Increased motivation for automakers to produce more hybrid and electric vehicles is coalescing in the ongoing discussions over Corporate Average Fuel Economy (CAFE) standards.

This past weekend the Detroit News reported that the Obama administration presented auto executives at the White House with the idea of raising the average fleetwide mpg for cars and light trucks from 35.5 mpg set for 2016 to 56.2 mpg for 2017-2025.

Since last year the proposal of a 62 mpg CAFE standard had been bandied about, and this week’s 56.2 was a compromise between 47 mpg automakers suggested and the higher number. If imposed, it would mean automakers have to figure how to increase efficiency by about five percent per year.

This car gets excellent official EPA mileage. Battery electric vehicles get even higher eMPG ratings.

One possible way for automakers to meet the mandate would be by adding more electric and hybrid vehicles into their lineups. If deemed otherwise cost effective, this would reduce the mpg average across a respective maker's range.

The way the CAFE numbers are calculated is different than the EPA estimates on the Monroney label (window sticker).

Edmunds figures a 56.2-mpg CAFE standard equals an EPA rating of 41 mpg in combined city and highway driving. The 2016 CAFE standard of 35.5 mpg equals about 27 mpg EPA, and a 62 mpg standard would equal a combined 44 mpg.

The 56.2 number is only a proposal yet subject to negotiations for standards that will be announced in September this year. In turn, automakers are continuing to study the issues to justify making any counter proposals.

GM's Reaction

We have seen a wide disparity of views on the impact that such a number will have from environmentalists, administration officials and auto industry executives.

For his part, Mark Reuss, North American president of General Motors said it will not be easy to jump over a 56.2 mpg bar, but if it becomes law, the company will of course do it.

“It's our job to take a look at it, digest it, and put together a data set of what it takes to do it. The auto industry does not get easier. It always gets tougher,” Reuss told Ward’s Auto, “That's the challenge and that's what our jobs are. If even-stricter guidelines require billions more in investment, so be it. It's not an either/or thing. It's how we get there with cars and trucks that consumers really want to buy at a [price] that doesn't put unreasonable cost on them.”

Good or bad?

Automakers have otherwise argued that what they view as excessively high standards will not have a positive net effect. In contrast, environmentalists and administration officials say the opposite.

When the 62 mpg standard was suggested last year, the U.S. Department of Transportation and the Environmental Protection Agency released a " Notice of Intent to Improve Fuel Economy and Reduce Greenhouse Gas Emissions for 2017-2025 ."

In it, they stated:

“The automotive market is becoming increasingly global. The U.S. auto companies produce and sell automobiles around the world, and foreign auto companies produce and sell in the U.S. As a result, the industry has become increasingly competitive. Staying at the cutting edge of automotive technology, while maintaining profitability and consumer acceptance, has become increasingly important for the sustainability of auto companies. Trends in the world automotive market suggest that investments in improved fuel economy and advanced technology vehicles are a necessary component for maintaining competitiveness in coming years.”

Regarding the 56.2 mpg proposal, these same officials estimate price increases for new vehicles in 2025 could range from $2,100 to $2,600 – but these would pay for themselves if consumers kept their cars for three years, resulting in fuel savings of $5,500 to $7,000.

So here we have Uncle Sam saying to automakers – which some government officials have pointed out have received tens of billions in bailout money to improve their effectiveness – that staying at the cutting edge will enhance global competitiveness.

Is this going to happen? Not likely. GM will need to improve it as much as possible, then splice in high-mpg vehicles to improve the average.

In contrast, the auto industry has assembled a host of objections saying this just is not the case.

Industry estimates for what cars would cost in a world of 62 mpg average fuel efficiency have been as high as $10,000 per vehicle, and presumably these same objectors would say it would not be much less for 56.2 mpg.

Other objections were voiced to Edmunds by the Alliance of Automobile Manufacturer’s Vice President, Gloria Bergquist.

She threw the safety card into the mix saying manufacturers would be forced to lighten their vehicles, which would mean vehicles across the board would be less safe in crashes.

She also said the industry could be forced to stop making as many SUVs and pickups – many of which meet legitimate needs, and are profitable.

For example, could you see a Ford F-150 pickup averaging 41 mpg? It has been argued the cost to make vehicles of this class and heavier that efficient would be prohibitive.

Bergquist said making manufacturers perform billions in R&D needed to implement advanced tech in its vehicles would have an economic chilling effect because sales would plummet, cascading into layoffs, assembly line shut downs, and other negative effects.

Potential fuel-saving technology for internal combustion vehicles would include lightweight materials, stop-start systems, electronic steering, braking, and climate-control systems to reduce parasitic drag on internal-combustion engines, and more.

Not tough enough?

According to Roland Hwang, transportation programs director for the National Resources Defense Council, the government has already weakened its position for what the NRDC sees as an attainable goal.

"We still think 62 mpg is the right number, but if the administration wants 56.2 [mpg], then it has got to hold firm and not negotiate down from there,” Hwang said. “We think, though, that this is a lot more than just a trial balloon. In the last round of CAFE negotiations that resulted in the 35.5-mpg standard for 2016, the administration pulled automakers into talks that were aimed at 'how to get there, not whether to get there.'”

Path of least resistance

As Reuss said above, GM – and no doubt other manufacturers – will do what they have to in order to meet mandates. Since maximizing profits is always the goal, they will do what it takes to achieve that as well.

One obvious growth area that could help fleetwide average mpg are hybrids and electrics.

Hybrids represent a mere 3 percent of the market today, and electric vehicle sales of several thousand so far barely register compared to yearly internal combustion vehicle sales.

Fortunately for GM it began four years ago on the Voltec platform and already plans to increase models as it also experiments around the globe with battery electric vehicles.

The goal will be designing, pricing and marketing them to where people will buy them. If the manufacturers' assertions that costs will rise across their respective lines, this will affect advanced-tech vehicles too.

What will it mean for vehicles like this 505-horsepower, Corvette Z06 – or the 638-horsepower ZR1 – in a world mandated to average 56-62 mpg?

Even Bergquist conceded marketing hybrids and electrics could help, but said there are challenges.

“We have the technology to improve overall fuel efficiency,” she said. “What we've got to concentrate on now is how to get people to buy them.”

Only the beginning

The clamp is definitely tightening on the old paradigm but of course there are no guarantees for increased EV and hybrid proliferation even if many more are produced.

Inherent in automakers' fears is that people will buy what they want to buy, without regard for mandates, and the last thing automakers want is to have models they cannot sufficiently sell.

These and many more issues will be debated for the next couple of months – then beyond.

Aside from this weekend's 56.2 mpg proposal, NHTSA and the EPA are formulating a more definitive CAFE proposal to be issued in September. This will be followed by sufficient time for comment gathering and counter proposals from stakeholders including industry, environmental and safety advocates, as well as the public.

By July 2012, new CAFE regulations for 2017-2025 are due to be in place, giving automakers five years to figure out how they will meet them from 2017 onward.

No one knows how this will shake out, but in any event, the case is becoming stronger for more EVs and hybrids.

Source: Edmunds , Green Autoblog