White House, automakers reach deal on mileage

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President Barack Obama is expected to announce a compromise on fuel economy standards Friday that will boost average fuel economy to at least 54 miles per gallon by 2025.

While details are being withheld until the formal White House announcement there is a growing consensus building for the apparent compromise with one potentially major opponent signaling it is ready to sign on.

Reports that Toyota would oppose the proposed increase in the Corporate Average Fuel Economy, or CAFE, standard “are not accurate,” said Group Vice President Bob Carter. “Toyota is not going to fight the administration’s proposal.”

Separately, a well-placed company official said it would be a self-destructive move for “the Prius company” to try to scuttle the compromise that is expected to call for passenger cars to meet a 56.2 mile per gallon mandate by 2025. To bring the industry onboard, Obama apparently accepted a reduced 54.5 mpg target for pickups and other light trucks.

Specific details are to be revealed Friday, but administration spokesman Jay Carney confirmed that the changes to the CAFE standard are expected to save jobs and improve market demand while also reducing oil consumption and pollution.

The CAFE process has been controversial since it was originally conceived following the first Mideast oil shock nearly four decades ago. Critics within the auto industry have argued that it has been ineffective and even resulted in lost jobs. On the other hand, environmentalists have regularly demanded higher mileage numbers.

Until the Obama administration came into office, however, the standard had been little changed for a decade. One of the first successes of the new White House was winning an agreement that will boost fuel economy to 37.5 mpg by 2016.

The new standard would require auto manufacturers to raise passenger car mileage by 5 percent annually from 2017 through 2025. Light trucks would need to improve fuel efficiency 3.5 percent a year from 2017 to 2021, then by 5 percent through 2025.

Proponents contend the move will sharply reduce the nation’s dependence on imported oil while also reducing the risk of climate change.

There had been some concern that environmental groups might also oppose the compromise. Many were already disappointed when, last month, the White House quietly retreated from an earlier proposal calling for a 2025 CAFE mandate of 62 mpg. But considering the possibility that the mileage debate could become as politically divisive as the current battle over the federal debt, it appears everyone is rushing to lend support.

The goals set out in this plan are sound and reasonable, but there are still details that have to be ironed out in this process,” said Ellen Bloom, Consumers Union’s director of federal policy.  “We’re going to keep working to make sure the standards stay strong, because you don’t want any loopholes that a gas-guzzling truck could drive through.”

It remains to be seen, in fact, if the measure the president plans to unveil will include a proposed “midterm” review, intended to see how well automakers are progressing in their bid to improve fuel economy. Such a clause could lead to the government backing down on the ultimate targets — though proponents have suggested it could also permit a future administration to raise CAFE even higher.

The industry has long fretted about the potential cost of meeting any increase in fuel economy rules, though some companies have begun shifting gears, seeing higher mileage as a potentially competitive edge. Hyundai’s top American executive, John Krafcik, recently indicated his belief that the Korean carmaker could reach a fleet average of 50 mpg by the end of this decade.

Meanwhile, John Mendel, the senior U.S. executive at American Honda, said the maker “embraces this challenge, which will be good for our customers and for the environment, and we welcome the competition we will have with other automakers that will result from these new standards.”

Challenge is likely to be the operative word. As one senior Detroit executive, asking for anonymity prior to Friday’s news conference, said, “We really don’t know how we’re going to get there yet.”

Though fuel economy has generally been rising faster than many experts expected in recent years, thanks to technical advances like direct injection and the use of more advanced turbochargers and transmissions — as well as vehicle downsizing — the 2025 target may very well require significant new breakthroughs. Some critics have warned that there will be a large-scale shift to electric propulsion technology. But the reduced light truck target could permit makers to continue offering the heavy-duty pickups and SUVs, maintaining the towing and cargo capacities the American market has traditionally demanded.

Uncertain is the cost of meeting the new 2025 standard. The National Highway Traffic Safety Administration estimated, last fall, that a 5 percent annual increase in mileage would eventually add $2,100 to the cost of the typical vehicle — which it also said would be offset by fuel savings.

That figure was supported by a recent study by the Boston Consulting Group. But a report by the Michigan-based Center for Automotive Research warned that pushing mileage requirements up towards 60 mpg could add as much as $10,000 to the cost of a vehicle – while reducing annual new car sales by several million as motorists would likely hold onto their older vehicles longer. And that, the CAR study warned, would cost hundreds of thousands of U.S. auto jobs.

Proponents continue to insist that study was overly dire, Mark Cooper, director of the Consumer Federation of America, arguing, “We believe the economics of fuel economy will get better and better over time, as costs come down and gasoline prices rise, so that by the time the program reaches the ‘mid-course’ review in 10 years, the case for accelerating improvement will be compelling.”

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