CAFE Plan Draws Praise, Criticism at Final Hearing

Just the Facts:

• The 2017-'25 Corporate Average Fuel Economy plan would double average fuel efficiency for passenger cars and light trucks.
• Most of the nearly 100 speakers at the final hearing in San Francisco strongly backed the plan, but a few voiced cautionary words.
• Regulators hope to finalize rules for implementing the first phase by mid-year.

SAN FRANCISCO — A steady stream of supporters who urged no weakening of proposed new national fuel economy standards helped federal regulators wrap up a trio of public hearings on the Corporate Average Fuel Economy (CAFE) and greenhouse gas regulation plan. The nine-hour hearing was held Tuesday in one of the nation's most eco-friendly cities and drew nearly 100 speakers, including private citizens, automakers, and industry and environmental organizations. Edmunds.com's chief economist also testified.

While support for the plan was the order of the day, several speakers cautioned regulators from the Environmental Protection Agency and National Highway Traffic Safety Administration against creating final rules that would reduce consumer choice, force automakers to build vehicles or favor technologies that buyers don't want or price some consumers out of the new-car market.

The CAFE plan proposed by the Obama administration for the 2017-'25 time period is the most far-reaching ever proposed. In addition to covering a nine-year span, about twice the norm since the first CAFE program was launched in 1978, it would see average passenger vehicle fuel efficiency double to about 54.5 mpg — or about 36 mpg as measured for the EPA "window-sticker" ratings with which most car buyers are familiar.

The proposed standard also grants special credits for use of certain fuel efficiency-improving technologies including battery-electric powertrains, hybrid systems for large pickups and more mundane mileage boosters such as improved aerodynamics and use of high-efficiency headlights and electric air-conditioning systems.

All that would come at a price: The proposal estimates it at an average incremental hike of $2,000 per vehicle in the 2025 model year. But the plan's framers insist that if gasoline and diesel prices remain unchanged, or rise, that savings at the fuel pump would more than offset the higher initial prices for the new generation of fuel-efficient cars and light trucks.

The argument that post-purchase savings would make up for any purchase-price blues has drawn criticism from the National Automobile Dealers Association at hearings held last week in Detroit and Philadelphia. The issue was raised again at the San Francisco session by Forrest McConnell III, a member of NADA's board of directors and president of McConnell Honda in Montgomery, Alabama.

Using a $3,200 cost-increase estimate that NADA insists is closer to reality than the $2,000 figure cited by regulators, McConnell said that banks don't adjust loan-qualifying rules to account for future fuel cost savings. The dealers' association estimates that "7 million licensed drivers will be priced out of the new-car market" by the higher purchase price of vehicles that meet the CAFE standard.

McConnell's figures later drew sharp criticism from environmental activist Simon Mui, a former EPA analyst and now member of the National Resources Defense Council's clean vehicles and fuels team. He said his organization's researchers couldn't find any support for a $3,200 average cost increase in any of the dozens of independent cost estimate studies the new CAFE proposal has fostered. NADA has a right to its opinions, Mui chided, "but it needs to get its facts straight."

Edmunds.com's senior economist, Lacey Plache, also voiced concerns about the plan's impact on consumers. Her comments elicited the sharpest response of the day from EPA panelist Margo Oge, director of the agency's office of transportation and air quality. Plache said that Edmunds agrees with the motivation for the CAFE proposal, which is to significantly reduce greenhouse gas emissions from passenger vehicles and reduce reliance on imported oil.

Plache said the company is concerned, however, that the plan could inadvertently stifle competition and limit consumer choice by requiring automakers to put most of their research and development finances into increasing fuel economy at the cost of other technological improvements. Regulators haven't given sufficient thought to "consumer demand for vehicles and how adding higher prices, decreased innovation and choice and excessively complex information could affect consumer decision-making," she said.

Citing ongoing analysis of the shopping and buying trends established by 18 million monthly visitors to the Edmunds Web site, Plache testified that fuel efficiency typically only hits the top of new-car buyers' consideration lists when gasoline prices are climbing, and historically has fallen off as soon as prices stabilize or drop.

Oge said that 13 of the 15 major automakers have voiced support for the plan and several times asked Plache whether she believed that Edmunds knows the market better than do the automakers. "We do have a wide array of data" while automakers typically only see how their own customer base behaves, Plache responded.

Other speakers typically voiced wholehearted support for the plan, calling it an important step in weaning the nation from its dependence on oil, including the purchase of more than $300 billion a year in foreign-sourced oil. They praised the standards as being a critical part of any effort to reduce the impact of global warming brought about by increasing greenhouse gas emissions from carbon-based fuels.

Several representatives of organizations concerned with national security said that the anticipated oil-use reduction from the 2017-'25 CAFE proposal would go a long way toward helping the United States increase its energy security and free up substantial funding that could be spent on internal social and security programs.

Automakers and industry suppliers voiced strong support for retaining a provision that permits a mid-term evaluation of the rules in 2019 prior to firming up standards for the 2022-'25 period.

Regulators said they would continue to accept written comment on the proposal until January 31. The agencies then have about six months to study the tens of thousands of comments, make any adjustments to the CAFE rules proposal and publish the final regulations for implementing the plan.

Inside Line says: Even if you haven't yet grasped the idea that 54.5 mpg CAFE means 36 mpg in the real world, the drumbeat of support for the new plan makes it clear that big change is coming to the automobile world.