Obama's Fuel Rules Risk Complicating Car Rescue

By NEIL KING JR.
WASHINGTON -- The Obama administration's push to boost fuel-efficiency standards could complicate its bid to revive two of the country's largest auto makers, making the task both riskier and more costly.
Under a plan announced this week, the administration intends to impose rules mandating that U.S. car makers raise overall fuel economy to 35.5 miles per gallon by 2016, up from about 25 mpg.
The Obama administration's push to ramp up fuel economy standards for all American cars and trucks could complicate its multi-billion-dollar effort to remake General Motors and Chrysler. WSJ reporter Neil King explains.
Pulling that off could be particularly hard for General Motors Corp. and Chrysler LLC, the two companies the administration is trying to save. Both have for years drawn most of their profits from large sport-utility vehicles and pickup trucks, while having less success marketing the sort of cars envisioned under the stricter efficiency rules.
In the short term, GM and Chrysler need to generate cash flow by building and selling many more of the comparatively fuel-thirsty vehicles -- pickups such as the Chevrolet Silverado and Dodge Ram, and family haulers such as the Chrysler minivan and Chevrolet Traverse.
GM warned last month in a government filing that the tightened standards -- then meant to take effect in 2020, instead of 2016 -- could significantly disrupt its operations, leading it to cut sales of its more profitable models and ramp up production of hybrid and electric cars.
GM said in the same filing that complying with the new standards would cost the U.S. auto industry at least $100 billion.
Obama aides say there is no conflict between the administration's dual role as both a major investor in GM and Chrysler, and a regulator of the industry.
Retooling to meet the new standards will be expensive, Obama aides acknowledge. The Energy Department plans to grant $25 billion in loan guarantees to support more-efficient cars. The climate bill now in the House would double that amount to $50 billion, a provision the White House supports.
The White House insists that the more-efficient technologies will add no more than $1,300 to the price of a car by 2016. Analysts at the auto research firm Edmunds.com dispute that math, pointing out that within similar models today, an extra 10 miles per gallon in added mileage can add well over $2,200 to the price.
The same analysts also pointed out Thursday that a discrepancy exists between the fuel-efficiency numbers put out by the administration -- known as the corporate average fuel economy, or CAFE -- and the numbers issued by the Environmental Protection Agency. The difference could be confusing for consumers as they try to figure out whether new models meet the government's aspirations.
Under the CAFE numbers, car fleets are supposed to average 39 mpg in 2016. But that is comparable to 29 mpg under the EPA figures consumers will find on the stickers affixed to new models.
Write to Neil King Jr. at neil.king@wsj.com