Last week, the National Highway Traffic Safety Administration (NHTSA) announced its new formula to calculate fuel efficiency standards based on the footprint of vehicle lines—rather than a one-size-fits-all approach. The proposed rules mean that Porsche vehicles will have to reach 41.3 mpg by 2015, while Chrysler’s target is 33.6 mpg. HybridCars.com interviewed John DeCicco, senior fellow for automotive issues at Environmental Defense, to get a better understanding of the logic of the new rules.
NHTSA is taking public comments over the new two months. According to Automotive News, the Bush administration plans to adopt the new rules before the end of the year.
HybridCars.com: The baseline for the new CAFE laws is 35 mpg by 2020. Beyond that, things start to get complicated.
John Decicco: Thirty-five mpg is the overall average of cars and trucks. Each manufacturer is going to have anywhere between one and three different standards they have to meet, based on their fleets. The three different kinds of fleets—and this one of the key things that the domestic automakers sought to preserve—are domestic car fleets, imported car fleets, and light truck fleets.
What’s the rationale for breaking it up between domestic and import?
If you roll back the clock to 1975 during the time of the first oil shock, most of domestic production was cars and it was classic boatmobiles. Truck share was right around 20 percent or less and it was mostly pickups. The SUV as we know it today had really not been invented. The minivan had not been invented. The UAW in particular was very worried that if import and domestic fleets weren’t treated separately, then automaker would outsource small car production to Asian countries in order to counterbalance their big car production if it was all averaged together in one fleet.
Were the mpg targets different for those two?
No, the targets were historically identical. Now, the targets vary based on the new footprint formula. There are a couple of rationales for the footprint-based formula. The most fundamental but understated rationale is the distinction between full-line and limited-line manufacturers, which again is a Big Three versus Asian issue. A footprint-based standard essentially sets a lower standard for larger vehicles, where largeness is measured by footprint: wheelbase times track width. A manufacturer whose fleet has a greater share of larger vehicles will get a lower standard, so that provides a relative advantage for say, General Motors or Ford versus Honda or Toyota.
This is weighted by number of units sold?
Yes, it’s all sales-weighted. It’s basically a sales-weighted average footprint that determines the standard, under the new proposal.
When you get the final numbers, you get a range—like Porsche being required to hit 41.3 miles per gallon, all the way down to Chrysler’s target of 33.6 mpg.
It makes intuitive sense. Porsche—think about the 911 and the Boxster—has a small footprint. You see that their standard is close to Suzuki’s, even though they’re in very different segments. For the footprint, you take the car, drop it in the sand, lift it up, and see where the four tire points are.
Doesn’t it create a disincentive for car companies to make smaller cars?
That’s yet to be seen. If NHTSA did the curve calculation technically correctly, it should require an equal level of effort regardless of the size of the car.
In other words, they don’t necessarily want to encourage automakers to emphasize smaller cars to pass the standard.
The whole point was to provide to an equal level of effort, because in previous one-size-fits-all standards, you had some companies—Honda was the case in point—that were always way above the CAFE standard. They don’t struggle to meet it. In fairness to Honda, that’s partly because they have some very good technology. In fairness to Ford and General Motors, it’s also because Honda’s fleet mix is smaller than Ford’s and GM’s.
Wouldn’t you want to encourage Ford and GM to get their vehicle sizes down?
This gets into the second rationale for doing this, which I don’t think is fully correct. It’s also intended to diffuse the argument that CAFE forces people into small cars and therefore kills people. It was intended to diffuse this safety argument. The point is to have the regulation motivate automakers to make technology improvement in all their vehicles across the size range, rather than shift to smaller vehicles.
Are some carmakers crying foul?
Porsche. Mercedes is probably not terribly pleased. They are saying our cars are big and powerful and luxurious, and that’s our market. They’re saying we shouldn’t be held to the same standard as Suzuki.
What NHTSA has done by going down this size-adjusted pathway is try to more substantively address the inter-firm competitiveness concerns. That means you rock the boat. There were some people more or less happy under the old rules, who are now going to be very unhappy under the new rules—whereas the Big Three were unhappy under the old rules. I don’t know if you can get them to admit it on the record or not. They ought to be happy under these new rules.
In terms of the outcome from the relative footprints, do you think it cuts slack where it shouldn’t?
No. I’m agnostic on those issues. The companies can argue what’s fair with each other until the cows come home. There are so many different ways that people position products in the market and so many considerations. As an environmentalist, somebody who cares about the bottom line, how much carbon is this going to cut, it’s the overall average that matters.
Will car technology have to change for carmakers to reach the new goals?
Yes. In the last two decades, all the new technology went into performance. And maintaining fuel economy while offering four-wheel drive, whether you need it or not. Bigger vehicles, whether you need them or not. Record-breaking 0–60 times. Going forward with these new standards, that ongoing technology capability is now going to be guided into efficiency improvement.
Will consumers see the difference?
It’s not so much a difference of losing something they’ve already got. But the options next year and the following year are going to be different than they otherwise would have been without the higher CAFE standard.
Do you buy the high price figures that certain auto executives throw out about what it’s going to cost them?
Not at all.
Are they going to make less money?
No. Consumers in the new car market are going to spend a certain amount of household budget on new cars. They’ll replace new cars at a certain rate. More than anything else, that will be related to the ups and downs of the economy, and disposable income. The structure of the standards, by putting this footprint basis and size adjustment, has made it easier for the full-line manufacturers, like the traditional Big Three and now Toyota, to compete for that pie. There’s just as much money to be made in the new car market as there ever was and ever will be.
This doesn’t mean they won’t be facing some new and different costs that they didn’t face. It’s going to be up to their creativity when they face these costs to use, say, more efficient powertrains. It’s going to be up to their business acumen and creativity to take those costs for efficiency and put it into creative packages in terms of vehicle design and feature sets that are competitive.