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Klaus
07-29-2005, 10:11 AM
Fuel Rules May Aid GM, Ford

Overhaul Could Ease Burden
On Makers of Big Pickups and SUVs
By LAURA MECKLER
Staff Reporter of THE WALL STREET JOURNAL
July 29, 2005; Page A2

WASHINGTON -- A major overhaul of fuel-efficiency standards for light trucks that is now being considered by the Bush administration seems likely to help beleaguered Ford Motor Co. and General Motors Corp. and hurt Japanese rival Toyota Motor Corp.

Current rules punish companies that rely heavily on sales of the biggest pickup trucks and sport-utility vehicles -- a category that is dominated by GM, with its Yukon and Tahoe SUVs, and Ford, which sells more than 900,000 of its F-Series pickups a year. These companies are forced to sell smaller trucks at smaller profit margins, or even a loss, to make sure they sell enough of the more fuel-efficient vehicles to bring their fleetwide averages up to the government's 21-mile-per-gallon requirement.

The government now calculates auto makers' performance by averaging their entire fleets' gas mileage. A complex rewriting of the rules, expected for release by Labor Day, seems likely to change that.

Under the proposed new regime, light trucks -- a category that includes pickups, SUVs and minivans -- would be judged against other trucks of similar size, though not by weight, according to auto industry and environmental lobbyists. Smaller vehicles would be required to meet higher mileage targets than larger ones. This shift would help domestic auto makers, while causing problems for Toyota, which has had an easier time meeting the current standards.


Toyota concedes that such change in the Corporate Average Fuel Economy, or CAFE, system could hurt. "It could be slightly more challenging ... for a manufacturer who sells a greater percentage of smaller or lighter trucks," said Tom Stricker, regulatory-affairs manager for Toyota North America.

Important aspects of the overhaul aren't clear and could be changed. The administration could set a relatively high mileage standard for the biggest gas guzzlers, which would thrill environmentalists but hurt U.S. auto makers. It could also tighten the definition of a "light truck," now so vague that the PT Cruiser qualifies. And it could close a loophole that exempts any truck more than 8,500 pounds -- such as the Hummer H2 -- from fuel-efficiency regulation. When the original rules were written, nobody anticipated a truck that large would be used to pick up groceries. (A separate mileage standard for cars isn't under review.)

Amid concerns about rising oil prices and U.S. dependency on foreign oil, there has been an increase in calls for improved fuel efficiency as a way of bolstering national and economic security. At the same time, auto makers' least-efficient trucks have proved the most popular with consumers.

Auto Makers Are Anxious

Meanwhile, the overhaul, under review by the White House Office of Management and Budget, has left manufacturers nervous. "Any change in the system will create new winners and losers," said Dennis Fitzgibbons, director of public policy at DaimlerChrysler AG's Washington office. "The current system does have its distortions, but it's a system that everyone knows."

The new system would represent a fundamental change from the current one, which has required companies to offset sales of gas guzzlers with sales of smaller trucks. The standard is slated to rise to 22.2 mpg by 2007. GM, Ford and to a lesser extent DaimlerChrysler, barely meet the standard now; in recent years, Ford and GM have met it only by earning credits for producing alternative-fuel vehicles.

The Environmental Protection Agency released a report yesterday showing that the rise of SUVs has pushed down overall fuel efficiency for light trucks and cars. In 2005, it is estimated to be 21 mpg on average. That was up slightly from last year but down from its peak in 1987, according to the data, earlier reported by the New York Times.

The overhaul could help the bottom lines of Ford and GM by relieving pressure to sell smaller pickups and SUVs, which are less popular and less profitable, according to industry officials and outside analysts. One official explained that Ford sells more Rangers, a small pickup truck, and Escapes, a crossover SUV, than the pure marketplace might demand.

Toyota now competes with Ford and GM in sales of larger trucks such as the Sequoia, which like the Ford Expedition gets just 16 mpg. But when it entered that market, Toyota already was selling a lot of smaller, more fuel-efficient vehicles such as the RAV4, and that helps keep its fleet's average mileage up.

'Works to the Disadvantage of the Domestics'

"If you're selling big, relatively, fuel-inefficient monster trucks, you have to sell an equivalent amount of small trucks. This works to the disadvantage of the domestics," said Paul Portney, dean of the Eller School of Management at the University of Arizona and a CAFE expert. "They have trouble making attractive light trucks to sell to people, unlike Toyota and Honda, which have always had plenty of success in the lightweight end of the light-truck market."

GM lobbyist Mark Kemmer argued that pressures from the current fuel rules push sales of large SUVs from his company to Toyota, because Toyota doesn't have to worry about meeting CAFE. "If GM, because of CAFE, is required to cut back on offering of Yukons and Tahoes, and Toyota comes in with a Sequoia and captures all the sales, the net result is not fewer large SUVs, but we didn't sell them, Toyota did," he said.

Officials working on the CAFE overhaul initially considered classifying trucks based on weight. But safety advocates concluded that a weight-based system would encourage manufacturers to add weight to their trucks to qualify for lower standards and worried that heavier vehicles were more dangerous. Officials say the Bush administration responded by moving to a size-based system, concluding that size, not weight, provided crucial safety protection.

The change to size was proposed by Honda Motor Co., the car maker that might be least affected by CAFE. Honda sells very few big trucks, and its smaller ones get good mileage, so the company is always above the government standard. Honda's engineers concluded that setting a standard based on size would offer the most safety and fuel efficiency. The change would help Honda a little bit, but officials say that wasn't their motivation.

The biggest unanswered question may be the simplest: What numbers will the government set as the mileage requirements? Industry officials expect that, on the whole, the government will raise the standards, but aren't clear how.

Other critical questions are how many size classes the government creates and how it draws the lines among them. Depending on that, any given truck or SUV could wind up with a higher or lower mileage standard.

The new regulations for light trucks must be finalized by April 1, 2006, in order to take effect for the 2008 model year.

Klaus
07-29-2005, 10:11 AM
Fuel Rules May Aid GM, Ford

Overhaul Could Ease Burden
On Makers of Big Pickups and SUVs
By LAURA MECKLER
Staff Reporter of THE WALL STREET JOURNAL
July 29, 2005; Page A2

WASHINGTON -- A major overhaul of fuel-efficiency standards for light trucks that is now being considered by the Bush administration seems likely to help beleaguered Ford Motor Co. and General Motors Corp. and hurt Japanese rival Toyota Motor Corp.

Current rules punish companies that rely heavily on sales of the biggest pickup trucks and sport-utility vehicles -- a category that is dominated by GM, with its Yukon and Tahoe SUVs, and Ford, which sells more than 900,000 of its F-Series pickups a year. These companies are forced to sell smaller trucks at smaller profit margins, or even a loss, to make sure they sell enough of the more fuel-efficient vehicles to bring their fleetwide averages up to the government's 21-mile-per-gallon requirement.

The government now calculates auto makers' performance by averaging their entire fleets' gas mileage. A complex rewriting of the rules, expected for release by Labor Day, seems likely to change that.

Under the proposed new regime, light trucks -- a category that includes pickups, SUVs and minivans -- would be judged against other trucks of similar size, though not by weight, according to auto industry and environmental lobbyists. Smaller vehicles would be required to meet higher mileage targets than larger ones. This shift would help domestic auto makers, while causing problems for Toyota, which has had an easier time meeting the current standards.


Toyota concedes that such change in the Corporate Average Fuel Economy, or CAFE, system could hurt. "It could be slightly more challenging ... for a manufacturer who sells a greater percentage of smaller or lighter trucks," said Tom Stricker, regulatory-affairs manager for Toyota North America.

Important aspects of the overhaul aren't clear and could be changed. The administration could set a relatively high mileage standard for the biggest gas guzzlers, which would thrill environmentalists but hurt U.S. auto makers. It could also tighten the definition of a "light truck," now so vague that the PT Cruiser qualifies. And it could close a loophole that exempts any truck more than 8,500 pounds -- such as the Hummer H2 -- from fuel-efficiency regulation. When the original rules were written, nobody anticipated a truck that large would be used to pick up groceries. (A separate mileage standard for cars isn't under review.)

Amid concerns about rising oil prices and U.S. dependency on foreign oil, there has been an increase in calls for improved fuel efficiency as a way of bolstering national and economic security. At the same time, auto makers' least-efficient trucks have proved the most popular with consumers.

Auto Makers Are Anxious

Meanwhile, the overhaul, under review by the White House Office of Management and Budget, has left manufacturers nervous. "Any change in the system will create new winners and losers," said Dennis Fitzgibbons, director of public policy at DaimlerChrysler AG's Washington office. "The current system does have its distortions, but it's a system that everyone knows."

The new system would represent a fundamental change from the current one, which has required companies to offset sales of gas guzzlers with sales of smaller trucks. The standard is slated to rise to 22.2 mpg by 2007. GM, Ford and to a lesser extent DaimlerChrysler, barely meet the standard now; in recent years, Ford and GM have met it only by earning credits for producing alternative-fuel vehicles.

The Environmental Protection Agency released a report yesterday showing that the rise of SUVs has pushed down overall fuel efficiency for light trucks and cars. In 2005, it is estimated to be 21 mpg on average. That was up slightly from last year but down from its peak in 1987, according to the data, earlier reported by the New York Times.

The overhaul could help the bottom lines of Ford and GM by relieving pressure to sell smaller pickups and SUVs, which are less popular and less profitable, according to industry officials and outside analysts. One official explained that Ford sells more Rangers, a small pickup truck, and Escapes, a crossover SUV, than the pure marketplace might demand.

Toyota now competes with Ford and GM in sales of larger trucks such as the Sequoia, which like the Ford Expedition gets just 16 mpg. But when it entered that market, Toyota already was selling a lot of smaller, more fuel-efficient vehicles such as the RAV4, and that helps keep its fleet's average mileage up.

'Works to the Disadvantage of the Domestics'

"If you're selling big, relatively, fuel-inefficient monster trucks, you have to sell an equivalent amount of small trucks. This works to the disadvantage of the domestics," said Paul Portney, dean of the Eller School of Management at the University of Arizona and a CAFE expert. "They have trouble making attractive light trucks to sell to people, unlike Toyota and Honda, which have always had plenty of success in the lightweight end of the light-truck market."

GM lobbyist Mark Kemmer argued that pressures from the current fuel rules push sales of large SUVs from his company to Toyota, because Toyota doesn't have to worry about meeting CAFE. "If GM, because of CAFE, is required to cut back on offering of Yukons and Tahoes, and Toyota comes in with a Sequoia and captures all the sales, the net result is not fewer large SUVs, but we didn't sell them, Toyota did," he said.

Officials working on the CAFE overhaul initially considered classifying trucks based on weight. But safety advocates concluded that a weight-based system would encourage manufacturers to add weight to their trucks to qualify for lower standards and worried that heavier vehicles were more dangerous. Officials say the Bush administration responded by moving to a size-based system, concluding that size, not weight, provided crucial safety protection.

The change to size was proposed by Honda Motor Co., the car maker that might be least affected by CAFE. Honda sells very few big trucks, and its smaller ones get good mileage, so the company is always above the government standard. Honda's engineers concluded that setting a standard based on size would offer the most safety and fuel efficiency. The change would help Honda a little bit, but officials say that wasn't their motivation.

The biggest unanswered question may be the simplest: What numbers will the government set as the mileage requirements? Industry officials expect that, on the whole, the government will raise the standards, but aren't clear how.

Other critical questions are how many size classes the government creates and how it draws the lines among them. Depending on that, any given truck or SUV could wind up with a higher or lower mileage standard.

The new regulations for light trucks must be finalized by April 1, 2006, in order to take effect for the 2008 model year.