Obama Reveals New Mileage Standards; Garners Broad Support

With many of the nation’s automotive leaders surrounding him at the White House, President Obama revealed details of the unexpected compromise that will set the nation on a course of drastically improved automotive fuel economy over the next decade-and-a-half – something he dubbed “the single most important step we’ve ever taken as a nation to reduce our dependence on foreign oil.”

The new Corporate Average Fuel Economy standard demands that manufacturers deliver a fleet average of 54.5 miles per gallon by 2025, roughly twice the fuel economy of the typical vehicle being sold in the U.S. when the current administration came to power in January 2009.

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While some environmentalists had hoped to push the figure to 56.2 or even 62 mpg, the final number is significantly higher than what industry lobbyists had been campaigning for – in fact, barely a week ago, an automotive lobbying group was preparing an advertising campaign designed to thwart the White House push for a new CAFE standard.

Instead, as demonstrated  by the presence of top executives — including General Motors’ Dan Akerson, Jim Lentz of Toyota Motor Sales USA, Ford’s Alan Mulally and Hyundai Motor America’s John Krafcik – the industry came onboard with very public support, triggering praise from the president, who declared that while the new 54.5 mpg number is “an aggressive target…the companies here are stepping up to the plate.”

Shortly after taking office, the president achieved an earlier compromise, boosting the mileage standard to 37.5 mpg by 2016.  But that was generally seen as an interim step – and, especially in the light of this year’s drastic surge in fuel prices, the push was on to set a longer-term target.  But the sharp rebuke the Democratic Party suffered in last year’s Congressional election short-circuited a push by the Environmental Protection Agency to mandate 62 mpg.

And opponents seemed to be gaining the upper hand when various studies came out, this year, suggesting that such a number would cost the typical motorist perhaps $10,000 a vehicle – slashing anticipated auto sales by millions and potentially threatening 100s of thousands of jobs.

A lower, 56.2 mpg figure was floated last month, but a senior Toyota official, asking not to be identified, admitted that even a matter of days ago it seemed “unlikely we’d get an agreement any time soon.”

Sources in Washington suggest that the ongoing stalemate over increasing the federal deficit cap helped motivate White House negotiators to reach a settlement that could demonstrate the administration’s ability to drive a hard bargain but still reach compromise.  Whether accurate may never be known but all questioned agree that the final agreement came together quickly – and has generated more positive and broad support than skeptics anticipated.

Indeed, opponents clearly couldn’t ignore the strong support of American motorists slammed by this year’s sharp rise in fuel prices.  A survey conducted for the Pew Charitable Trust by a bipartisan polling team, earlier this month, found 91% of American’s agreeing that dependene upon foreign oil is a “very serious” or “somewhat serious” threat to U.S. security.  The study, which cut across demographic and political lines, also found 82% of those polled in favor of a 56 mpg standard.

In the end, few in the industry seemed willing to resist that mood.

“This proposed rule presents a path forward that greatly improves fuel economy while preserving customer choice and future industry growth,” a statement from General Motors declared.

There had been some concerns, meanwhile, that proponents of the higher CAFE target first sought by the EPA would turn on any proposed watering down of the 2025 mandate.  With rare exception, however, environmentalists also are voicing support.

“This is a strong step toward reducing America’s dependence on oil, curbing climate change and protecting our health,” said Peter Lehner, Executive Director of the Natural Resources Defense Council.

Even veterans groups weighed in, Operation Free, a coalition of veteran and national security organizations stating that, “Making our cars more fuel efficient isn’t just going to save Americans hundreds of billions of dollars at the gas pump—it’s going to make us safer, too.”

To underscore the challenge of pulling together the deal announced today, there was still no final consensus on the CAFE proposal, even when an administration spokesman announced today’s White House session, earlier in the week.  A number of issues, large and small, needed to be massaged.  Among other things, it initially appeared the revised fuel economy standard would go with a 56.2 mpg figure for cars and the lower 54.5 mpg number for trucks.

According to David Strickland, head of the National Highway Traffic Safety Administration, key parties didn’t sign off on the final language until nearly midnight last night.

While the Alliance of Automobile Manufacturers pulled its attack ad campaign, industry officials continued to make it clear they were concerned about the challenges facing them as the nation calls for the biggest and fastest increase in automotive fuel economy since the CAFE standards were first enacted in the wake of the original oil shock of the mid-1970s.

That remains apparent in a statement by Toyota.  “We share the administration’s goal of achieving major advances in clean, fuel-efficient vehicles,” said Toyota’s Lentz. “Obviously, there is still a great deal of uncertainty as to how the market will respond and what vehicle technologies consumers will embrace, which is why we are rolling out and testing a range of alternative fuel options.”

Indeed, estimates of the impact of the CAFÉ standards vary widely.  During his speech, the president estimated that consumers would wind up saving about $8,000 per vehicle on fuel compared to what they’d spend driving the typical automobile sold today.

If accurate, that would roughly balance out the higher vehicle cost estimated by the Center for Automotive Research, in Ann Arbor, though it would also mean a significant up-front investment that could take some years for buyers to recoup.  The so-called “payback period” would be far more rapid if other studies come closer to the final cost of developing the cars, trucks and crossovers of 2025.  Boston Consulting Group, for example, forecast just a $2,000 bump in average automotive pricing.

In fact, some studies contend that rather than hurting sales and costing
jobs, the 54.5 mpg standard could be a significantly positive factor for the American economy – for one thing, keeping billions of dollars that today flow to countries like Venezuela and Saudi Arabia back here in the U.S.

In a report titled, “More Jobs Per Gallon, Ceres, a nation al coalition of investors and public relations organizations put those savings at $152 billion, which it estimated could help create 700,000 American jobs – including 63,000 in the automotive sector.

Who is right will almost certainly take years to determine.  And it will depend on a lot of invention.  Manufacturers fret they have gobbled up all the “low-hanging fruit,” reasonably low-cost methods of boosting mileage.  They are now working more complicated technologies that clearly add cost, such as direct injection engines and 8 and even 9-speed transmissions.

Many experts believe that the typical car of 2025 will likely require some degree of electrification – whether that’s something as simple as stop/start technology, which temporarily shuts an engine off instead of idling, or the use of pure battery-electric powertrains. Diesels, long taboo in the American market — but today helping power half the European auto fleet — could now find an open invitation.  Indeed, GM announced this week it will add a diesel to the Chevy Cruze line, its first passenger car application in the States, and experts believe this could boost the compact model’s mileage to 51 mpg.

“There will be no single solution,” said Toyota Group Vice President Bob Carter, telling TheDetroitBureau.com he expects to see a “fragmentation” of powertrain technology, as well as the use of new lightweight body materials and other means of driven down fuel consumption.

“This is the next big step,” House Minority Leader Nancy Pelosi said of the new CAFE rules.  But with the mandated rate of increase between now and 2025, automotive designers and engineers won’t just be able to get by taking a few steps.  They will be running a marathon.