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Regulators Asked to Ease Federal Fuel Economy Standards

The mileage of the average new vehicle sold in the U.S. took a slight dip in June, an increasingly common situation in recent months, reports the University of Michigan Transportation Research Institute, after years of steady increases.

The decline appears to reflect growing sales of pickups and SUVs, which have rapidly gained market share at the expense of more fuel-efficient sedans and coupes, according to the university. The downward trend comes at a time when federal regulators are beginning the long-awaited review of the aggressive Corporate Average Fuel Economy, or CAFE, standards that would push the mileage of the typical U.S. vehicle to 54.5 mpg by 2025.

Automakers have delivered significant improvements in fuel economy in recent years, but they've got a long way to go to meet that target, and with some experts warning the cost could price vehicles out of the hands of most American buyers, some automakers are hoping Washington regulators will offer some relief when they release the so-called mid-term review of the 2025 CAFE mandate.

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Originally scheduled for release last month, it is now expected in July, perhaps as early as this week. Jointly produced by the Environmental Protection Agency, the National Highway Traffic Safety Administration and the California Air Resources Board, it will be the first step in a year-long process of examining the CAFE goals set to phase in between 2018 and 2025.

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On paper, the federal fuel economy rules set a target of 54.5 miles per gallon in 2025. In reality, the number is closer to the mid-40 mpg range once manufacturers take advantage of various credits and adjustments. Still, that is a big jump from today. According to the UMTRI report, the window-sticker mileage of the average vehicle sold in the U.S. last month was just 25.3 mpg, down 0.1 mpg from May.

Those who would like to see the CAFE target held at 54.5 point to surveys that find that, despite today's cheap gas, consumers still want better mileage. According to Consumers Union, publisher of the non-profit Consumer Reports magazine, 75 percent of Americans want an increase in mileage. Research by the Consumer Federation of America found 81 percent of motorists list fuel economy as a central factor in their car-purchasing decisions.

"It's no surprise that fuel efficiency is still a top priority, as consumers have had a long history with volatile gas prices," said Jack Gillis, director of public affairs for the Consumer Federation.

Even automakers have come to accept that motorists want better mileage. Despite relatively cheap gas, fuel economy numbers are central in most new car advertising, even for luxury and performance products.

The question is how far to go. And that argument is largely based on the cost-benefit ratio.

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Despite recent dips, fuel economy numbers have risen sharply over the past nine years. In October 2007, when the University of Michigan began tracking the data, the average new American vehicles managed a mere 20.1 mpg.

The industry has taken a number of steps to get there, among other things, putting an emphasis on aerodynamics. Coming up with more windswept designs costs relatively little, said Mark Reuss, global product development director at General Motors. But Reuss also said there's less and less of such "low-hanging fruit" left to pluck.

Going forward, the industry is focusing on technologies that could raise vehicle prices by thousands of dollars. Classic four-, five- and six-speed automatic transmissions are routinely being replaced by eight- and nine-speed gearboxes, and General Motors, Ford and Toyota all have 10-speed transmissions in the pipeline.

A controversial study by the Center for Automotive Research estimated it could cost $10,000 a vehicle to meet the 2025 mileage target. That figure is way out of line, CAFE proponents have argued, but even if the figure were less than $2,000, industry backers say it would be hard for motorists to justify the added expense based on fuel savings.

Going from today's mileage to the 2025 target would require an eight year payback period, something "well beyond what most consumers consider worthwhile when buying a new vehicle," according to the industry trade group, the Alliance for Automotive Manufacturers.

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Officials with the alliance point out that many of the industry's most fuel-efficient models are largely being ignored by American consumers, something the group warns will make it doubly difficult to reach the 2025 target. Indeed, demand for small, high-mileage models — indeed, for traditional passenger cars, as a whole — has plunged over the last several years.

But that argument isn't entirely on target. True, SUVs, pickups and other light trucks now account for 60 percent of U.S. new vehicle sales, but on the utility vehicle side, motorists have been downsizing and often opting for more fuel-efficient powertrain options. Even in the pickup segment, manufacturers are finding a warm reception for new, higher-mileage options. The vast majority of the full-sized F-150 pickups sold by Ford now come with V-6, rather than classic V-8 engines.

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Meanwhile, the Alliance argument overlooks several other factors. First, the CAFE standard is actually somewhat flexible, so large vehicles, like pickups, have lower targets to meet. And then there's the question of fuel prices. While it is difficult to say where the numbers will go in the short to mid-term, most analysts agree prices will eventually rebound, speeding up the payback period for fuel-saving technologies.

"We're moving ahead as planned," said John Mendel, Honda's top American executive, even if the inter-agency review were to roll back the 54.5 mpg standard.

Indeed, the longer it takes for a final decision, the less likely there will be a shift in direction by the industry no matter what the results. That's because of the long product development cycles common in the auto industry.

The typical new vehicle undergoes a complete makeover only every five to seven years, so many of the models set to debut in 2017 will be around until just before the 2025 target date. And powertrain programs have an even longer lifecycle.

So, while manufacturers might be given a little more breathing room if CAFE is rolled back, many observers say the actual impact will be relatively modest. There'll still be plenty of high-mileage options, whether downsized turbocharged engines, plug-in hybrids or full battery-electric vehicles on the market in 2025. And if gas prices start to hit $4 a gallon or more, the average mileage of a U.S. vehicle might just approach the 54.5 mpg target anyway.