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WSJ Columnist: Hope for SUV and Pickup Fans

May 27, 2009 by · 1 Comment 

Editor’s Note: The following column by writer Joseph B. White appeared in Tuesday’s Wall Street Journal.

Can auto makers boost the overall fuel economy of American cars and trucks by 40% in seven years without forcing everyone into a Smart ForTwo? They’ve done it before and should be able to do it again, but it could be a bumpy transition.

Between 1975 and 1987, the average fuel efficiency of American cars and trucks improved by nearly 68%, according to the Environmental Protection Agency. This was a remarkable achievement, but it came at considerable pain and discomfort both to auto makers and consumers. Cars such as the compact Cadillac Cimarron — a rebadged Chevy Cavalier — didn’t do much to boost General Motors Corp.’s overall fuel economy, but did plenty to damage Cadillac’s brand image.

Even Japanese car makers, which benefited tremendously from America’s energy consciousness and the resulting mileage mandates, have little nostalgia for the tiny, modestly powered cars of that era.

Now, President Barack Obama’s plan for auto makers to boost the average fuel efficiency of their fleets to 35.5 miles per gallon by 2016 sets up auto makers and U.S. drivers to replay the 1970s and 1980s experience — with some critical differences.

Based on the way new federal fuel-economy standards will likely work, and on the industry’s history in dealing with new efficiency mandates, people who like big sport-utility vehicles or pickups may want to pounce on them over the next several months, while they’re still cheap and plentiful.

Fans of small, fuel-efficient cars or hybrids might find irresistible buying opportunities in the current market, too, if they’re willing to make do with today’s technology. Another potential upside: Riding out the next six or seven years in a 2009 model buys time for car makers to work out the kinks in their new-generation, high-mileage cars.

Since gas prices fell below $3 a gallon, demand for very small cars and hybrids has cratered. AutoNation Inc., the nation’s biggest dealer chain, has enough Chevrolet Aveo subcompacts on hand to last 560 days at current sales rates. In July 2008, when gas prices were peaking above $4 a gallon, AutoNation had a relatively lean 33 days’ supply of Aveos on their lots.

AutoNation’s inventories of the Honda Fit, a car that meets the 2016 mileage target right now, have surged to an unhealthy 147 days’ supply, compared with just 17 days’ supply last July. Dealers who wanted premiums for hybrids and small cars a year ago now are offering discounts.

This is one reason why AutoNation Chief Executive Mike Jackson is a tireless advocate of coupling higher mileage standards to higher federal gasoline taxes, a position many industry executives share.

But SUV and pickup fans don’t need to fear that the 2016 federal mileage rules will send these vehicles the way of the woolly mammoth. In fact, the new framework for fuel-economy standards could be relatively easier on large vehicles than on very small cars.

Under the new system, all vehicles won’t need to average 35.5 miles per gallon. They will need to meet or exceed a target adjusted to their size, or “footprint.” So, for example, a Chevy Tahoe, which has a footprint of 55 square feet, is required to get about 23 to 24 miles per gallon in 2011 and improve from there, under government rules already adopted for that model year. A smaller truck, such as a Toyota Highlander, is supposed to achieve about 26 miles per gallon in 2011 and then improve from that base over time.

What’s more, there’s more room for weight reduction with larger vehicles. “Weight can be found in a lot of creative places,” says Tom Stricker, director of technical and regulatory affairs at Toyota Motor Corp.’s Washington office. Mr. Stricker says the details of how the president’s 35.5-mile-per-gallon plan will affect different sizes of vehicles are still to be determined, and he and his counterparts at rival auto companies are getting ready to “roll our sleeves up” to hammer them out over the next several months.

Still, costs for larger vehicles will likely rise. Sandy Stojkovski, director of product systems for Ricardo Inc., a consulting firm that has worked with the government on its fuel-economy policy, says it could cost $5,000 to $12,000 per vehicle to achieve the required improvements in fuel efficiency for medium and large trucks, depending on the technology car makers choose. The Obama administration has put the estimate of increased cost per vehicle at a more optimistic $1,300.

Mr. Obama’s auto policy is founded on two big bets. The first is that oil prices will go up a lot by 2016, spurring demand for cars that are smaller, more efficient, more electric and probably more expensive, pound for pound.

The second wager is that auto makers will repeat history, in a good way. After initially struggling to meet tougher mileage benchmarks in the 1970s and 1980s, car makers used innovative designs and technology to create 2008 model vehicles that not only were nearly 60% more fuel-efficient than the 1975 average, but were 32% faster from 0 to 60 miles per hour, and met a wider array of functional needs.

Mr. Obama says more-aggressive fuel-economy targets will cut America’s consumption of oil. But despite the gains in vehicle efficiency, Americans burned 39% more gasoline in 2007 than they did in 1975, according to Energy Department figures, because more people hit the roads and drove more miles.

Don’t share the president’s optimism? Then consider buying one of today’s models soon. There are plenty of them around.

Write to Joseph B. White at joseph.white@wsj.com

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