What bothers carmakers most after the threat of recession? How to take hold to CAFE fuel rules without losing customers

by David Welch

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General Motors Vice Chairman Bob Lutz JEFF HAYNES/AFP/Getty Images

Ask auto executives what keeps them up at night, and right after the 50-50 chance that the U.S. economy direct slide into a recession is the new set of fuel-economy rules handed from the top to the bottom of by means of Uncle Sam in December. They all say that they will meet the new rules, but the question is how? What scares them is that to fulfil the new rules, they will have to make automobiles either more expensive or smaller and less powerful, two types of cars that have traditionally been about as popular at the same time that a Greenpeace delegation at a National Rifle Assn. convention.

The source of their discomfort is the new energy bill that Congress passed in December mandating that carmakers achieve a corporate fleet average firing material regulation (CAFE) rating of 35 miles per gallon by 2020, up from 22.2 for trucks and 27.5 with a view to passenger cars.

The federal government has long preferred regulations that force carmakers to make a good use of fuel regulation, in place of gasoline taxes that would give consumers spur to buy more efficacious vehicles. The conventional wisdom behind this stance is that consumers won’t vote for of the whole not private officials who gather taxes at the pump.

Of course, automakers put up with their portion of the blame for the spot in which they find themselves by not having diverted plenty resources to develop more fuel-efficient vehicles sooner. Still, they know that by passing the burden onto them, Washington is not only opposition in the marketplace, it is running the risk of causing an equable greater fissure between carmakers and their customers.

"There will be some cost to someone," says Jesse Toprak, executive director of industry analysis for Edmunds.com, which tracks car prices. "The cost to manufacturers could go up $2,000 a vehicle. But I don’t think they will be able to ravine it all on to consumers."

But they will have to pass in succession some of it. How much is a subject of some debate. Automakers, most of what one. opposed the tougher fuel-economy rules, reply the new law will be very expensive. General Motors’ (GM) Vice-Chairman Robert Lutz, GM’s product unfolding master, said in an interview at the 2008 North American International Auto Show in Detroit (BusinessWeek.com, 1/10/08) on Jan. 15 that the company could hit the new CAFE rules soon, but not without radically altering the commonwealth’s current choice of vehicles or adding $6,000 a car in cost. Some cars could get to be as much as $10,000 more costly, Lutz says.

"We think that with $6,000 to $8,000 per car, we be possible to meet 35 mpg lacking changing a vehicle spectrum like we have today," Lutz told journalists. "We will have to make choices."

Already, Lutz says, GM has had to consider again make the next-generation Chevrolet Impala a midsize car with rear-wheel drive and a V8 engine. Both are not so much efficient options. GM is besides studying whether it should figure a premium small car like the Mini Cooper or BMW 1 Series. "It’s worth looking at," says GM Chairman and CEO G. Richard Wagoner Jr..

Others say $6,000 is too high, since the standards cry out in opposition to a gradual climb to 35 mpg and technology will have cheaper by afterward. Still, AutoNation (AN) CEO Mike Jackson says using hybrid technology desire cost $5,000 to $10,000 a car, diesel is a $3,000 add-on, and improving existing gasoline engines costs about $500. "This is going to cost someone," Jackson says.