Bush May Up-End CAFE

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From the department of “be careful what you wish for,” the Bush Administration is seriously looking at a wholesale change to the current Corporate Average Fuel Economy (CAFE) law that would rate vehicles’ fuel economy based on several classes of weight rather than one car standard and one light truck standard.

For 28 years Detroit has been complaining about the inequity of CAFE and its failure to achieve its goal of lowering consumer demand for oil. Automakers may get their wish, but they are pensive about how the plan may shake out. The plan afoot, reported last Friday by USA Today and The New York Times, is being studied now by the Office of Management and Budget for economic impact.

A new system would do away with the so-called “harmonic averaging” to determine CAFE, which takes into account sales volume of vehicles of different weights, so that automakers, for example, are incented to sell very small, light cars to make up for the heavier ones consumers “really” want.

The plan being studied would also force GM, Ford and Chrysler to achieve some level of fuel economy in its heaviest “light” trucks, such as the Hummer H2 and heavy duty versions of pickups, which have gross vehicle weights in excess of 8500 pounds. Such vehicles do not count against the automakers in their CAFE performance. It was an exemption built into original CAFE legislation for commercial vehicles, but which has benefited some personal-use trucks.

The what-ifs of fuel economy

Auto executives have long carped about CAFE. But executives are reticent about an overhaul. “We know how to manage CAFE, and once you open it up you never know what’s going to be in it at the end of the day,” said one Washington-based auto executive.

Automakers and environmentalists are on guard for “gaming” of a weight-based system. If GM, for example, found its Suburbans and Tahoes lagging the weight system, no one wants to see them weight-up an extended-wheelbase TrailBlazer to bring the average in line. Currently, Chrysler counts PT Cruisers against its light-truck CAFE performance, and Subaru counts Foresters as light trucks.

Many believe car-based mini-utes, such as Toyota RAV4 and Honda CR-V, in general should be counted against the passenger car CAFE.

Such a move by the National Highway Traffic Safety Administration (NHTSA) would bring an avalanche of comment from the industry and environmentalists. But the shift to a system that is class- or type-based, if not weight-based, has support at The White House, and on both sides of the Congressional aisle with only a few who would fight it. Some of those who would fight it would be doing the bidding of the United Auto Workers who have it in their collective mind that a shift in CAFE would cost tens of thousands of jobs at small-car plants.

The UAW’s logic seems to be that without CAFE automakers would not have any incentive to make small cars. But that seems shortsighted at best. Ford and GM have realized that they can’t just cede the small, inexpensive car market to the Koreans and lose all that entry-level business. GM, for example, is bringing in Daewoo vehicles as Chevys as much to attract entry-level buyers as to help with CAFE.

Ford makes money on Focus worldwide, and needs to have an entry car in the U.S. to bring people into its brand.

Even the most spineless Democratic lawmakers beholden to the UAW will have a hard time selling the UAW’s position to colleagues.

Proposal moves

The new system would take effect in 2007, the same year that a current Bush proposal would require automakers to increase fuel economy by 1.5 miles per gallon across each company’s whole light truck fleet. Automakers filed vehement objections to that increase in NHTSA filings last January, protesting that many of NHTSA’s assumptions were wrong about technology and the weight of safety equipment being regulated into each vehicle.

Automakers are now required to meet a 27.5 mile-per-gallon fuel economy average for all the cars they sell, and 20.7 mpg for light trucks—including pickups, SUVs and minivans. The Corporate Average Fuel Economy (CAFE) standards have been based on separate car and truck averages since they became law in 1975.

Some Bush administration officials, notably NHTSA administrator Dr. Jeffrey Runge, are worried that the current rules encourage automakers to sell smaller cars.

A weight-based system could give automakers an incentive to downsize their largest vehicles at a time when car-truck mismatches in crashes are a big concern. National Highway Traffic Safety Administration chief Jeffrey Runge has made vehicle compatibility a top priority. NHTSA is also the agency that oversees CAFE.

One of the benefits of a weight, size, or class based system is that it would show how GM, Ford and Chrysler often do very well in making fuel economy gains, especially when contrasted to the light trucks of Japanese automakers.

The Cadillac Escalade, Ford Expedition and Toyota Sequoia all get the same EPA fuel economy ratings: 14 city and 18 highway. Yet, there is a widely held perception that because Toyota sells a gas-electric hybrid Prius, its SUVs must be gas sippers to. Even the Toyota Tacoma lags the Ford Ranger in some versions and is expected to lag the larger Chevy Colorado.

The Toyota Tundra gets worse fuel economy than the larger Ford F-150 or Dodge Ram. And though it is less powerful than the Honda Accord or Toyota Camry in terms of horsepower, the Chevy Impala narrowly beats the V-6 versions of its Japanese competition.

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