Stricter mpg rules may help automakers
Move by Obama could help revive industry in long run, experts say
By Roger Fillion
msnbc.com contributor
updated 1:21 p.m. ET, Wed., May 20, 2009
President Barack Obama is trying to shove U.S. automakers toward the future, a high-stakes wager that could help revive the industry in the long run, experts say.
By issuing rules aimed at sharply boosting vehicle gasoline mileage and slashing greenhouse gas emissions, experts say the Obama plan is just what carmakers need given the prospect of higher gas prices and worries about global warming.
“If you look toward the future, these standards will put carmakers in a more competitive position as they address future requirements and trends,” said Douglas Allen, associate professor of management at the University of Denver’s Daniels College of Business.
At a White House ceremony Tuesday where he was flanked by top auto executives, union leaders, and environmentalists, the president said the rules would give auto companies “clear certainty” at a time when the industry is weathering a “historic crisis.”
Experts who support the plan say it will deliver needed change: Automakers will have to plow research dollars and know-how into cleaner engines, better transmissions and alternative-fuel vehicles such as hybrid and electric plug-in cars. Diesel engines also are expected to get more scrutiny and use.
The University of Denver’s Allen, who has worked in and studied the auto industry for decades, acknowledged the new rules would impose short-term pain as automakers retool factories, cars and technologies to meet the stricter requirements. But over the long term, automakers would gain, predicted Allen.
“Without these guidelines, the U.S. auto industry would come up short," he said. He said the rules clarify the road forward for car companies and remove the threat that individual states would impose a patchwork of regulations governing fuel efficiency and new vehicle carbon emissions.
Automakers, in fact, reversed decades of opposition to stricter mileage standards by supporting the administration’s new rules — likely spurred in part by the industry’s heavy reliance on bailout money from U.S. taxpayers. Auto executives, for their part, said they like the plan’s unified approach to rulemaking.
"For seven long years, there has been a debate over whether states or the federal government should regulate autos," Dave McCurdy, president of the Alliance of Automobile Manufacturers, said in a statement. "President Obama's announcement ends that old debate by starting a federal rulemaking to set a national program."
Still, some experts argue the changes amount to harmful government meddling in the auto industry when the Big Three are struggling to pay bills and consumers are avoiding new car purchases.
Chrysler LLC is in bankruptcy and General Motors Corp. may follow suit. The new plan, which will result in Americans driving smaller, more fuel-efficient cars and trucks, will cut the industry's profit margins and could weaken them further.
“Nobody makes money producing small cars in North America,” said Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc. in Toronto.
The plan’s 30 percent boost in fuel economy would translate into a 35.5 mile per gallon average for cars and light trucks in 2016, four years earlier than the existing law called for. New passenger cars sold here would need to average 39 mpg, up from the current 27.5 mpg. Light trucks, which include pickups and sport-utility vehicles, would need to average 30 mpg, up from 23.
The White House projects the plan ultimately would save 1.8 billion barrels of oil. The administration also forecasts it will cut greenhouse gas emissions by 900 million metric tons — the equivalent of taking 177 million cars off the road.
An administration official told reporters the extra cost per vehicle would amount to about $600 per car in 2016, on top of the estimated $700-per-car cost of the fleetwide corporate average fuel economy, or CAFE, standards carmakers already had to achieve by that year. The administration maintains that resulting fuel savings will offset the added cost.
Jim Kliesch, a senior engineer with the Union of Concerned Scientists’ Clean Vehicles program, said automakers can use off-the-shelf technology, including cleaner engines, more efficient transmissions, better air conditioning systems and cleaner fuels, to meet the standards.
"This agreement is the breakthrough the nation needs to cut carbon emissions and help consumers deal with volatile gas prices," Kliesch said. "Automakers have the technology they need to meet and beat these standards while saving consumers billions."
Jeff Boyd, president of electric carmaker Wheego Electric Cars in Atlanta, said the rules are “critical” for the survival of the U.S. auto industry. ”The world doesn’t need another internal-combustion car,” said Boyd, whose company is a division of RTEV Inc.
But Mark Zupan, dean of the Simon Graduate School of Business at the University of Rochester, argued the Obama rules amount to excessive government interference in the auto industry and ultimately will hurt carmakers 10 to 20 years more from now.
“We’ve had plenty of cases where governments run cars companies, and it doesn’t work,” said Zupan, a macroeconomist specializing in energy issues. He pointed to the former East Germany, among other places, and the communist country’s Trabant automobile.
The vehicle was produced for about three decades, through the 1980s.Time magazine declared the 1975 Trabant among the 50 worst vehicles of all time. “You can look back at places like Russia and East Germany, where they ended up with jokes of automobile companies,” said Zupan.
He said a better idea for the Obama administration would be to increase the federal gasoline tax so market forces and consumer choice would dictate the changes needed for the auto industry to survive.
“It leaves power to the people as opposed to keeping power in the hands of Washington bureaucrats deciding what should be produced and where,” said Zupan.
Jack Nerad, executive editorial director and executive market analyst for Kelley Blue Book and kbb.com, said it’s too early to know the ultimate impact of the Obama plan on U.S. carmakers.
He said the new rules will ensure that carmakers “immediately reconsider” conventional hybrids, plug-in hybrids, electrically powered vehicles and battery electrics. Rather than bet on one technology, carmakers will offer a variety of vehicles to consumers in the next decade.
“On the face of it, the new regulations seem to be yet another blow to the beleaguered American auto manufacturers since consumers regard high fuel efficiency as a province of the import-brand manufacturers,” said Nerad.
“That blow could be softened somewhat, though, by the proposed multibillion-dollar federal subsidies to foster technology that would increase vehicle fuel efficiency,” added Nerad.
“But the last chapter on this has not been written. In fact, this seems like the opening paragraph in a completely new book.”
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