Aug. 29, 2012 at 1:16 PM ET
After an unexpected delay, the White House has finalized the biggest jump in the Corporate Average Fuel Economy, or CAFE, standard since the government first set mileage guidelines in 1978.
As part of a broad compromise hammered out between the auto industry, environmental groups and government regulators, the fuel economy of the typical car, truck or crossover will nearly double between now and 2025, to an average 54.5 miles per gallon. That’s a more than 50 percent jump, meanwhile, from the CAFE rules the Obama rules had previously approved for 2016.
“These fuel standards represent the single most important step we’ve ever taken to reduce our dependence on foreign oil,” Obama declared, while also cutting CO2 emissions by an estimated 50 percent.
But far less certain is the impact the new rules will have on the auto industry and on the motorists of 2025. Naysayers have warned that, at 54.5 mpg, tomorrow’s cars will be smaller, largely battery-based and significantly more expensive. Proponents of the CAFE increase dismiss such forecasts as fear-mongering and insist things will change less than people anticipate.
For his part, Chrysler CEO Sergio Marchionne believes the industry will be able to make the new target – even though the rules do provide a mid-term analysis to ensure things remain on track. A future administration could roll the numbers back if there’s trouble.
But Marchionne insisted, the new rules “will change the way this industry operates,” adding his belief that, at 54.5 mpg, it will be difficult to continue producing high-performance vehicles such as the Hemi-V8-powered Dodge Challenger. Such muscle cars, the executive warned, will become “as rare as white flies.”
Maybe we’ll discover more white flies, countered analyst Jim Hall, of 2953 Analytics. The industry veteran points out that automakers have been predicting the death of the V-8 since the first CAFE rules went into effect for the 1979 model-year. Yet, he adds, today’s motorists can buy some of the most powerful automobiles ever produced, including the 1100-horsepower Bugatti Veyron and 600-horsepower versions of the Chevrolet Corvette and Ford Mustang.
The cars on the road by 2025 “will change less than anybody imagines – but more than anyone wants,” Hall suggested, explaining that, just as the industry has done every time new mileage rules have been passed, “They will find a lot of new ways to do things.”
A great example is Chrysler’s new Dodge Dart. The compact sedan makes use of a new turbocharged four-cylinder engine, underbody panels and other aerodynamic improvements, and an advanced 6-speed transmission to boost fuel economy. And Chrysler will roll out a 9-speed automatic next year.
Improved transmissions can add as much as 5 to 10% better mileage, industry engineers note, and are going into widespread use already. So is stop/start technology that automatically shuts off an engine instead of idling. The engine quickly restarts when the driver’s food lifts off the gas. On the upcoming Honda Accord that could boost mileage by 3% or more.
A study by automotive supplier Ricardo, Inc., suggests a number of other likely steps makers will take to meet the new rules, such as:
General Motors recently invested in a start-up firm developing a way to produce significantly stronger, but notably lighter, steel. BMW, meanwhile, has invested heavily in firms working to drive down the cost of producing ultra-light carbon fiber, a material widely used in supercars like the Veyron, and in Formula One race cars.
The real question is how much the industry will have to turn towards electrification. Nearly every major maker now offers at least one hybrid-electric vehicle. Toyota has promised to add a hybrid option to virtually all its models in the next few years. Ford’s new hybrid micro-van, the 2013 C-Max, will be able to get 47 miles per gallon in the combined city/highway test cycle.
A more advanced, plug-in hybrid version, the C-Max Energi, should get significantly better numbers when it comes out next year, the maker hints. Most makers are also working on plug-ins or going all the way to battery-electric vehicles, such as the Nissan Leaf, with such products getting EPA ratings that approach 100 mpg-e, the “e” standing for equivalent, the government using a complex formula to estimate how much battery power is equal to a gallon of gas.
Ironically, it’s the State of California, rather than Washington, that is actually driving the sudden rush to battery cars. The powerful California Air Resources Board has set its own rules requiring a minimum number of so-called Zero-Emission Vehicles from all major automakers. Those guidelines have been copied by a number of other states.
One reason why it’s unclear how much things might change by 2025 is that the new mileage rules are, to some degree, a figment. The government operates two sets of books, in effect. One is based on raw test data. The other has been revised to reflect what vehicles will get in real-world conditions. By that measure, expect passenger cars to average 45 mpg by 2025, light trucks 32.
The other big uncertainty is cost. GOP Presidential Candidate Mitt Romney has hoisted the banner of critics, some suggesting the new CAFE rules will result in price increases of up to $10,000 per vehicle – as projected by Michigan Center for Automotive Research. Skeptics have also warned the result will be lower car sales and fewer American jobs.
“Cars will get more expensive, that’s a given,” said analyst Hall, but like most observers he thinks the figure won’t be nearly as great.
Other studies, such as one from the Boston Consulting Group, put the increase at barely $2,000 to $3,000. The government’s number is $2,800. And regulators forecast motorists will save anywhere from $5,700 to $7,400 in gas during the life of those future vehicles. That’s based on a gallon costing just $3.87. Most energy experts predict fuel will rise to $5, even $6 or more a gallon before this decade ends, so the savings from the extra mileage could be substantially more.
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