CAFE Players Settle On 54.5 MPG For 2025

CAFE Players Settle On 54.5 MPG For 2025

By John O'Dell July 28, 2011

In a deal that likely will become a major plank in President Obama's reelection platform, the White House reportedly has hammered out a deal with major automakers that will – at least for now – establish a 54.5 mile-per-gallon Corporate Average Fuel Economy (CAFE) standard for passenger vehicles in 2025. That would be equal to an EPA "window sticker" fuel economy rating of about 40 mpg. A formal announcement is scheduled to be made by the President on Friday, but as of late Wednesday, according to one automaker involved in the talks, there had not yet been a final agreement presented for industry and government representatives to sign off on. Still, it is unlikely at this stage that the deal being widely discussed in Washington and Michigan won't happen.

What is known is that the agreement calls for a 5 percent annual increase in passenger car fuel efficiency from the 2017 through 2025 model year, which would result in a nearly 60 mpg CAFE standard for cars. Light trucks, including pickups and SUVs, will be treated differently, subject to a 3.5 percent fuel economy increase each year through 2021 and then a 5 percent hike in subsequent years. The lower standard for trucks pulls the overall fleetwide average down to 54.5 mpg in the 2025 model year. While automakers aren't talking for publication, several -- including BMW and Mercedes-Benz, reportedly are unhappy with the break given to the truck segment, which still makes up a large part of the domestic auto industry's portfolio. Toyota Motor corp., which initially had reservations about the deal and could have been a big stumbling block to Obama's hopes of quick industry agreement, reportedly has had its concerns addressed and now is ready to support it.  Still unclear is whether the deal will permit automakers to classify crossovers -- SUV-styled vehicles built on automobile platforms rather than on truck chassis -- as trucks, thus reducing their fuel efficiency requirements.

Others, though, see the deal as probably the best they can get. After years of fighting just about every fuel efficiency and safety improvement plan regulators come up with, automakers are trying these days to appear more reasonable, especially as the domestic industry pretty much owes its continued existence to a government bailout. Telling taxpayers struggling with high fuel prices in a sagging economy that they won't make the effort to provide a big boost in fuel efficiency over the next 14 years isn't seen as a particularly bright move.

One industry source close to the negotiations told AutoObserver that the deal "provides regulatory certainty and a robust mid-term review process, [and] allows the industry to be forward thinking based on advanced technology." In a statement released late Wednesday, American Honda executive vice president John Mendel said his company "embraces this challenge, which will be good for our customers and for the environment, and we welcome the competition we will have with other automakers that will result from these new standards."

Questions Remain
One group that is quick to express dissatisfaction with the deal and the process that led to it is the National Automobile Dealers Association. Spokesman Bailey Wood said the organization believes that dealers and consumers have been left out of the process and that the administration is making a "huge mistake" by limiting the negotiations to automakers and policy makers. "There will be no environmental or economic benefit from this unless we can put these technologies on the road," he said, "and that means the dealers have to have cars that they can sell." NADA historically has been concerned that high fuel efficiency numbers will force automakers to curtail production of trucks, large cars and sports cars and to favor compacts and small crossovers in their production plans. Edmunds.com CEO Jeremy Anwyl said that any standard "that puts consumers and automakers at odds by requiring vehicles consumers don't want to buy is problematic, and because they are refusing to reveal the details of this deal, it is hard to say right now whether it is a good agreement or a bad one."

The Consumer Federation of America, however, seems to be happy with the proposal. "We got 60 mpg for cars," said research director Mark Cooper. "That's what we wanted. " He said the federation had ample opportunity to present its case before the negotiating sessions began more than six weeks ago and doesn’t feel that it was left out of the process even though neither it nor any other consumer advocacy group was invited to join the talks. Environmental groups were left out as well. Major organizations, including Union of Concerned Scientists and National Resources Defense Council, say that while the deal as reported appears to be close to the 60 mpg standard they'd asked for, they are reserving judgment until the details are inked-in. "There's a lot that we still need to see," said UCS research director David Friedman. Still, the group considers the deal "a positive milestone on the road to strong vehicle and fuel efficiency standards," he said.

Review Stipulated
"Based on what we have heard so far," NRDC transportation program director Roland Hwang said, his organization believes the pact is "a strong step toward lowering drivers' gas bills and cutting dangerous pollution. We are encouraged by some aspects but troubled by potential loopholes. We hope the auto industry will work in good faith to not exploit any loopholes that threaten to undermine the consumer and environmental benefits." Addressing a clause in the deal that calls for a review of the standards in 2017 – just as they begin to take effect – Hwang said NRDC believes the review "will ensure that America stays innovative and gains traction on our energy security. We’ll keep pushing for further progress to cut our oil dependence and curb global warming."

But that review clause is unusual – the law already stipulates that CAFE standards be reexamined regularly – and isn't seen by everyone as a way to ensure progress. "It’s all political. If Obama is not re-elected, the next administration can modify CAFE," said George Peterson, president of Southern California-based industry consulting and market research firm AutoPacific. "All this assumes the Democrats remain in charge of the regulatory arm of the government." If conservatives gain control, said one industry insider who asked to remain unidentified, then the automakers will likely have an ally in any attempt they'd make to roll back the fuel economy requirement.

There are plenty of loopholes, exemptions and credits in the plan, insiders say, and their impact might result in a "real" CAFE standard as low as 50 mpg – equal to about 38 miles per gallon on the EPA's "window sticker" fuel economy statements that are provided with each new car. The EPA and CAFE numbers differ because they are computed using different systems. CAFE is basically a regulatory device while the EPA fuel efficiency numbers are what consumers use when shopping for cars and trucks. Among the items that could lower the real fuel efficiency is a section that establishes credits for use of fuel-saving technologies such as energy-efficient LED headlights, photovoltaic roofs that would use sunlight to generate small amounts of electricity to help charge batteries or power auxiliary equipment such as interior cooling fans, thermoelectric systems that use exhaust heat to generate power, even automated grilles that close at high speeds to increase aerodynamics.

Is It Achievable?
While there were howls of protest from industry quarters when the Administration was talking earlier this month about a 56.2 mpg CAFE standard, there seems to be little concern -- other than from the dealer association -- over the slightly lower 54.5 mpg standard. John German, a former Chrysler and Honda energy and environmental specialist and now senior fellow and program director at the International Council on Clean Transportation, said that's in part because the various credits that automakers can rack up means they won’t actually have to hit that number. Still, he said, his reviews of the technologies available and under development have convinced him that "there's no question that in the 2035 timeframe, [a CAFE standard of] 70 miles per gallon is quite feasible. 56 mpg is absolutely achievable. The question is how fast and how soon the technologies can be developed."

Automakers who are ready to sign off on the deal -- a group that insiders say includes Chrysler, Ford, General Motors, Toyota, Honda and Hyundai – likely see it as the best compromise they can get and one that gives them an edge over some of their competitors, said David Cole, chairman emeritus of the Michigan-based Center of Automotive Research. He said he believes a 54.5 mpg CAFE goal is achievable with heavy use of conventional and plug-in hybrid cars and trucks, but only if battery costs come down by 50 percent or so from present levels. He estimated current levels at $500 to $800 per kilowatt-hour, or $8,000 to $12,800 for the 16 kilowatt-hour battery used in the Chevrolet Volt range-extended plug-in hybrid.

One thing that makes the deal agreeable to automakers is that they have been arguing for years that the country needs a single fuel efficiency standard, and this is likely to give them one. At present, the country operates under a bifurcated system that exists because California is allowed to set its own air quality rules -- and thus effectively sets California-specific fuel economy requirements because pollutants are directly related to the amount of fuel burned per mile traveled. California's standards typically are tougher than the federal governments and are used by 13 other states. Those states and California combined represent more than half the total new car market in the U.S. As a result, automakers have often been forced to either make everything meet the tough California standards or to build one set of cars and trucks for the "California states" and another for the rest of the country. California's air quality regulators have been part of the ongoing CAFE debate, however, and reportedly have agreed to follow the federal plan for the 2017-2025 period.

Future Cars, Costs
Indeed, under any scenario that pushes required CAFE fuel economy much beyond the 50 mpg mark, heavy use of low-carbon and carbon-free alternative fuels and power sources is going to be required. Some, like the dealer association, worry that tough CAFE rules will spell the end of pickups, large SUVs and big cars. Others, notably environmental and consumer groups, say technologies exist that will enable the industry to continue supplying a variety of cars and trucks, although the power sources may be radically altered and most will use either some sort of battery-dependent electrical boost or a hydrogen fuel-cell that produces electricity on board the vehicle to power an electric drive system.

Whatever the shape of the future fleet, one thing is certain -- the vehicles will cost more. Optimists peg the increased cost of adding appropriate technology to achieve a 55 to 60 mpg fuel efficiency at around $2,000 a car; pessimists say the costs could run closer to $8,000 per vehicle. Environmental groups and the Consumer Federation have issued reports that say fuel savings will let consumers earn back the increased costs in as little as two to three years for the most optimistic scenarios and certainly over the vehicle's lifetime, but they don't address the fact that few consumers now keep a car or truck for its entire lifespan.

As Edmunds CEO Anwyl said, it’s hard to say without details just how this agreement is likely to impact the market, and those details are still being hashed out. Indeed, the Environmental Protection Agency -- which did not respond to a request for comment -- isn't expected to publish the first draft of the rules governing the 2017-2025 CAFE pact until Sept. 30. Changes can, and likely will, be made up until that date. The final rules -- after the EPA collects public comments on the first draft -- are due in 2013, giving the automakers four years to ramp up to produce the first cars governed by the deal in the 2017 model year. The present CAFE standard calls for a fleet-wide average fuel economy for new cars and trucks of 35.5 miles per gallon by the 2016 model year.

John O'Dell:  is an AutoObserver Senior Editor. Follow @AutoObserver on Twitter.