Flanked by executives from most of the major automakers, as well as union officials and other environmental stakeholders, on Friday President Obama announced the compromise settled on for federal fuel efficiency standards for 2017-2025.

Subject to final approval, the Corporate Average Fuel Economy (CAFE) for vehicles weighing less than 6,000 pounds sold in the U.S. is to be 54.5 mpg. Because the government calculates the number differently, this will equate to about 40 mpg on vehicle window stickers.

The “54.5” number is down from an initial push for 62 mpg, and gives a break to American manufacturers of the heaviest of the fuel-consuming light trucks, such as pickups and big SUVs.

Nonetheless, it represents a significant bump toward greater efficiency that will mean more integration of electrical hybrid solutions, as well as a host of other updates needed to let vehicles squeak past.

The CAFE number for 2012-2016 was 35.5 mpg, and this new jump upwards is touted by the Obama administration as able to save American families $1.7 trillion at the pump through to 2025.

Sliced another way, the operations cost reduction would be about $8,000 per vehicle.

“Additionally, these programs will dramatically cut oil consumption, saving a total of 12 billion barrels of oil, and by 2025 reduce oil consumption by more than 4 million barrels of oil a day – more than America currently imports from the Persian Gulf, Venezuela, and Russia combined,” said a White House press release.

As for pollution reduction, through 2025, it is expected that 6 billion metric tons of greenhouse gases will be eliminated. The White House said this is equal to an entire year’s worth of U.S. CO2 emissions.

Pending approval

As we previously reported, final rules will not be passed until a lengthy public comment period has passed.

If formally adopted, the new CAFE standard would require passenger cars to become 5-percent cleaner each year from 2017-2025 and pickups and heavy SUVs, etc. to become 3.5-percent cleaner each year during the same period.

Already known is not all stakeholders are thrilled with the new rules. Among them, Volkswagen and Daimler said they give the Detroit Three a pass for their fuel-swilling and best-selling over-6,000-pound trucks.

At the same time the rules do nothing to stimulate further development of fuel-efficient diesel technology.

“Volkswagen does not endorse the proposal under discussion,” VW Executive Vice President Tony Cervone said in a statement Monday. “The largest trucks carry almost no burden for the 2017-2020 timeframe, and are granted numerous ways to mathematically meet targets in the outlying years without significant real-world gains. The proposal encourages manufacturers and customers to shift toward larger, less efficient vehicles, defeating the goal of reduced greenhouse-gas emissions.”

In Europe, where fuel prices are more than double compared to the U.S., diesel has already been widely accepted under the austerity forced on consumers there.
Cervone said VW is in position for U.S. diesel proliferation in a way that would be manufactured in America at the same time.

“Our new mid-size Passat TDI, built here in the U.S. in Chattanooga, Tenn., achieves 43 mpg highway and can travel almost 800 miles on a single tank of fuel. If one-third of the vehicles on the road today were clean diesel, the U.S. would save 1.4 million barrels of oil a day. Yet there is no consideration in the current proposal for the positive impact clean diesels can have on fuel consumption here in the U.S.” He said VW looks forward to continuing to lobby to achieve a national standard that is “fair and equitable.”

One loser

Whether it is a case of unintended consequences, or policymakers have pending contingency plans in mind, the new CAFE standard will otherwise drastically cut money available for highway, bridge and transit maintenance.

These infrastructure improvements are funded by a per-gallon federal tax on diesel and gasoline. Cutting sales of the same stands to chop an estimated $65 billion from the Highway Trust Fund.

California warned

One clause in the new CAFE standards empowers automakers to sue the state of California if it decides – as it has in the past – to pass even more stringent rules. For its part, California promised to abide by the federal rules.

Dynamics in play

The rules as presently established call for a mid-term review in 2021 wherein federal authorities will decide whether to stay the course or reduce the progressively increasing fuel efficiency standards.

This decision will be made based on how successful the rules are deemed in 2021 based on technological challenges, costs and marketability.

While most automakers showed support last week for the 54.5 mpg (40 mpg equivalent) standard, since last year the negotiations were as controversial as a kid fighting with its parents not to be forced to take a bath.

Automakers expressed concerns over being able to make a profit, and staying competitive. Alienating foreign investors – such as disgruntled Europeans – in the already weakened U.S. economy is another concern.

Rules are expected to be finalized by 2013, and wiggle room is already built in for when they have a much better view 10 years from now whether the Obama administration CAFE standards were indeed a good idea.