Automakers Support Higher MPG Rules ... For Now

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higher MPGIn the year 2025
If man is still alive
Cars that get good mileage
We will drive.


At least that's the plan.

Last week, the Obama administration unwrapped its latest fuel-mileage requirements: 54.5 miles per gallon by 2025. That is double the current corporate average fuel economy standards, also known as CAFE standards.

The truly extraordinary thing was who was standing right by President Obama as his announced the new rules -- the CEOs of GM (GM), Ford (F), Chrysler, and Volvo, and the president of BMW.

What happened to the squeaky wheels?

That's a complete turnaround from four years ago, when American and Asian carmakers argued adamantly against raising the mpg requirements. They insisted that consumers would not pay the higher costs for higher mileage.

Now they've changed their tune. The federal bailout of two of the big three automakers, GM and Chrysler, makes it very difficult for those companies not to go along with the program. And, despite what automakers insisted in the past, consumers do want more fuel-efficient cars and -- most importantly -- they are willing to buy them.

That's been driven home with the success of Toyota's (TM) Prius and the reality that practically every major carmaker these days believes that it must have at least one hybrid model in its lineup.

What it'll take to double fuel economy

An analysis by the Center for Automotive Research, or CAR, found that to meet a standard of 56 mpg (the tentative mpg standard the center based its research on) by 2025:
  • 36% of all vehicles would have to use stop-start technology (the engine turns off when the car stops and turns back on when the driver steps on the accelerator).
  • 35.7% would need to be hybrids (like the Toyota Prius or Honda (HMC) Insight).
  • 19.3% would need to be plug-in hybrids (like the Chevy Volt).
  • 8.1% would be compression-ignited (diesel).
  • 0.9% would be battery electric (like the Nissan Leaf or Tesla (TSLA) Model S).
The CAR report does not consider fuel-cell technology, which turns hydrogen into electricity, to be a mainstream fuel in the next 15 years.

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Ford has said it will start selling start-stop microhybrid cars in the U.S. in 2012. A much smaller battery than one found in a hybrid -- or, perhaps, even a capacitor -- stores enough juice to keep the car's auxiliary electrical system working while the engine is stopped. This does not save as much fuel as a full hybrid, but every bit counts.

But the industry believes that the most viable replacement for the internal combustion engine will be -- wait for it -- the internal-combustion engine. Smaller, more efficient, turbocharged engines, with improved fuel injection and variable valve timing, in lighter cars with more aerodynamic shapes will be the solution to meeting the tougher standards.

Bumpy roads ahead

For some, tougher CAFE standards can't come soon enough. This past June, in a move that belies the perception that our political parties can't seem to agree on anything, a group of 15 prominent Republicans urged President Obama to set aggressive fuel-efficiency standards. They wrote: "If oil continues to be a primary driver of our economy and security, we will hand our destiny to other nations, many of which do not share our interests."

However, the carmakers, though they stood with Obama in solidarity at the CAFE-standards announcement, may just be waiting for a more opportune time to try to finagle the requirements downward.

GM issued a statement in which it lauded the new standards ... but the automaker also hedged by stating that "the proposed rule includes flexibility that recognizes consumer needs and potential changes in technology and economic conditions."

I would read that as: "Don't count on seeing the giant SUV gas-guzzler die off just yet."

Motley Fool contributor Dan Radovsky has no financial interest in the companies mentioned. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Ford and General Motors.
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