The announcement of President Obama’s proposed 54.5 MPG 2025 CAFE standard was hailed nearly unanimously today in a ceremony attended by many auto industry executives as well as government officials. Volkswagen and Daimler were conspicuous by their absence, as the Bloomberg quotes VeeDub spokesman Tony Cervone arguing
The proposal encourages manufacturers and customers to shift toward larger, less-efficient vehicles, defeating the goal of reduced greenhouse-gas emissions,
while Reuters notes Daimler’s response
Mercedes-Benz, the luxury car line owned by German car and truck maker Daimler, did not back the new program, saying it “clearly favors large SUVs and pickup trucks.”
“Our customers expect a range of vehicles from which to choose so this program creates a very real disconnect between government regulation and customer demand,” the carmaker said in a statement.
But are these concerns well-grounded? We don’t know yet, as the details of the proposal (specifically the loophole details) have not yet been released. Instead of publicizing the full rule, the White House released a report [PDF], highlighting the easy-to-like aspects of the proposed rule. But how easy-to-like is the standard really?
Politically, the new CAFE standard has been attacked primarily from the right, the administration has had to more prominently justify the the standard based on fuel savings rather than any C02 output reductions or other environmental impacts. The savings are said to be worth $1.7 trillion through 2025, although it’s not at all clear if this includes projected cost increases for vehicles in order to meet these standards, and the cost increases were a huge bone of contention in the debate leading up to this announcement. And with only VW (attacking from the left) and Daimler (a notorious CAFE fine payer) holding out against the proposal, Obama’s right flank seems largely clear… except for Dennis Virag of the Automotive Consulting Group, who tells Reuters
I have to really question the sanity behind that. It’s going to be a very difficult mark to achieve and I think it’s going to be very costly.
Eric Noble, president of The CarLab, an automotive consulting firm in Orange, California, adds:
It’s not doable unless there’s enough in the fine print that they won’t have to get there anyway. It’s not achievable, nor would consumers accept those vehicles.
Since we don’t know how helpful those loopholes are yet, we don’t know if he’s right or not. But that kind of talk does worry the environmental groups who fear that the mid-term review that automakers demanded will become an opportunity to abandon the standard. Says Dan Becker of the Safe Climate Campaign:
The automakers insisted on a mid-term review. We are concerned that that review will be an opportunity for automakers to lobby to try to end or weaken that program.
The fear seems somewhat legitimate: with automakers largely on board for the moment, it’s surprising to see so many industry consultants publicly damning the proposal. Besides, the toughest challenges don’t come until after the mid-term review, so the industry could well derail the trajectory noted in the Obama report. But environmentalists are happy for the moment, and over the long term Obama clearly believes (as do I) that the market will ultimately support CAFE rather than create a gaping disconnect. His report concludes:
Vehicle fuel economy is an increasingly important factor for consumers as they consider new vehicle options. According to a recent study, 42% of consumers view fuel economy as an ‘Extremely Important’ purchase decision factor, up from 14% a decade ago.1 Over the past several years, average fuel economy for passenger cars has improved from 31 mpg in 2007 to 34 mpg in 2010. The average vehicle is up to 29 mpg in 2010. In addition, demand for advanced technology vehicles has also increased, growing 37% in the first quarter of 2011. These vehicles make up a small portion of overall sales, but they are growing rapidly.