Gas Mileage Standards May Be Relaxed Again : U.S. Plan for ‘87, ’88 Cars Could Save GM, Ford Millions; Firms Had Warned of Plant Closings
The Reagan Administration, responding to pleas from General Motors Corp. and Ford Motor Co., proposed Friday to roll back federal fuel economy standards for passenger cars in 1987 and 1988. The new standards could save the auto makers hundreds of millions of dollars in fines they would otherwise pay.
The proposal to reduce the rules from 27.5 miles per gallon to as low as 26 miles per gallon drew immediate praise from GM and Ford, which had earlier threatened to shut down many of their assembly plants in the United States that produce large cars and lay off more than 100,000 workers if the standards were not changed. Last summer, the Administration granted similar relief for 1986 models.
Critics Threaten Suit
Consumer advocates and Chrysler Corp., which meets the current standards, immediately criticized the government for caving in to pressure from the two biggest domestic auto makers at the expense of the nation’s energy conservation efforts. The Center for Auto Safety, a Washington-based consumer group, vowed Friday to sue the Administration to prevent it from following through.
“This is simply a subsidy to GM and Ford at the expense of the consumer and complying companies like Chrysler,” said Clarence Ditlow, executive director of the auto safety group. “It’s an absolute sellout.”
In an announcement Friday, the National Highway Traffic Safety Administration, saying that it was acting to protect auto industry jobs and to avoid placing limits on the ability of consumers to buy larger cars, proposed that the new mileage standards for 1987 and 1988 be set somewhere between 27.5 and 26. The agency did not recommend a specific number. It scheduled a public hearing for Feb. 19 to discuss the issue.
But Richard Klimisch, executive director of GM’s environmental staff, said Friday that the auto maker will still be forced to curtail some car production and lay off workers if the standards for the two years are not rolled back all the way to 26 miles per gallon.
Diane Steed, administrator of the traffic safety agency, denied in an interview Friday that the Administration had caved in to GM and Ford. “A lot of things have changed in the car market and the economy since the standards were established in the mid-1970s,” Steed said. “And Congress rightly gave us the flexibility to change the standards to respond to unanticipated events in the marketplace.”
The Administration’s latest proposal follows its controversial decision last September to reduce the mileage standards for 1986 models from 27.5 miles per gallon to 26--the lowest level to which the standards could be rolled back without requiring congressional approval--also at the request of GM and Ford. In addition, the two companies are still asking for relief on the mileage standard for 1989, a petition that they want the agency to consider after it issues a final ruling on 1987 and 1988 sometime this spring.
GM and Ford have not met the government’s mileage requirements since 1982, when the standards were much lower, because of the dramatic decline in fuel prices and the boom in the sales of large and sporty cars.
The government’s rules require that the fuel economy ratings of all cars sold by an auto maker average out to the mileage standard for that year, so the increase in big-car sales has made it difficult for GM and Ford, which dominate the large car market, to raise their fleetwide mileage averages.
Impact of Import Quotas
At the same time, the easing of import quotas on Japanese cars has made it tougher for GM and Ford to sell more domestically built small cars to offset their rising big-car volume. (GM imports its own subcompacts from Japan, but U.S.-based auto makers are not allowed to include their imported small cars in their fleetwide mileage ratings.)
As a result, in 1985, when the government’s standard was still 27.5 miles per gallon, GM’s fleetwide average was just 25.3 miles per gallon, while Ford had an average of 26.3. In 1986, GM predicts that its average will rise to just 26.3 miles per gallon, while Ford expects its rating will be 26.4. Their estimates for 1987 and 1988 are less precise, but neither firm is confident that it could meet the 27.5 figure in either year.
Chrysler, by contrast, has been able to meet the mileage requirements mainly by accident. It was forced to curtail its production of full-size and luxury sedans during its financial crisis in the early 1980s to concentrate its limited resources on developing new subcompact and compact models. In 1985, Chrysler’s fuel economy rating was 27.8 miles per gallon, and the company predicts that its average will be 27.7 in 1986.
Fines Tied to Deficit
But now that it is the only member of the Big Three to comply with the standards, the auto maker is exploiting its position. In a statement criticizing the Administration’s proposal Friday, the company asked: “Wouldn’t it make sense to uphold the fuel economy law and use the fines (from GM and Ford) to reduce the deficit?”
GM and Ford have so far avoided paying fines for their violations by drawing on credits built up in the late 1970s and early 1980s, when they exceeded the lower standards for those years.
However, they exhausted those credits in 1984 and were faced with paying huge fines for 1985 unless they could draw on credits they hoped to build up by exceeding the standards in the future. The government allows firms to “carry back” such credits if they can show that they will have high fleetwide averages in future years.
But the only way GM and Ford could prove that they would exceed the standards in the late 1980s was if they were lowered. As a result, if the 1987-88 standards are not significantly relaxed, GM could face fines of as much as $500 million for violations it committed in 1985.
Could Afford Big Penalties
Both GM and Ford could afford such stiff penalties, especially since the production of big luxury cars is so lucrative for them. But officials at both companies have warned that they will not knowingly break the law and would end big-car production rather than pay the government’s fines for future years.
“We will not plan to fail to meet the standards,” said Bill Peacock, a Ford spokesman. “We would shut down production instead.”
“It has been our position that we won’t pay fines,” added Klimisch of GM. “But, in order to avoid fines, GM and Ford would have to cut domestic production by a total of 1 million units a year.”
