Washington to Shrink US Cars?

As gasoline prices approach $4 per gallon in major urban areas, the Bush Administration is proposing an aggressive schedule for implementing new fuel-economy standards. Under rules proposed this week by the U.S. Department of Transportation, the minimum miles-to-the-gallon ratio for both passenger vehicles and light trucks would have to increase by 4.5 percent each year over the five-year period ending in 2015. "This proposal is historically ambitious, yet achievable. It will help us all breathe a little easier by reducing tailpipe emissions, cutting fuel consumption and making driving a little more affordable," U.S. Secretary of Transportation Mary Peters said in a statement.

The new rules exceeds the 3.3 percent per year increase proposed by Congress last December, Peters said, and will boost the fuel-economy standard for passenger cars from the current 27.5 miles per gallon to 35.7 miles per gallon by 2015. For light trucks, the DOT proposal calls for an increase from 23.5 miles per gallon in 2010 to 28.6 miles per gallon in 2015.

The proposed rules also offer automakers credits for exceeding the Corporate Average Fuel Economy, or CAFE, standards. "Looking at the fuel-efficient technologies already available, it's easy to see a not-too-distant future when cars fueled by something other than gasoline will be readily available and affordable," Peters said. Those credits, however, will also help manufacturers to protect less efficient but pricier vehicles such as large sport utility vehicles and high-powered sedans and sports cars.

Still, the new initiative was hailed by the Sierra Club. "Strong new rules for fuel economy couldn't come at a better time," said the group's Washington representative Anne Mesnikoff. "Pain at the pump is growing more acute each day as gas prices continue to skyrocket. These new rules will put us on the path toward lower energy costs and greater energy independence."

Michigan Senator Carl Levin welcomed the new standards as an incentive for innovation in the auto industry. "This makes it more important than ever that there is significant federal support for development of these technologies, such as advanced batteries for plug-in hybrid vehicles," added Levin, who had opposed the original legislation.

Automakers, having resisted tougher standards for two decades, offered a tepid endorsement of the new rules, which they hope will help fend off even tougher regulation by individual states such as California. "Congress has set an aggressive, single, nationwide standard and automakers are prepared to meet that challenge," said Dave McCurdy, president and chief executive of the Alliance of Automobile Manufacturers. McCurdy said when fully implemented, the new fuel-economy rules would raise fuel economy by 40 percent and lead to a 30 percent reduction in greenhouse gas emissions through 2020.

Environmentalists, for their part, want to see California's approach extended. "We are pleased with today's proposal, but remain extremely disappointed that the Bush Administration continues to block the efforts of California and more than a dozen other states to move forward with landmark greenhouse emissions standards for vehicles," Mesnikoff said. California's limits on greenhouse gas emissions would require a major downsizing of American vehicles. But the rising fuel price may already be having that effect. Registrations of hybrid vehicles rose by 38 percent last year, according to a new study released by R.L. Polk & Co. of Southfield Mi. "Hybrids are a great foray into the world of fuel efficiency for many buyers," notes Lonnie Miller, a Polk analyst. Approximately 26 percent of all hybrid registrations are in California, which has the nation's highest gasoline prices.

Small cars, in general, also now account for a growing share of the new vehicles sold in the U.S., according to analysts from J.D. Power & Associates. The market share of small cars has increased by more than two full points since the beginning of the year, says George Pipas, an analyst for the Ford Motor Co. The Ford assembly plant outside of Detroit used for building small passenger cars is now scheduling overtime to keep up with demand for the Ford Focus.