june 26, 2007; page b1
whether by presidential order or congressional mandate, car makers in the foreseeable future will likely have to build fleets that average about 35 miles per gallon. but what kinds of cars and trucks will gasoline-guzzling americans drive to achieve that average?
the answer would seem to lie in europe, where fuel prices are roughly double u.s. levels amid heavy taxation and more than half of the vehicles bought have diesel-powered engines. vehicles in europe meet the magic average of 35 mpg.
but there are aspects of the european model that, for now, make it less likely to work easily in the u.s. for one thing, cars in europe are more expensive, pound for pound, and typically far less powerful than the vehicles americans have come to expect.
in the u.s. today, about 70% of car and truck sales sport six- or eight-cylinder engines. in europe, 89% of vehicles sold have a four-cylinder or smaller engine, according to the alliance for automobile manufacturers, a trade group representing nine auto makers from three continents.
a main reason europeans buy smaller, diesel-powered vehicles is that fuel taxes are heavier on gasoline than diesel, and diesel vehicles enjoy other tax breaks. in the u.s., diesel fuel has at times cost more than gasoline. add stern clean-air regulations, and diesels claim less than a 1% market share in the u.s., according to ward's automotive group.
a significantly higher gasoline tax is politically untenable in the u.s., so lawmakers are poised to regulate the auto industry instead. the upshot for u.s. consumers: american showrooms could increasingly feature more small cars, gasoline-electric hybrids and, even without a tax incentive, diesels. but it could also mean smaller engines and decreased performance in big trucks, industry observers say.
by 2020, annual increases mandated by the federal mileage regime, known as corporate average fuel economy, or cafe, could increase market share for hybrids and diesels to 25% and 27%, respectively, according to global insight, an automotive-research firm. today, hybrids garner just about a 3% share.
increased mileage regulations could add significant price premiums to vehicles as auto makers employ expensive technology to enhance fuel economy -- as much as $2,000, according to global insight. auto makers say that number could be higher, exceeding $5,000. jacked-up prices could pressure not only auto companies, but also dealers trying to move vehicles off their lots.
"if we have a big disconnect between what the consumer is asking for and what the manufacturers have been ordered to produce, that's extremely difficult," says mike jackson, chief executive of autonation inc., the nation's largest publicly traded dealership chain. "that's sort of like if you want to do something about dresses in america, [mandating] that we can't sell anything larger than a size eight. if you don't put america on a diet at the same time, you have a disconnect between the regulators and what the consumer is willing to do."
indeed, while auto advertisements increasingly tout fuel efficiency -- general motors corp. flaunts the fuel economy of its chevrolet silverado pickup, even though the truck doesn't get better than 21 mpg -- consumers still appear to put a priority on size and power. in a recent consumer reports survey, 70% said they plan to seek a more fuel-efficient vehicle, but only about half said they would sacrifice size or performance in that quest.
even as gasoline prices have jumped to record levels within the past month, some analysts say sales of large sport-utility vehicles have held up because auto makers have boosted discounts -- effectively rebating to customers the increased cost of the gasoline to fuel their machines.
against that backdrop, auto makers worry they will have to invest considerable sums retooling plants to build more efficient -- but less desired -- models and possibly close some plants to reduce capacity of certain high-selling gas-guzzlers. u.s. car makers could have to abandon some thirsty, rear-wheel drive cars, global insight predicts, and chrysler could have to close one of its dodge pickup truck plants.
"you ask, 'could it be the end of the dodge ram as we know it?' i think that's a legitimate question," says john bozzella, chrysler's vice president for public policy in washington. he added that chrysler might still have trouble meeting future stringent mileage rules despite adding new clean-diesel engines to its light trucks.
auto makers also contend stricter mileage rules will force them to build less-safe vehicles -- the crux of the argument being that lighter vehicles fare worse in crashes. the national academy of sciences says technology exists to improve fuel economy without sacrificing safety but notes that high costs could motivate car makers to downsize vehicles to meet higher fuel mileage targets.
environmentalists say worries about performance and safety are misplaced. "the auto makers' arguments are scare tactics," says david friedman, research director for the clean-vehicles program at the union of concerned scientists, an environmental group. he says auto makers should heed national academy of sciences findings that better mileage can be achieved without skimping on safety or power.
but as congress and the white house talk up plans to increase fuel-efficiency standards by as much as 4% a year, auto makers are countering with warnings about the cost. a bush administration estimate says the industry could have to pay $114 billion between 2010 and 2017 to achieve such increases.
detroit's auto makers warn tougher mileage rules could be devastating at a time when they are bleeding red ink in their core north american operations. even toyota motor corp. and honda motor co. -- models of fuel efficiency -- fear tougher rules, depending on how they are written.
in one scenario, cars and trucks would have to meet size-based mileage standards instead of a fleetwide target. chevrolet malibu sales, for example, would count toward a mileage average for the vehicle's size class as opposed to all cars.
the system -- recently included in the energy bill passed by the senate -- would assign bigger vehicles lower mileage targets and tougher standards for smaller cars and could allow detroit to sell more-profitable fuel-thirsty cars and trucks without having to rev up sales of lower-margin, better-mileage vehicles.
but the "attribute-based" system, favored by domestic auto makers, could make it harder for foreign companies to meet 4% annual increases because their predominantly smaller, more-efficient fleets would likely face higher standards. "for us, it would be more than 4% and that's quite aggressive," says ed cohen, honda's vice president for government and industry affairs in washington.
nearly all auto makers, including asian and u.s. companies, want the national highway traffic safety administration to have authority to lower standards if regulators, in consultation with auto makers, find targets unachievable. but lawmakers on capitol hill have gotten tougher on fuel efficiency amid concerns over gasoline price-gouging and global warming.
the senate, in its bill, mandated steadily improved fuel economy and left little room for regulators to lower them. many in the house want to do the same and could try to insert tough fuel-economy language into an energy bill when it comes to the floor.
the house energy and commerce committee -- headed up by john dingell, a michigan democrat and auto-industry ally -- had tabled auto fuel efficiency until the fall.
as political pressure mounted in washington over the past couple of weeks, gm announced it would expand diesel offerings in its pickups and chrysler said it would add hybrid technology to certain vehicles and explore building a four-cylinder diesel engine. honda hopes to sell a clean diesel-engine vehicle by 2009.
write to mike spector at [email protected]