FUEL ECONOMY:

New standards could spur production of more SUVs -- study

The Obama administration's push to boost automotive fuel efficiency might contain a loophole big enough for a fleet of new SUVs, according to a new study by University of Michigan researchers.

The decision to shun a flat nationwide average in favor of a so-called footprint standard will allow larger cars to meet a weaker fuel economy target than smaller cars, the study says.

While new SUVs and trucks would be more fuel-efficient than their predecessors, researchers said, the overall effect would be to drag down the goal of making automakers meet a 54.5 mpg standard by 2025.

"We all hear that these standards are 54.5 miles per gallon by 2025, but those numbers depend on the size of the vehicles the auto companies make," said Katie Whitefoot, the study's author and a senior program officer at the National Academy of Engineering. "Accounting for various incentives and disincentives, we found that the incentives for bigger vehicles generally win out."

The new big cars could lower the overall corporate average fuel economy (CAFE) by as much as 4 mpg in 2014, said Whitefoot, who did the study as a doctoral student at Michigan.

The footprint strategy helps protect domestic automakers from having to abandon truck production -- a big moneymaker -- while international companies that focus on small cars survive with scant changes to their fleets. It's also meant to address concerns about CAFE standards forcing drivers into lighter and less safe cars.

Brett Smith, director of the automotive analysis group at the Michigan-based nonprofit Center for Automotive Research (CAR), said the footprint strategy also means that automakers have to adopt fuel-saving technology for all their cars.

"We used to say, in essence, you have to build two Chevy Cruzes for every Cadillac GTs, just to balance things out," Smith said, referring to Chevrolet's 30 mpg subcompact and the mid-size Cadillac often derided for wasting fuel. "They wanted to ... make it more effective across the board, and that's why they chose the footprint."

But the approach could also make it easier for automakers to produce larger vehicles and avoid the more stringent targets, said co-author Steve Skerlos, an associate professor at Michigan's School of Mechanical Engineering.

"The question a firm has to answer is whether the profits will be higher if, instead of putting more cost on vehicles to improve fuel economy," Skerlos said. "We were very hard-pressed to see a situation where vehicles got smaller."

'Market will find a way'

For the study -- published in the January issue of Energy Policy -- the Michigan researchers used a computer simulation to weigh a variety of choices from the automakers' perspective.

Given a number of vehicle factors -- including acceleration, weight, price, fuel efficiency and additional technology -- the researchers ran nearly 30,000 simulations with consideration given to consumer preferences.

Only one scenario -- in which consumers believed vehicle size was a low priority and acceleration was the most desired component -- created a strong incentive for automakers to create smaller cars. The rest showed sales-weighted average vehicle size increasing by between 2 and 32 percent.

"We captured the extremes of variations of these consumer preferences, but we're agnostic to what is causing those shifts in consumer preferences," Whitefoot said. "I would imagine that gas prices are probably the largest driver of those preferences."

There are nonetheless a number of variables, Whitefoot said. High gasoline prices have traditionally led consumers away from large cars, so a sustained gas spike could shift some purchasing incentives. Consumers may have a change of heart or could begin to value acceleration, all of which would change the share of the market.

CAR's Smith warned that the researchers had laid out "an outcome, not the outcome" of the standards and one that he said federal regulators had certainly considered.

"It does show the challenge of making policy, which is that there are always going to be unintended consequences," Smith said. "Even in the best thought-out policies, the market will find a way to satisfy the consumer."

Sales challenges

The findings could be good news for the auto industry, which had warned the standards would force consumers into small cars. Domestic automakers, which have traditionally padded their profits with SUVs and light trucks, have consistently warned they could face falling profits under a standard that marginalizes those cars.

Although he said he couldn't comment on the Michigan study, Alliance of Automobile Manufacturers spokesman Wade Newton said automakers "are committed to enhancing fuel economy" and pointed out that the group's 12 member companies offer 265 models that get at least 30 mpg.

"The challenge can be selling those vehicles, though," Newton said. "In 2010, hybrid sales, for example, were only about 2.4 percent of total sales, and there were 30 models on sale. To put that in perspective, those 30 models combined were outsold by the single best-selling pickup truck."

Ahead of the CAFE standards' release, automakers balked at a high national standard, saying it left them with the choice between marketing unpopular cars or taking a penalty for missing the standards. Domestic manufacturers still remain concerned that the market may not allow them to sell as many small cars as the government would like.

Environmental groups have long warned that the footprint method could be a loophole that could reduce the impact of the standards. Other groups have noted that the tiered footprint strategy -- which is based on the size of the vehicle base -- could provide a disincentive to shrink the size of a particular model, since that would force automakers to meet a higher standard.

Even some international automakers have objected. Volkswagen, for example, has reportedly refused to sign the agreement, saying that it makes too many concessions to American manufacturers, especially by offering a 3.5 percent annual improvement for light trucks over a stretch of the rules (versus 5 percent for passenger cars).

"The largest trucks carry almost no burden for the 2017-2020 timeframe, and are granted numerous ways to mathematically meet targets in the outlying years without significant real-world gains," Volkswagen spokesman Tony Cervone said in a statement in July, when the standards were announced. "The proposal encourages manufacturers and customers to shift toward larger, less efficient vehicles, defeating the goal of reduced greenhouse gas emissions."

It's worth noting that automakers can do more to make SUVs and trucks more efficient, from using lightweight steel to adopting cross-over frames (many modern SUVs use smaller frames). Researchers and industry sources say they can also make improvements to the engine with little impact on performance.

But a smaller car will, by nature, use less fuel than a larger one. And, Skerlos pointed out, increasing the share of large trucks poses a safety concern for the smaller cars meant to be promoted by the standard.

Still, he said, the footprint standard is still a way to make cars more fuel-efficient across the board. If it gets automakers on board, he said, "it was worth it."

"We've got the technology to have our cake and eat it, too," Skerlos said. "If there is value to be captured from the market making bigger cars, we should expect automakers to take it."

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