New Fuel-Efficiency Standards Could Add Up to $10,000 to Price of Cars
January 26, 2009 - 6:35 PMGreen Car Rules Give Auto Industry a New Challenge
Obama's plans could bring smaller cars, more hybrids and advanced fuel-saving technologies to showrooms, but car shoppers will probably pay more upfront because the new rules are expected to cost the hamstrung industry billions of dollars.
"The consumer needs to understand that they will see significant increases in the cost of vehicles," said Rebecca Lindland, an auto analyst for the consulting firm IHS Global Insight. Her firm estimated the upgrades could add $2,000 to $10,000 to the price of a vehicle.
Obama on Monday directed the Environmental Protection Agency to review whether California and more than a dozen states should be allowed to impose tougher auto emission standards on carmakers to fight greenhouse gas emissions. The Bush administration had blocked the efforts by the states, which account for about half of the nation's auto sales.
The new president also said his administration would issue new fuel-efficiency requirements to cover 2011 model year vehicles. The rules would be the first step toward a 2007 energy law that requires the auto industry to boost efficiency by 40 percent to at least 35 miles per gallon by 2020.
Obama set in motion a new regulatory process at a time when the nation is coping with an economic recession and auto sales have fallen to their lowest pace since 1982. Underscoring the hardships, GM said Monday it would slash 2,000 jobs at plants in Michigan and Ohio.
In December, the Bush administration signed off on $17.4 billion in loans to General Motors Corp. and Chrysler LLC to keep the companies afloat. The automakers are undertaking intense efforts to restructure this spring or face potential bankruptcy.
David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich., said he doesn't believe the EPA will approve all the waivers asked for by the states. To do so would be economically unworkable.
"If the industry is in total shambles, you can have any regulation you want - it's not doable," he said.
Cole said the additional regulations would have to be implemented "in a way that's achievable in the industry."
Environmental organizations said Obama's approach would help the companies in the long term, forcing them to produce fuel-efficient cars coveted by more consumers. Roland Hwang, a senior policy analyst with the Natural Resources Defense Council, estimated that a more efficient car would save its driver $1,000 to $2,000 in fuel costs over its lifetime, offsetting some of the upfront cost.
Even with the decline in gas prices from last summer's $4 per gallon, Hwang said, the regulatory programs would "push them in a direction that's going to make them more competitive, not less."
"Without California standards and without federal standards, there's a real danger of Detroit falling back in their old gas-guzzling ways," he said.
The industry embraced a green mantle at this month's North American International Auto Show in Detroit, outlining plans to ramp up production of gas-electric hybrids, develop plug-in electric cars and bring more fuel-efficient technologies to conventional models.
Carmakers including GM, Ford Motor Co. and Toyota Motor Corp. plan to sell electric cars that plug into a conventional wall outlet and let drivers bypass the gas station. By 2013, Ford Motor Co. is bringing its "EcoBoost" line of direct-injection turbocharged engines - and their 20 percent improvement in gas mileage - to 90 percent of its models.
The regulations may also push automakers to introduce more vehicles with diesel engines, which can go more miles and provide more power with less fuel, or add technologies like those that shut off some of an engine's cylinders when full power isn't needed.
But none of the changes will be cheap. The Bush administration issued a near-term proposal last year that would have required new cars and trucks to meet a fleet average of 31.6 mpg by 2015. At the time, the government estimated the regulations would cost the industry nearly $50 billion.
California, meanwhile, has battled with auto companies to impose even stiffer regulations that would force carmakers to achieve a fleetwide 35.7 mpg by 2016 and 42.5 mpg in 2020.
Industry officials anticipate the costs of the federal standards could surpass $100 billion by 2020 and California's rules could cost even more.
David Regan, vice president of legislative affairs for the National Automobile Dealers Association, said it could lead to a state-by-state "patchwork" that would burden the industry and force dealers to limit their sales of larger cars and trucks.
"We are in the midst of unprecedented economic challenges in our industry," said Regan, whose group ended a four-day convention in New Orleans on Monday. "All of these factors need to be weighed as the Obama administration goes forward."
Mike Stanton, president of the Association of International Automobile Manufacturers, which represents Toyota, Honda Motor Co., and other foreign companies, said the Obama administration could "harmonize" the California and federal programs.
The tougher requirements could bring more calls for federal aid. Rep. Sander Levin, D-Mich., said the industry would need action on a $25 billion loan program that was Congress approved last year to help carmakers revamp their plants to build green cars.
Levin and other members of Michigan's congressional delegation issued a laundry list of requests last week, including an additional $25 billion for the loan program and funding to support up to $4.3 billion in grants and loan guarantees to develop advanced battery manufacturing.
AP Auto Writer Dan Strumpf reported from New York. Associated Press writers Becky Bohrer in New Orleans and Samantha Young in Sacramento, Calif., contributed to this report.
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