For decades, as Americans enjoyed low-priced gasoline and bought large, gas-guzzling pickup trucks and sport utility vehicles, Detroit’s Big Three automakers kept their distance from the debate about fuel economy. The feeling was that a new set of tough fuel guidelines could hurt them financially. But now there’s a new economic impetus for automakers to jump into the debate.
A recent Supreme Court decision over global-warming emissions suggests that the discussion about greenhouse gas is about to have a big impact on the nation’s largest industries, and automakers are at the focal point of that change.
In early April, the Supreme Court ruled that the federal government has the authority to limit greenhouse gas-producing emissions from vehicles. The primary way to do that is to increase the fuel economy of automobiles, experts say, making the prospect of new fuel economy standards likely for cars and light trucks, the category that includes pickups and SUVs.
New rules would have a major impact on the nation’s automakers. General Motors, Ford and Chrysler have been racking up heavy losses, pummeled by Asian automakers that have taken a growing share of the U.S. market. The Big Three also are saddled with billions of dollars in health care and pension obligations. All three have announced massive layoffs, plant closures and a shake-up of their product offerings.
Passenger cars and light trucks generate about one-fifth of the world's emissions of carbon dioxide, one of the principal gases implicated in global warming, according to the Environmental Protection Agency. Carbon dioxide, methane and other gases trap energy from the sun, which in turn warms the surface of the Earth, contributing to global climate change.
Now political pressure to curb emissions is intensifying, and automakers are working to make sure their voices are heard as new fuel economy rules are being debated. Proposals to change fuel economy rules range from raising them as high as 35 miles per gallon from the current level of about 27.5, to a more modest increase of one mile per gallon over the next few years.
One reason automakers want to jump into the debate is the growing desire among the general public to address climate change, said Mike Stanton, a former lobbyist for the Big Three and now president of the Association of International Automobile Manufacturers, a trade group that represents Japanese automakers.
“The new Democratic control of the House and Senate is driving that agenda, and so is the Supreme Court ruling,” Stanton said. “And there’s a correlation between carbon dioxide emissions and the growth of the economy, so we want to make sure a reduction in emissions doesn’t come as dramatic change to the economy.”
Automakers have operated under a carbon-emission limit for more than 30 years due to federal fuel-economy rules. But for years General Motors, Ford and Chrysler have resisted any calls to tighten those rules. As a result, the corporate average fuel economy or “CAFE” standards for passenger cars have remained unchanged at 27.5 mpg.
While automobile manufacturers are committed to working with Congress on a comprehensive carbon dioxide reduction strategy, a major tightening of the fuel economy rules could have a negative impact on the industry, according to Charles Territo, spokesman for the Alliance of Automobile Manufacturers, which represents the Big Three as well as Japanese heavyweight Toyota.
Auto manufacturers are working on bringing more fuel-efficient technologies to market, but the development of these technologies could be hampered if tough new rules are put in place, he said.
“These technologies take significant financial commitments from the manufacturer before they become technically feasible, and any resources that need to be diverted from these programs in order to meet an increase in fuel economy could delay the introduction of these leapfrog technologies,” which include gasoline-electric hybrid vehicles, or cars that run on fuel cells, Territo said.
“If you have to pull all of your engineers off developing advanced technology to meet a new requirement that is onerous, something is certainly going to suffer,” he said. “I would say it would certainly be challenging for all manufacturers,” he added, noting that it would be especially challenging for the Big Three, given the financial difficulties they face.
Speaking at this year’s New York auto show Bob Lutz, GM’s plain-spoken head of global product development, said that the technology required to boost fuel economy could cost at least $5,000 per vehicle. Automakers have jointly filed suit against regulations adopted by California and copied by 10 other states, including Vermont, where they are attempting to block the measures from being enacted.
Automakers and dealers are challenging the state’s right to regulate carbon-dioxide emissions. It is the first in what is expected to be a series of court fights over jurisdiction in stemming global warming.
As the move to curb greenhouse-gas emissions gathers momentum, the automotive industry is pushing for an economy-wide constraint, where the burden is shared equally by all industries, according to Territo, of the industry trade group.
He notes that automobile manufacturers have steadily increased the fuel-efficiency of their products and worked to develop “greener” vehicles, but over the years consumers have opted to buy fuel-inefficient SUVs and trucks, giving a skewed image of their offerings. CAFE standards are based on what an automaker sells, not what it produces, he said.
Indeed, the Ford F-150 pickup truck, which is not exactly the world’s most fuel-efficient vehicle, has been the nation’s top-selling U.S. vehicle for the last 20 years.
“We believe that an effective strategy to curb greenhouse gases will consider not only the vehicles, but also the fuels used and consumers’ choices,” Territo said. “If you are not considering the consumer and the fuels used, you’re not going to be able to solve the problem. If people want big cars, manufacturers are going to sell them. What we need to do is improve their fuel efficiency, while giving consumers the same vehicle options that they demand.”
Robert Kaufmann, professor and director of the Center for Energy and Environmental Studies at Boston University, agrees that consumers are the ones choosing to buy larger SUVs and trucks but adds that those profitable vehicles have been aggressively marketed to consumers.
“You and I are responsible for the types of vehicle we buy. But on the other hand — not to exonerate them completely — these are the vehicles they push hard. You don’t see many sexy ads for hybrids,” he said. “It hearkens back to the argument 30 or 40 years ago that auto manufacturers could never sell cars based on safety, but as we now see that is not the case. So maybe in another 30 or 40 years we’ll see manufactures pushing cars based on emissions.”
Automakers are already doing their part to reduce carbon emissions and address global climate change, said Territo. Currently, there are more than 200 vehicle models available with a fuel economy rating of more than 30 miles per gallon, and automakers plan more alternative-fuel automobiles that run on ethanol, clean diesel or gas-electric engines. More than 60 already are available, up from just 12 in 2000.
“Manufacturers believe that the best way to reduce our dependence on foreign sources of energy and reduce carbon emissions is through the use of automobiles using diverse fuels,” Territo said.
The auto industry wants other factors to be considered in writing laws on greenhouse gas emissions, Territo said. These include the impact on American jobs and consumer choice. The concern, he said, is that an arbitrary fuel economy standard will be set — one that automakers will find onerous.
Boston University’s Kaufmann is skeptical that any new fuel-efficiency rules will hit automakers hard. The industry's biggest problem is the rising cost of health care, he said.
“I find it hard to believe that the auto industry will succeed or fail based on the fuel efficiency of their fleet,” he said. “My gut feeling is Congress will do just enough here to prove that they are doing something, but it won’t be all that substantive. There won’t be a huge increase in fuel efficiency standards for car companies, because that might be hard for them to meet. But Congress should say they have to really ramp up fuel efficiency over next 10 to 15 years.
“I’d also like to put it out there that there are many reasons for the decline of the U.S. auto industry, and one of them is a perennial failure on the part of U.S. manufacturers to predict the market, particularly a rise in oil and gas prices, and also what consumers will want,” he said.
“(Automakers) complain about government regulation, but it’s not like they have run their businesses so well on their own. There are car companies doing well, and there are many reasons why they are doing well, but one important one is they produce cars that are fuel-efficient and reliable, and we are talking about entire fleets here. The bottom line is Toyota is the leader in these areas because they were willing to think about these issues long before they were needed, and at a time when Detroit thought oil prices would be cheap forever,” said Kaufmann.
