By John Lippert and Jeff Plungis, Bloomberg News
DETROIT (Feb. 8, 2016) — In private meetings late last year, U.S. regulators and auto makers staked out preliminary — and opposing — positions in a debate about the companies' ability to boost fuel economy 50 percent to 54.5 miles per gallon by 2025.
The manufacturers' message was simple: Improvements to gasoline engines, including direct-injection and turbocharging, clearly won't be enough to reach the target in nine years. It will require more gas-electric hybrids, and therefore, cost more than originally estimated. Consumers, meanwhile, haven't embraced hybrids and other green technologies nearly as fast as the government predicted — and especially in light of the recent plummet in oil prices, bringing with it cheaper prices at the gasoline pump.
The outcome will provide a road map for research and engineering by top auto makers that spent, according to Fiat Chrysler Automobiles (FCA), about $100 billion on product development in 2014. It also will determine U.S. strategy for trimming 25 percent of carbon-dioxide emissions from transportation.
“Over the weekend I saw the lowest gas prices I've seen in a long time, at $1.68 — that's a world of hurt for selling electric and selling efficiency,” said Mark Wakefield, managing director and head of the Americas automotive group at consultant AlixPartners. “Now you have consumers at odds with regulators, and, stuck in the middle, is the auto industry.”
This debate is unfolding in advance of next year's so-called midterm review of the federal fuel-economy and emissions goals, along with California's zero-emission-vehicle, or ZEV, requirement, for 2022-2025. The fact that Volkswagen A.G. decided to cheat on emissions reporting is just one measure of the stakes.
Complicating the debate: The average fuel economy of vehicles sold in 2015 fell 0.1 mpg from 2014, according to a study by the University of Michigan Transportation Research Institute. It said the decline “likely reflects the continuing drop in the price of gasoline in December and the consequent increased sales of pickup trucks, SUVs, and crossovers.”
President Barack Obama agreed to the review as a concession to auto makers when the targets were negotiated. The first formal step will be a technology assessment the U.S. Environmental Protection Agency (EPA), National Highway Transportation Safety Administration (NHTSA) and California Air Resources Board (CARB) will publish in June.
Privately, auto executives say they don't expect the government to gut the targets unless Republicans retake the White House. They're hoping to expand credits for green technology and roll back compliance deadlines. People familiar with the private meetings described the discussions but asked not to be named.
A handy way to frame the debate is to revisit a 2012 U.S. government press release: To achieve the goal, it said, consumers would have to pay $1,800 for fuel-saving technologies, such as eight-speed transmissions, but would save as much as $5,700 on gasoline during their vehicle's lifetime.
Robert Bienenfeld, U.S. senior manager of environmental strategy at Honda Motor Co., said cutting CO2 will cost significantly more than $1,800, largely because California is simultaneously requiring more ZEV vehicles, powered by batteries or fuel cells.
The $5,700 projection assumed gas would cost $3.87 a gallon in 2025 — a dollar more than the Energy Information Administration now predicts. The government insists that while consumers will save less on gas, they'll pay a smaller amount than planned for fuel-saving technology.
Better than expected
In December, the EPA said fuel economy improved 5 mpg or 26 percent in the last 10 years, more than expected, and cars and trucks averaged 274 grams per mile of greenhouse-gas emissions in 2014, or 13 fewer than allowed.