U.S. Orders Stricter Fuel Goals for Autos

By STEPHEN POWER and CHRISTOPHER CONKEY

WASHINGTON -- The Obama administration plans to order auto makers to increase the fuel economy of automobiles sold in the U.S. to 35.5 miles per gallon by 2016, four years faster than current federal law requires, people familiar with the matter said.


President Obama is scheduled to announce a series of new regulations for the auto industry, but as Fox's Doug Luzader reports, those new standards will come at a cost. Video courtesy of Fox News.
The move, part of a broader overhaul of fuel-economy rules aimed at cutting greenhouse-gas emissions, would accelerate the largest government-mandated transformation of vehicles on the American road since the late 1970s and early 1980s, when the first federal fuel-economy standards took effect.
A senior administration official said late Monday that the regulations would save 1.8 billion barrels of oil and reduce emissions of greenhouse gases by 900 million metric tons over the lifetime of the more efficient vehicles, equivalent to taking 177 million cars off the road or shutting down 194 coal-fired power plants.
By 2016, if the new rules take effect as planned, new passenger cars sold in the U.S. will have to meet an average mileage requirement of 39 mpg, up from 27.5 mpg currently. Light trucks would have to deliver an average of 30 mpg, compared with about 23 mpg today.


Plans to speed up tougher mileage requirements for autos sold in the U.S. should increase sales of gas-sipping cars, such as Toyota's Prius hybrid.

In practice, the new mileage rules would mean that seven years from now many more cars for sale in the U.S. would be gas-electric hybrids or subcompacts, such as the Honda Motor Co. Fit, outfitted with fuel-stingy engines. A truck capable of averaging 30 miles per gallon probably would be equipped with a gas-electric hybrid or a diesel engine. Even trucks the size of today's Ford Motor Co. Escape do not deliver that fuel economy.
The technology required to make the cars and trucks able to meet the proposed standard could add $1,300 to the average cost of making a vehicle -- a significant share of the money Detroit's auto makers are trying to save by slashing their union retiree health care costs.
Disclosure of the agreement is expected Tuesday, with executives from several large auto companies, including General Motors Corp. Chief Executive Frederick "Fritz" Henderson, as well as United Auto Workers President Ron Gettelfinger, expected to participate, people familiar with the matter said.

Auto makers tentatively have agreed to drop litigation challenging the legality of state-level curbs on tailpipe greenhouse-gas emissions, people familiar with the matter said. They appear ready to support the more aggressive timetable in exchange for the certainty of a single national fuel-economy standard, instead of a jumble of federal and state standards. The state of California also will agree to accept the proposed federal standards.
But regulatory certainty by itself doesn't bring market acceptance or technology breakthroughs. Among the risks that auto makers and dealers face is the need to produce and maintain a highly efficient fleet of hybrids, electric cars and advanced gasoline engines at prices that customers can afford.
Auto makers on Monday said they were awaiting more information on how the new standards would be applied and what assistance they may receive to meet the tighter timeline. In the past, for instance, auto makers received credits toward meeting fuel-efficiency standards even when the average efficiency of their vehicles fell short.
"If gasoline is cheap, there's going to be a huge disconnect" between the vehicles available and what consumers will want, argues AutoNation Inc. Chief Executive Mike Jackson. He has long advocated a higher federal gasoline tax to ensure that gas prices stay above $4 a gallon, the level that drove demand for small cars last summer.
Currently, the federal gas tax is 18.4 cents a gallon for gasoline and 24.4 cents per gallon of diesel. President Barack Obama has said he isn't interested in raising fuel taxes, and the senior administration official said Monday that the administration is confident that auto makers will be able to continue to offer and sell a wide range of vehicle types without having to rely on government incentives such as tax credits.

The decline in gas prices from last summer's record highs has revived demand for large sport-utility vehicles. In April, such vehicles accounted for 4.4% of all vehicles sold in the U.S., compared with 3.8% in April 2008, when fuel prices were higher. Meanwhile, compact cars -- which accounted for 22% of all vehicles sold in the U.S. in May 2008 -- made up just 16.8% of new vehicles sold last month.
"With this type of volatility, you can't effectively plan your product lineup for the next several years and hope to make money as an auto maker," said Jesse Toprak, executive director of industry analysis for Edmunds.com, a Web site that tracks auto sales. "If the government wants to be realistic, it has to come up with incentives for people to buy fuel-efficient vehicles."
Complicating matters for the administration are the financial struggles of Chrysler LLC, which is now receiving government funding under bankruptcy-court protection, and GM, which has said it could file for Chapter 11 bankruptcy at the end of May.
The costs of meeting the new standard would be high. The Transportation Department last year estimated that requiring auto makers to achieve 31.6 mpg by 2015 would cost the industry $46.7 billion, among the most expensive rule makings in U.S. history.

Dave McCurdy, president of the Alliance of Automobile Manufacturers, said on Monday, "Unless there's a huge spike in the price of gasoline...there will have to be incentives from the government" to encourage consumers to buy advanced-technology vehicles at prices that will return a profit to manufacturers.
The Obama administration's action accelerates a drive to dramatically change the size, shape and fuel consumption of American cars and trucks that started gathering steam in the final year of the Bush administration. President George W. Bush signed an energy bill in December 2007 that called for the first significant increase in passenger-car fuel economy in more than two decades.
Under the plan being considered, the Environmental Protection Agency and the Department of Transportation would work together on the rules raising fuel-economy standards and reducing greenhouse-gas emissions. It is unclear how quickly the EPA and the National Highway Traffic Safety Administration will be able to make a formal proposal for curbing emissions and boosting fuel economy.
Write to Stephen Power at stephen.power@wsj.com and Christopher Conkey at christopher.conkey@wsj.com