In anticipation of stricter fuel economy rules, General Motors is postponing production of a number of less-fuel-efficient cars and other domestic car makers are rumored to be considering similar steps as the industry frets about its future under tougher fuel-economy standards.
With gas and oil prices remaining high and concerns about greenhouse gases continuing to grow, pressure is building for the domestic automakers to produce more cars that use less fuel. A U.S. Senate committee hearing yesterday reviewed four proposals that would force automakers to improve the mileage of new cars and trucks by changing the Corporate Average Fuel Economy, or CAFE, standards.
CAFE is the average fuel economy for the entire fleet of passenger cars and light trucks that an auto manufacturer might produce for sale in a given year. Among the proposals discussed at the hearing is one that would raise the CAFE requirement to 40 miles per gallon by 2017, up from 27.5 mpg that a company's lineup must average under current rules .
"Changes to CAFE would certainly make it more difficult for the domestics to be successful and profitable," said Kelley Blue Book's Jack Nerad. "Domestic companies have reputations for a particular kind of product, and if you limit sales of that product, it will hurt the domestic industry.
"It would just be hard for the domestics to put together the kind of sales mix that would achieve the higher standards. It's not that they can't create high-mileage cars -- it's just getting them sold in sufficient numbers to balance off the relatively lower mileage vehicles that they also sell."
Part of the problem, opponents of higher CAFE standards maintain, is that it's difficult for domestic automakers to build small cars that can sell at a profit. They fear any push for more smaller, fuel-friendly cars would represent more bad news for an already struggling industry .
But with gasoline prices in the $3 range, Americans are buying small cars once again and, industry observers note, profits in fact have increased for compacts and subcompacts because of options being ordered for them by buyers who want both good gas mileage and comfort.
"There was a National Research Council study done in 2002 that showed that the average fuel economy of over 37 miles per gallon would be achievable by using today's cost-effective technology -- and that doesn't include hybrids," said Kateri Callahan, president of the Washington, D.C.-based Alliance to Save Energy. "Analysis shows that the average cost to reach 37 miles per gallon would be about $2,700 per car, but gasoline cost savings would be $5,200 over the life of the car itself.
"While the gas mileage standards have been stagnant, vehicle efficiency has improved by more than 20 percent, but car makers have taken those gains to increase the power and weight of their vehicles. That was a marketing decision that now, with hindsight, and gas prices over $3 a gallon, looks like it perhaps not the best decision to make."
Ms. Callahan said prospects are good for some action on higher CAFE standards.
"I personally think something is going to happen. You have longtime historic opponents of CAFE reforms now supporting reform" including Sens. Ted Stevens of Alaska and Larry Craig of Idaho.
Another factor in the debate is the growing concern about climate change.
"I think this all has a lot to do with politics. There's some positioning going on with the various parties, and each one is trying to out-green the other at the expense of the American consumer," Mr. Nerad said.