Fuel-Economy Rule Could Cost Jobs, Nissan Warns

Nissan Motor Co., which frequently boasts of its commitment to the American market, has warned regulators that it may cut production and employment in the United States if it’s forced to comply next year with a decades-old fuel-economy rule.

Industry analysts say the Japanese automaker is engaging in the type of saber-rattling that once characterized relations between U.S. automakers and regulators in Washington. And Nissan, whose assembly plants in Tennessee and Mississippi make about two-thirds of the cars and trucks it sells in the U.S., was reluctant to press the threat Friday.

“Laying off employees is the absolute last thing we would want to do,” spokesman John Schilling said.

Nonetheless, Nissan relayed just that message last month in a petition to the National Highway Traffic Safety Administration, saying it may shift production of various models outside of North America unless it receives a waiver from a fuel-economy rule adopted in 1975.

Nissan, whose North American operations are based in Gardena, has about 12,000 manufacturing employees in the U.S.

Japan’s third-biggest automaker said it may be liable for millions of dollars in penalties without an exemption from the so-called dual-fleet rule, which imposes separate fuel-economy standards on vehicles imported into the U.S. market and those produced here.

Under the North American Free Trade Agreement, the Sentra economy sedan, made in Mexico and now considered an import, will be counted as part of Nissan’s domestic fleet next year. The Sentra averages 33 miles per gallon in highway driving, according to federal mileage ratings. Once the Sentra is removed from the mix, Nissan’s import fleet would fail to meet the minimum requirement of a 27.5-mpg average.

To bring the fuel economy of its import fleet back into compliance, Nissan said it might be forced to shift production of the Mexico-built Sentra and relatively fuel-efficient Altimas and Maximas now made in Tennessee out of North America.

Under the corporate average-fuel-economy rules, regulators have to approve Nissan’s request unless it can be shown that granting the exemption would cut auto-industry employment in the U.S. by giving Nissan an unfair advantage over its rivals.

“We’re pretty confident that we have made our case,” Schilling said.

Analyst Brett Smith of the Center for Automotive Research in Ann Arbor, Mich., says Nissan’s threat to cut employment is an effort to make a case and shouldn’t be taken too seriously: “The entire auto industry over the years has developed a reputation for crying wolf.”

The dual-fleet rule was an effort to protect jobs at U.S. auto plants by preventing American automakers from meeting fuel-economy requirements by simply buying fuel-efficient vehicles from foreign makers and reselling them here.

Cars are considered to be domestic rather than imported if 75% of their cost comes from content made in the U.S., Canada or Mexico. Under NAFTA, Mexican labor becomes part of that content next year and the Sentra, now rated at about 60% domestic content, will exceed the 75% mark and be classified as a domestically produced car.

The rule won’t affect most Asian automakers because they don’t build cars in Mexico. One exception is Honda Motor Co., but a spokesman at the company’s U.S. headquarters in Torrance couldn’t comment Friday whether it would be affected.

European automakers with gas-guzzling models, such as Mercedes-Benz, BMW and Porsche, have been paying the fines for years; the Highway Traffic Safety Administration said the total over the last two decades tops $500 million. Peter Feather, head of the agency’s fuel-economy division, said he doesn’t expect other requests for exemptions.

Nissan’s request is the first since 1981, when Volkswagen was granted an exemption for its U.S.-made Rabbit.

Shares of Tokyo-based Nissan fell 20 cents to $20.88 on Friday on Nasdaq.