Compromise likely in Obama's fuel rule push
BY MARK PHELAN • FREE PRESS AUTO CRITIC • February 1, 2009
While most people see President Barack Obama's order telling the Environmental Protection Agency to reconsider its decision that banned California's tougher greenhouse-gas emissions as a victory for environmentalists, I think it's more likely to lead to a compromise that California and the automakers could live with.
The California standard calls for automakers to reduce carbon dioxide emissions from the vehicles they sell in the state 30% by 2016. Lower CO2 emissions are directly proportional to reduced consumption of gasoline, so automakers calculate the rule effectively requires an average fuel economy of 26.7 m.p.g. for pickups and SUVs and 43.2 m.p.g. for cars.
That's higher average fuel economy than the tiny plastic-bodied Smart Fortwo city car gets. The only car currently sold in the United States that would meet the standard is the Toyota Prius hybrid. On the truck side, only the Ford Escape and Mercury Mariner hybrid SUVs pass muster.
Challenging, you say, but fair. All the automakers will have to play by the same rules, after all. Except they don't. Only automakers that sell lots of vehicles -- 60,000 a year or more -- in California have to meet that toughest standard.
Those that sell fewer -- luxury brands, fringe players and the new brands that will inevitably come from China and India -- get a pass. Automakers that sell fewer than 4,000 vehicles a year in California never have to hit 43.2 m.p.g. Those that sell fewer than 60,000 get years longer to meet that standard.
The large automakers -- who won't talk about this on the record, because they're negotiating -- hate this. They say the only way they can hit those targets that soon is by greatly limiting the sales of their most-popular vehicles in California.
Except that, like water finding its own level, supply always finds a way to meet demand.
"People will drive to the next state," says Rebecca Lindland, analyst with IHS Global Insight. "It will be great business for non-California car dealerships, and the vehicles there will cost less because there's more supply and they don't have all the expensive technology you need to meet the California standard."
California tried to address that by saying no resident can bring a new car with fewer than 7,500 miles on it into the state. Nice try, but that just means the next growth business in Nevada will be building rolling dynamometers next door to the dealership to put 7,501 low-wear miles on a brand-new vehicle in a few days.
"Really bad things happen when you mess with the free market," says Joe Phillippi, principal of AutoTrends Consulting. "People will figure out a way around this." The rule was unfair and unworkable, but it deadlocked the conversation every time automakers and environmentalists met. By putting it back on the table, Obama forces the sides to compromise. California regulators must come up with a plan their citizens will tolerate, and automakers will have to dig deep and commit to the highest fuel economy they can achieve.
Contact MARK PHELAN at phelan@freepress.com or 313-222-6731.
