate voice in the environmentalist community.  For example, it voiced support for the recent repeal of corn ethanol subsidies.

Environmentalists and other parties want higher mpg for a variety of reasons.  One, they say it will directly reduce emissions of toxic nitrogen and sulfur gases that are produced in small quantities during the combustion of hydrocarbons.  Secondly, they say it will cut carbon emissions, which some studies argue cause an artificial global warming effect.  Third, they argue that increasing fuel economy will decrease dependence on oil deposits from volatile and/or hostile states such as Saudi Arabia and Venezuela.

IV. What's Next

The White House is happy with this proposal, but no one else really is -- not entirely at least.  It is expected that there will be significant modifications before September rolls around.

Ultimately the proposal should be an interesting test of exactly how strict the Obama administration thinks it can be with the automakers, which some claim are "indebted" to it for saving them with with bailouts.  It also should be an interesting test of how far the Obama administration believes the public to be leaning in the favor of increasing fuel efficiency.

We will keep you updated as more information becomes available in following months.

"If you look at the last five years, if you look at what major innovations have occurred in computing technology, every single one of them came from AMD. Not a single innovation came from Intel." -- AMD CEO Hector Ruiz in 2007

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