Automakers not panicked over new mileage standards

President Obama announced plans to establish more stringent national auto mileage standards on Tuesday, a move that will accelerate the arrival of energy-efficient technologies such as hybrid cars and diesel engines.

The plan calls for a 5 percent annual increase in car makers' fleet-wide fuel efficiency starting in 2012. The standard, which addresses cars and light trucks, will be 35.5 miles per gallon in 2016, four years sooner than previously planned. (Click for PDF with details.)

The stricter mandate also presses automakers to quickly adopt fuel-savings technologies in an industry reeling from falling car purchases. But auto manufacturers on Tuesday voiced support for the plan and its timeline.

"This new agreement will go a long way toward preserving the widest possible range of consumer choice in new vehicle purchases, (and) allow sufficient lead time for manufacturers to thoroughly engineer and test next-generation technologies before they are launched to the public," said Michael Stanton, the CEO of the Association of International Automobile Manufacturers. "And (it) provides a sufficient degree of flexibility to mitigate costs in very capital-intensive new vehicle development."

Obama announced the agreement at the White House with members of his cabinet, the presidents and CEOs of 10 automakers, environmental advocates, and the president of the United Auto Workers. He said a series of "major lawsuits" will be dropped in support of the national standard.

The proposal creates a single fuel economy standard for the U.S. and regulates greenhouse gas emissions from cars and trucks. Auto manufacturers had complained they faced three different sets of regulations--the national Corporate Average Fuel Economy (CAFE) standard, California's proposed rules, and potential regulations on emissions from the Environmental Protection Agency.

The speeded-up efficiency rules will add about $600 to the price of producing a vehicle compared to the current law, according to reports. But the higher efficiency will mean that consumers will be able to recoup that cost in about three years, Obama said in his speech.

"Yes, it costs money to develop these vehicles, but even as the price to build these cars and trucks goes up, the cost of driving these vehicles will go down, as drivers save money at the pump," he said.

Some changes, such as low rolling-resistance tires, offer relatively cheap ways to bring fuel efficiency to cars while more advanced technologies such as gasoline direct injection and "stop-start," where a car turns off when not moving, are more expensive, according to the National Highway Traffic Safety Administration, 2953 Analytics, and Automotive News (registration required).

Who can adapt?
Meeting these new standards is doable in part because most global automakers are already selling more efficient models in Europe, said Bilal Zuberi, a venture capitalist at General Catalyst Partners.

Ford, for example, already sells more efficient diesel engine cars in Europe with added emissions control equipment. Company Chairman Bill Ford last month said that the company intends to bring its smaller, fuel-efficient models from Europe to the U.S. General Motors has some hybrids in its fleet and it is developing an extended-range electric drivetrain for the Chevy Volt and other cars.

"GM is fully committed to this new approach," said CEO Fritz Henderson in a statement. "GM and the auto industry benefit by having more consistency and certainty to guide our product plans."

Financially strapped Chrysler, on the other hand, has emphasized its larger cars and Jeep platform, which will make it harder to meet new standards, although a proposed tie-up with Fiat would add small, fuel-efficient cars to its fleet, Zuberi said.

"This (policy) would mean a much faster, and hopefully not too painful, adoption of hybrids," said Zuberi. "Almost every car will have a mild type of hybrid and there will be greater penetration."

He added that the demand for fuel-efficient technologies also creates opportunities for partnerships and potentially acquisitions of electric-car component suppliers and start-ups, such as Fisker Automotive, Bright Automotive, and Tesla Motors, which announced an electric powertrain licensing deal with Daimler on Tuesday.

"With this action and President Obama's pledge to put 1 million plug-in hybrids on the road by 2015, we are off to a good start," said Sherry Boschert, co-founder of advocacy group Plug In America.

The policy will save 1.8 billion barrels of oil in the next five years, the equivalent of taking 58 million cars off the road for a year, according to the White House.

"This agreement is the breakthrough the nation needs to cut carbon emissions and help consumers deal with volatile gas prices," said Jim Kliesch, a senior engineer with the Union of Concerned Scientists' Clean Vehicle Program, in a statement. "Automakers have the technology they need to meet and beat these standards while saving consumers billions."