Automakers say they won’t have to overhaul their technology or flood the US with tiny cars buyers may not want under President Barack Obama’s standards for fuel economy and greenhouse-gas emissions.
Even as they face more than $21 billion in annual costs to meet the new standards by 2016, General Motors Corp and Ford Motor Co will benefit from a single national system, rather than a patchwork of state rules, and an approach that allows them to tweak the fuel efficiency for each category of vehicle sizes and weights.
The plan announced by Obama at the White House on Tuesday “gives the automobile manufacturers a lot of flexibility,” said Robert Sawyer, professor of energy studies at the University of California, Berkeley. “It’s designed in part to not penalise the US manufacturers versus their Japanese competitors. The US automobile industry will be able to deal with it.”
Automaker chief executive officers, including Fritz Henderson of GM and Alan Mulally of Ford, stood alongside Obama and environmentalists at the White House on Tuesday and endorsed his plan. It would require the industry to produce vehicles that get, on average, 35.5 miles per gallon by 2016 models, up from the 27.3 average in 2011, the last year before the new plan takes effect.
The plan won’t “necessarily” force Ford to make smaller vehicles, Mulally said in an interview after Obama’s White House ceremony.
“We can make the size of vehicle that people really do want,” he said. “The command is, no matter what the size, that we will improve fuel efficiency every year going forward.”
It won’t be easy, said Kim Hill, associate director of the Center for Automotive Research in Ann Arbor, Michigan. In addition to honing their technology, automakers will have to pay to retool plants for smaller, though not necessarily mini-sized, vehicles to meet the goals by 2016.
More From This Section
“Some of those costs will have to be incurred on a much more rapid timeline,” Hill said. “This is where you might find Chrysler and General Motors, who are already on the edge, saying, ‘Where are we going to get that money?’”
Chrysler LLC and GM are surviving on US aid. Obama’s auto task force pushed Chrysler into bankruptcy reorganisation and may do the same for GM if it doesn’t meet goals to revamp its operations and finances by June 1.
There may be 16.8 million vehicles sold in the U.S. in 2014, according to a study by AT Kearney, a consulting firm based in Southfield, Michigan. If that rate held until 2016, automakers would face $21.8 billion in added annual costs, based on the White House estimate that the policy will carry a price tag of $1,300 per vehicle for 2016 models, including the cost of meeting currently mandated standards.
“It costs more to make fuel-efficient vehicles, it costs more upfront,” Lisa Jackson, administrator of the Environmental Protection Agency, said in an interview on Tuesday. The cost “pays for itself” for consumers through fuel savings after three years of driving, she said.
The five per cent annual increase in fuel mileage over five years would save 1.8 billion barrels of oil and reduce 900 million metric tons of greenhouse gas emissions by 2016, according to the administration. That is the equivalent of taking 177 million vehicles off the road.
Auto companies achieved some important goals in Obama’s plan. They will face one federal standard rather than regulations by California and other states, which could apply different rules, raising costs.
The companies also won assurances that the overall 35.5 mpg goal can be achieved through a series of standards set by vehicle size and weight rather than for entire fleets. That removes pressure to produce small cars to compensate for making pickups and sport utility vehicles.
Automakers will be forced to eventually reduce the size of vehicles in their fleets, said Bret Smith, an alternative- vehicle analyst at the Center for Automotive Research.
“The goal is to let you have your cake and eat it too — to be able to keep the vehicles you want,” Smith said. “But the reality is that there will be downsizing because it’s so expensive to make the larger vehicles more fuel-efficient.”
The details of Obama’s plan will be crucial, said Dan Becker, director of the environmental group Safe Climate Campaign in Washington. The administration should take steps to prevent automakers from manipulating their fuel-economy targets by moving vehicles among weight classifications, he said.
“It has a threat automakers will game their way out of the rules by adding bulk to vehicles so they qualify for weaker standards,” Becker said. “They’ve done a lot of that before.”
Japan’s Toyota Motor Corp and Honda Motor Co are closer to meeting more stringent standards than the US-based companies, said KG Duleep, managing director of the consulting firm Energy & Environmental Analysis Inc in Arlington, Virginia.
“Even they’ll have some difficulty with their light trucks,” he said.
Toyota already meets the Obama targets, or is close to them, on models including the Prius, Corolla, Yaris and RAV4, “but there’s still a lot of work to do,” said Jim Lentz, president of Toyota’s US sales arm, in an interview. “We all have a big challenge on the light-truck side.”
Technology already available to U.S. automakers includes Ford’s EcoBoost powertrain, which adds power with turbochargers while feeding precise amounts of fuel to the cylinders to improve efficiency, said Hill of the Center for Automotive Research said.
By 2013, 90 percent of all Ford vehicles will be able to incorporate that technology, Mulally said.
GM’s Hybrids
GM has plans already to move its fleet to alternative propulsion, including the Chevrolet Volt electric car scheduled for next year. In a viability plan submitted to the federal government, the company said it will have 26 gas-electric hybrid models in 2014, up from 9 this year.
GM has said it intended for its car fleet to attain a 38.6 mpg average fuel economy by 2015 and its trucks to hit 27.6 mpg, according to that plan. The company would use smaller engines, six-speed automatic transmissions, lighter vehicles, hybrids and all-electric vehicles.
Bill Ford’s Comments
Ford Executive Chairman Bill Ford said Obama’s plan represents “swift action to prevent the deterioration of the industrial base.”
“That’s something I felt strongly about for years, and I didn’t think enough attention was being paid to it nationally,” Ford said in an interview yesterday.
Automakers can use off-the-shelf technology, including cleaner engines, more efficient transmissions, better air conditioning systems and cleaner fuels, said Jim Kliesch, a senior engineer with the Union of Concerned Scientists’ Clean Vehicles Program.
“Automakers have the technology they need to meet and beat these standards,” Kliesch said in a statement.
To contact the reporters on this story: John Hughes in Washington at jhughes5@bloomberg.net; Alex Ortolani in Southfield, Michigan, at aortolani1@bloomberg.net