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Why stricter fuel-economy standards could have unintended consequences

Breana Noble and Riley Beggin, The Detroit News on

Published in Automotive News

Federal regulators directed by President Joe Biden to re-evaluate national fuel economy rules and encourage the transition to electric vehicles are expected to raise the standards — though it's unclear just how high.

Gas- and diesel-powered vehicles, however, still earn automakers their profits. Many companies say they don't intend to invest more in such engines, instead using the excess cash to invest in electrified vehicles favored by governments seeking carbon neutrality.

But more stringent regulations, especially for pickup trucks and SUVs, potentially could do the opposite of what policymakers want and lead to more investments in products with internal-combustion engines — especially if demand for electric vehicles fails to materialize as predicted.

"A different regulation through 2030 may send that signal to engine engineers — and by that I mean internal combustion engineers — their days are not numbered," said Warren Browne, an auto supplier consultant and former General Motors Co. executive who worked at the automaker for 40 years.

It wouldn't be the first time altered fuel-economy standards resulted in unintended consequences. When regulators first set Corporate Average Fuel Economy standards in 1975, they sought to limit gasoline use in the wake of an oil embargo that limited supply and raised prices. The requirements created a fleet-wide average for how far a vehicle must be able to go on a gallon of gas.

The government, however, set more lenient rules for trucks and SUVs compared to passenger cars. Once demand for V-6 and V-8 engines rose again after fuel prices leveled, automakers responded with more gas-guzzling SUVs and trucks, which became the new family station wagon.

 

"They realized the loophole," said Sam Fiorani, vice president of global forecasting for AutoForecast Solutions LLC. "Congress thought they could legislate smaller, more fuel-efficient vehicles, not seeing they would shift from cars to trucks."

By 1992, the standard was 27.5 mpg for cars and just 20.2 mpg for trucks, Fiorani said. Trucks and SUVs in the 1970s had been more rugged and utilitarian, but in the '80s and '90s, they more commonly had automatic transmissions, power steering and power windows.

It was the advent of vehicles like the GMC Yukon, Chevrolet Tahoe, Ford Ranger and Explorer, Dodge Durango and Jeep Wrangler series and Grand Cherokee — vehicles that drive profits at Detroit's three automakers today.

Trucks and SUVs "could be sold for a higher price, could have a bigger engine, and could make buyers happy," Fiorani said. "They had extra room and didn't count as much as a Crown Vic," referring to Ford's Crown Victoria sedans.

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