Fuel Standards

In a change of heart, the National Highway Traffic Safety Administration (NHTSA) has agreed to push back the date that it will start imposing penalties on carmakers for failing to meet new fuel economy standards.

In response to pleas from several automotive companies and their advocacy groups, the government agency has agreed to hold the 2019 models to the new standard.

NHTSA said it is simply bowing to the reality that carmakers design their products well in advance. Jack Nerad, executive market analyst for Kelley Blue Book, says it was the right move.

“In a month of political posturing by outgoing and incoming administrations, this action by the National Highway Traffic Safety Administration adds a needed dose of reality to the conversation around fuel economy and emissions,” Nerad said in an email to ConsumerAffairs.

By delaying the penalties until the 2019 model year, Nerad says the agency is giving the auto industry some “much-needed breathing room” in their efforts to meet standards that are made more difficult to reach by the fact that fuel is reasonably inexpensive and expected to stay that way for at least a few years to come.

Low gas prices equal lower mileage ratings

Automakers have discovered that it is much harder to sell smaller, more fuel-efficient cars when gasoline prices are barely over $2 a gallon. Instead, consumers have been buying less-efficient trucks and SUVs.

An automaker's fuel economy rating is based on the cumulative mileage rating of its entire fleet. The more trucks and SUVs a company sells, the lower its rating.

As recently as August, NHTSA and the Environmental Protection Agency (EPA) jointly finalized fuel economy and pollution standards, sticking with the original deadline.

In extending its deadline, NHTSA also granted a request by carmakers for a way to clear up discrepancies between the two different mandates administered by the two separate government agencies.

The Obama Administration has finalized standards that would increase fuel economy to the equivalent of 54.5 mpg for cars and light-duty trucks by Model Year 2025. 

When combined with previous standards, this will nearly double the fuel efficiency of those vehicles compared with new vehicles currently on the road, according to the administration. Officials say the standards would improve fuel economy and reduce greenhouse gas emissions, saving consumers more than $1.7 trillion at the gas pump and reducing U.S. oil consumption by 12 billion barrels. 

“These fuel standards represent the single most important step we’ve ever taken to reduce our dependence on foreign oil,” said President Obama. “This historic agreement builds on the progress we’ve already made to save families money at the pump and cut our oil consumption. By the middle of the next decade our cars will get nearly 55 miles per gallon, almost double what they get today. It’ll strengthen our nation’s energy security, it’s good for middle class families and it will help create an economy built to last.” 

Reaction 

The Consumer Federation of America (CFA) threw its support behind the initiative. 

"This is not only a big win for consumers, it is vital to the U.S. auto industry and the single most important thing we can do to end America’s addiction to oil -- something President George W. Bush called “a serious problem" -- and to improve our national energy security," said Mark Cooper, director of research at CFA. "The many benefits of this policy are so clear that is has garnered widespread support from the public, automakers, auto workers, national security experts, public health advocates and environmentalists." 

The Auto Alliance, which represents the major automobile manufacturers, posted a statement on its Website reading, "The Auto Alliance has called for a single, national program because conflicting requirements from several regulatory bodies raise costs, ultimately taking money out of consumers' pockets and hurting sales. We all want to get more fuel-efficient autos on our roads, and a single, national program with a strong midterm review helps us get closer to that shared goal." 

The standards issued by the U.S. Department of Transportation (DOT) and the U.S. Environmental Protection Agency (EPA) build on the standards for cars and light trucks for Model Years 2011-2016. Those standards raised average fuel efficiency by 2016 to the equivalent of 35.5 mpg.

New technologies 

Major auto manufacturers are already developing advanced technologies that can significantly reduce fuel use and greenhouse gas emissions beyond the existing model year 2012-2016 standards, according to EPA. In addition, many technologies are currently available for automakers to meet the new standards, including advanced gasoline engines and transmissions, vehicle weight reduction, lower tire rolling resistance, improvements in aerodynamics, diesel engines, more efficient accessories, and improvements in air conditioning systems. 

The program also includes targeted incentives to encourage early adoption and introduction into the marketplace of advanced technologies to dramatically improve vehicle performance, including: 

• Incentives for electric vehicles, plug-in hybrid electric vehicles, and fuel cells vehicles; 
• Incentives for hybrid technologies for large pickups and for other technologies that achieve high fuel economy levels on large pickups; 
• Incentives for natural gas vehicles; 
• Credits for technologies with potential to achieve real-world greenhouse gas reductions and fuel economy improvements that are not captured by the standards test procedures.

Will higher mileage vehicles save consumers money or price them out of the new-car market?  That's the debate that's being heard as the Obama Administration pushes its 54.5-mpg-by-2025 standard.  Auto dealers and some manufacturers have been saying the standard will make cars so expensive consumers won't be able to afford them.

But now, the Consumer Federation of America (CFA) is fighting back, saying more efficient cars must be a top consumer protection priority and releasing what it calls the top ten reasons the new standard will save consumers money.

“What’s not to like?” said Mark Cooper, Director of Research for CFA, of the 54.5 mpg standard, which is expected to be adopted late this summer. “Better gas mileage means more money in Americans’ pockets. Last year household gasoline expenditures set a record, reaching an average of over $2,850. Consumers can’t stomach these prices and the new standards are the only way they’re going to get some relief.”

The National Automobile Dealers Association (NADA) says there's plenty not to  like. It released a study in April indicating that higher vehicle prices resulting from proposed fuel economy rules will cut millions of potential new-car buyers out of the market in 2025.

“To work, fuel economy improvements must be affordable,” said Don Chalmers, president of Don Chalmers Ford in Rio Rancho, N.M. “While you can mandate what automakers must build, you can’t dictate what customers will buy, nor can you dictate if a bank will make a loan.”

Who's right?

Here are CFA’s ten reasons why steadily raising fuel economy standards to 54.5 mpg by 2025 for passenger cars and trucks will benefit consumers and the nation:

(1) The standards lower the total cost of driving from the minute you drive off the lot. For the typical consumer who takes out a five-year auto loan, the monthly gas savings are greater than the increase in the monthly payment needed to buy a more fuel-efficient vehicle. Over the life of a vehicle covered by the new standards, the average buyer will bank a net savings of $3,000.

(2) The standards improve gradually over time, allowing the auto industry to build up their new, more fuel-efficient vehicles at a reasonable, steady pace. Car companies redesign their vehicles on a three-to-five-year schedule, so introducing new technologies can take time. Increasing efficiency over time makes the introduction of new technology achievable.

(3) Consumers will choose the vehicles they want. If they want a truck or an SUV, they’ll be able to buy them, but the vehicles will just be more efficient. Under the standards, different classes of vehicles are required to meet different standards. Standards are higher for compact cars and lower for SUVs and pick-up trucks. Automakers do not have to switch to selling only compact cars and sedans to meet the standards.

(4) Consumers can choose the technologies they want—they won’t be forced to buy into any one technology. Automakers will be able to meet the standards by improving gasoline-powered vehicles, or they can decide to delve into hybrids, electric vehicles, and other more advanced technologies. The standards do not favor any particular technology. Automakers will compete to deliver the best mix of vehicles across types and technologies. Consumers will have the full range of choices, and automakers will be able to offer the vehicles they think will sell best.

(5) Consumers will enjoy better, more fuel-efficient vehicles from ALL automakers. Under the standards, no single company can shirk the rules. If an automaker does not meet the standards, it will pay a fine. The major automakers support the standards because they know they can meet it—and they know that it is in their best interests to compete under a national standard that applies to all automakers.

(6) The standards will make the U.S. auto industry stronger. The rules are set at a level that puts the U.S. on par with the global auto market. In order to compete, automakers must spread the costs of product development across products that rely on a platform that meets global demand. Edging closer to international mileage standards for efficiency also makes American vehicles more competitive.

(7) Consumers value fuel-economy -- it's a worthwhile improvement in quality. It’s expected that the new standards will increase auto prices by about $300 per year over the next 15 years. That is less than the increases the automakers have imposed on the public by voluntary increases in quality over the past 15 years and today.  Better fuel economy is priority #1 for enhancing quality.

(8) Consumers will be able to finance fuel-efficient vehicles. With gasoline now being the highest cost of driving - higher than most Americans’ monthly car payment - some banks have begun to recognize that more fuel-efficient vehicles are more affordable, and are factoring that into their lending decisions.

(9) Lower income households will not be hurt by the new standards. Critics who want to keep consumers tethered to the expensive gasoline pump claim that the small increase in upfront cost could hypothetically render very low income-households ineligible for new car loans. This argument is a red herring. Consumer data shows that lower-income households are very unlikely to be in the new car market. These individuals are much more likely to buy used vehicles.

(10) In fact, lower income Americans are likely to benefit from the standards.  Low-income families buy used cars. The standards will accelerate fleet turnover, increasing the supply of used cars.

“These ten reasons why the new fuel economy standards are good for consumers also show why they are good for the nation and enjoy the support of not only consumers, but automakers, labor unions, national security experts and environmentalists,” Cooper concluded.

NADA thinks not

The auto dealers say the proposed rules, combined with the Obama administration’s previous fuel economy mandates, will raise the average price of passenger cars and light trucks for the 2025 model year by nearly $3,000, according to estimates by the Environmental Protection Agency and National Highway Traffic Safety Administration. CFA, as noted above, estimates the increase at $300 per year over the next 15 years, for a total of $4,500.  

The NADA study claims that nearly 7 million lower-income consumers, such as college students and working families, will not qualify for auto financing to cover the additional cost.

“Loan qualification is based mainly on the customer’s income, existing debt and the vehicle’s price,” Chalmers said. “The resulting calculation is simple: fewer car shoppers will qualify for auto financing with higher vehicle costs.” 

The study is based on an evaluation of a consumer expenditures report from the U.S. Bureau of Labor Statistics. NADA analyzed the financial profiles and purchasing behavior of a large sample of U. S. consumers to calculate debt-to-income ratio for households.

“The unintended consequences of the proposed fuel economy increases are clear,” said David Wagner, the primary author of the study and an analyst with the NADA Used Car Guide. “If the price of a vehicle goes up by the government estimate of almost $3,000, millions of people will no longer be able to finance a new vehicle.”   

Doug Greenhaus, NADA’s chief regulatory counsel for environment, health and safety, says the government needs to better understand the impact of the proposed fuel economy rules on consumers and auto lending before doubling down on new mandates.

“Disregarding vehicle affordability will undermine the environmental and national security benefits the administration is seeking,” Greenhaus said. “The proposed MY 2017-2025 fuel economy rules should be delayed until there is a more accurate picture of how prospective buyers likely will react.”

The Obama Administration today unveiled a proposed rule that would require automakers to double the average fuel economy of their vehicles to 54.5 miles per gallon by 2025, estimating that the change would add $2,000 to the average price of a car.

The proposal brought howls of protest from automakers who warned the changes would price millions of Americans out of the new-car market, keeping older, less fuel-efficient cars on the road longer. The Environmental Protection Agency (EPA) and National Highway Traffic Safety Administration (NHTSA) estimated the changes would cost $157 billion while returning benefits of up to $515 billion. 

In a joint statement, the EPA and NHTSA said the Obama Administration is acting “to strengthen the economy and move the country forward because we can't wait for Congressional Republicans to act.”

Big costs, bigger savings?

The agencies said that, combined with other steps the Administration has taken to increase energy efficiency, the proposal will save Americans over $1.7 trillion at the pump, more than $8,000 per vehicle by 2025.

“These combined actions also will reduce America's dependence on oil by an estimated 12 billion barrels, and, by 2025, reduce oil consumption by 2.2 million barrels per day – enough to offset almost a quarter of the current level of our foreign oil imports. Taken together, these actions will also slash 6 billion metric tons in greenhouse gas emissions over the life of the programs,” the statement continued.

Representative Ed Markey, a Massachusetts Democrat, and 107 other U.S. House members yesterday sent a letter to Obama supporting the rule.

"We believe that these standards to reduce petroleum use in cars and light trucks represent an opportunity to increase our national and economic security in an unprecedented way by dramatically decreasing our dependence on foreign sources of petroleum," they wrote.

Representative Darrell Issa, a California Republican, opened an investigation into how it was written, saying it was rushed and may jeopardize safety by reducing the weight of vehicles on the road.

A proposed rule had been due Sept. 30 before regulators said they needed more time. The final rule is scheduled to be published next year.

"Steady improvements"

"By setting a course for steady improvements in fuel economy over the long term, the Obama administration is ensuring that American car buyers have their choice of the most efficient vehicles ever produced in our country. That will save them money, reduce our nation's oil consumption and cut harmful emissions in the air we breathe," said EPA Administrator Lisa P. Jackson. "This is an important addition to the landmark clean cars program that President Obama initiated to establish fuel economy standards more than two years ago.”

The Obama Administration had earlier reached agreement with Ford, Honda, Toyota and General Motors to achieve annual fuel-economy increases of 5 percent for cars. Volkswagen and Daimler AG were among automakers that didn't sign on to that agreement.

Dealers object

Today's proposal landed with a thud at the offices of the National Automobile Dealers Association.

"America's auto dealers support continuous improvement in the fuel economy of the fleet of vehicles that drive on the nation's roads," the association said in a statement. "To this end, we are concerned that adding about $3,000 to the average cost of a car will price millions of Americans out of the market, which could reduce fleet turnover and delay environmental gains."

EPA and NHTSA insisted the new standards will “rely on innovative technologies that are expected to spur economic growth and create high-quality jobs across the country.”

“The standards should also spur manufacturers to increasingly explore electric technologies such as start/stop, hybrids, plug-in hybrids, and electric vehicles. The MY 2017-2025 proposal includes a number of incentive programs to encourage early adoption and introduction of 'game changing' advanced technologies, such as hybridization for pickup trucks.

April 1, 2010
Vehicles on US highways have gotten more fuel efficient over the last decade but the Obama Administration thinks cars can be even more efficient.

The US Department of Transportation and Environmental Protection Agency have jointly established new fuel economy standards for all new passenger cars and light trucks sold in the US. For the first time, the rules would also set greenhouse gas reduction standards.

"These historic new standards set ambitious, but achievable, fuel economy requirements for the automotive industry that will also encourage new and emerging technologies," said Transportation Secretary Ray LaHood. "We will be helping American motorists save money at the pump, while putting less pollution in the air."

EPA Administrator Lisa P. Jackson agreed, calling the standards a significant step towards cleaner air and energy efficiency.

"By working together with industry and capitalizing on our capacity for innovation, we've developed a clean cars program that is a win for automakers and drivers, a win for innovators and entrepreneurs, and a win for our planet," Jackson said.

Starting with 2012 model year vehicles, the rules together require automakers to improve fleet-wide fuel economy and reduce fleet-wide greenhouse gas emissions by approximately five percent every year. NHTSA has established fuel economy standards that strengthen each year reaching an estimated 34.1 mpg for the combined industry-wide fleet for model year 2016.

The government estimates the new standard will provide the average car buyer of a 2016 model year vehicle a net savings of $3,000 over the lifetime of the vehicle, as upfront technology costs are offset by lower fuel costs.

The two government agencies say they received more than 130,000 public comments on the September 2009 proposed rules, with overwhelming support for the strong national policy.

Auto industry executives went to Capitol Hill to tell members of Congress that mandating higher fuel economy standards alone will not produce a substantial decrease in oil consumption in the U.S.

Chrysler group CEO Tom LaSorda told the House Energy and Commerce Committee, "If all the new vehicles sold in the United States 10 years from now were hybrids or diesels fuel economy would improve by only 25 to 30 percent."

LaSorda and the heads of General Motors, Ford Motor Co. and Toyota Motor Corp. all opposed calls to boost annual fuel economy standards by 4 percent, climbing to at least 34 miles per gallon by 2016.

Taking a harder line, General Motors Corp. chief Rick Wagoner charged that the corporate average fuel economy program has failed.

"CAFE has been particularly damaging to the domestic, full line manufacturers," Wagoner told the committee. "Many of the recent legislative proposals to increase CAFE requirements by 4 percent per year or more would be extraordinarily expensive and technically challenging to implement with little to show for actually reducing oil consumption or emissions," he said.

The executives are fighting efforts by the Democratic-led Congress to single out automakers as the only industry responsible for reducing carbon emissions to cut global warming. Nevertheless, gasoline demand accounts for nearly half of the average daily U.S. consumption of 20.9 million barrels of oil.

Presently an automaker's fleet of passenger cars must average 27.5 mpg. The mileage figure has not changed in 17 years. Other vehicles, including SUVs, pickups and light trucks must get 24.1 mpg by 2011 under changes imposed by regulators at the National Highway Traffic Safety Administration last year.

Automakers prefer that any increase in fuel economy standards be administered by NHTSA regulators and not imposed by Congress as law.

The White House has proposed reducing domestic gasoline usage by 8.5 billion gallons or 5 percent by 2017. The plan calls for raising fuel economy standards by an average of 4 percent yearly beginning in September 2009 for passenger cars and September 2011 for light trucks.

The administration predicts that the changes would cost the auto industry $114 billion between 2010 and 2017. Domestic automakers would pay $85 billion of the expense because domestic vehicles trail imports in mileage performance.

Ford Motor Co. President and CEO Alan Mulally said the standards are not a silver bullet. We need government to be our partners not our adversaries," Mulally's told the committee. "Ford has long acknowledged the importance of climate change. Yes, we need more fuel efficient vehicles, but we also need lower carbon fuels and consumer incentives to adopt these fuels."

"The truth is that we must all accept that these are long-term challenges and that we are all part of the solution," Mulally said. "For too long each sector has wanted someone else to be the solution in order to pass the buck. This piecemeal approach will not work if we are serious about change."