Big 3 Play Numbers Game to Meet Fuel-Economy Law
As public demand for gas-gulping sport-utility vehicles and pickups continues to grow, General Motors, Ford and Chrysler are finding it increasingly difficult to meet federal fuel-economy regulations.
Auto makers, critics say, are skirting the law by exploiting regulatory loopholes and dallying in making investments in available technology that could improve the fuel-economy of light trucks and big cars.
The industry retorts that the fuel-economy regulation is both unsound and anachronistic. Fuel-economy doesn’t sell with consumers these days and adding technology to improve gas mileage will just drive up already high car prices, the industry asserts.
To avoid federal fines or curtailing sales of profitable big vehicles, the Big Three are engaging in creative--some argue cynical--machinations under the corporate average fuel economy standards, known as CAFE.
The complex federal law was Congress’ answer to the 1970s energy crisis, but today the world is awash in oil and gasoline is a bargain. The public is in love with large vehicles and auto makers are earning billions of dollars satisfying the demand.
Under CAFE, each auto maker must meet minimum fuel-efficiency levels for their vehicle fleets each year. The standard for cars is 27.5 miles per gallon; for light trucks it’s 20.7 mpg.
As light trucks have grown in popularity--making up 47% of new vehicle sales today compared to 20% in 1980--the nation’s average fuel economy has trended down for the past 12 years.
Failure to meet CAFE can be costly. If GM--seller of 2 million trucks yearly--fell short on truck fuel-economy by 1 mpg, it would face a $110-million fine. But the Big Three have never paid a dime in fuel-economy penalties.
The reason is Detroit’s manipulation of the arcane fuel-economy law.
One clear example is GM’s move to end production of its 1998 Chevrolet/GMC Suburban, Chevy Tahoe and GMC Yukon models eight months early. GM didn’t stop making the hulking sport utes. It just declared that vehicles rolling off the line after January are 1999 models.
This confusing sleight-of-hand allows GM to avoid counting most of the 13-mpg Suburbans it sells this year toward its 1998 fuel-economy truck average. As a result, GM will have an estimated 21.2 mpg truck fuel-economy average for 1998, 0.5 mpg above the standard.
The fuel-economy law allows companies to apply credits earned in one year to shortfalls in the three previous or three future years. So, GM can apply this year’s credit to 1995 or 1997 when it did not hit the truck fuel-economy target, according the government estimates.
The nation’s No. 1 auto maker is doing the same thing with its full-size pickup trucks, cutting off 1998 production this month. Of course, this creates a problem for 1999 fuel economy, but GM has three years to figure out how to solve that problem.
GM also is taking a page from Ford and Chrysler, which this year began producing several hundred thousand flexible-fuel vehicles capable of burning ethanol or gasoline.
The auto makers claim the flex-fuel programs demonstrate their commitment to clean-air programs. The move also enables them to get valuable fuel-economy credits that let them build more gas guzzlers. That’s because the auto makers earn extra fuel-economy credits when they build vehicles capable of burning alternative fuels. Every flex-fuel vehicle effectively allows them to build two more low-mileage trucks.
They get the credits regardless of what fuel the vehicles actually use. With less than 50 ethanol service stations nationwide, it is clear most of the flex-fuel vehicles will burn gas.
Earlier this month, Chevrolet officials revealed plans to modify some truck engines to allow them to burn either gas or ethanol. The move will allow Chevy to produce more high-powered, V-8 engines.
These actions outrage environmentalists who say such maneuvers make a mockery of fuel-economy regulations. “GM shouldn’t use dirty tricks to evade environmental laws,” said Dan Becker, director of the Sierra Club’s global warming program.
GM is not apologizing, saying its moves follow the letter of the law. Besides, such fuel-economy contortions are nothing new.
In the early 1990s, Ford reclassified the Crown Victoria large sedan as an import vehicle in order to avoid fines for exceeding fuel-economy standards. The regulation counts an auto maker’s domestic and import vehicles as separate fleets. Domestic vehicles are those whose parts are at least 75% sourced in the United States.
Ford was having difficulty meeting fuel-economy standards for its domestic car fleet. It faced a Hobson’s choice: pay a fine, stop production or reduce domestic content of the Crown Vic to make it an import. It chose the latter.
Faced with such choices, fuel-economy regulation is understandably unpopular in Detroit and auto makers would like nothing more than to see CAFE repealed.
There is wide disagreement on the regulation’s impact. Auto makers point out that it has failed to reduce energy consumption and the nation’s dependence on foreign oil. The law has caused market distortions, forcing production of millions of unprofitable small cars that don’t meet customer needs and compromise safety.
“CAFE is a terribly flawed program,” said Andrew Card, president of the American Automobile Manufacturing Assn., the Big Three’s lobbying arm.
Two bills are pending before Congress that would ease CAFE rules, but the legislation is not expected to go anywhere. Supporters, including the industry, are not pushing the bills, a recognition that watering down CAFE is not politically palatable.
Indeed, environmentalists want to bolster the law, arguing that as global warming becomes a more pressing issue and better fuel-economy will again become an important public and political priority.
They perceive the regulation as one of the most effective, though imperfect, pieces of environmental legislation ever enacted. It has improved car fuel efficiency by 50% since 1978 and truck fuel economy by 20% since 1981. Oil consumption has increased in part because development patterns encourage Americans to drive more each year.
Environmentalists want to eliminate loopholes that allow auto makers to circumvent the law’s intent. They also would like to equalize car and truck standards and increase both to 45 mpg in the next few years.
With gas cheaper than bottled water, there is little political will for change. Americans might give lip service to saving the environment, but they won’t stand for anything that would impinge on their freedom to take the wheel of a gargantuan truck. Nor do they trust Detroit to look out for their best interest.
To some, a flawed law provides the perfect check and balance, meaning the fuel-economy stalemate is likely to continue.