Automakers’ challenge in meeting regulatory requirements for Corporate Average Fuel Economy has two aspects: the technology side and the market side of the issue.
Automakers have to build vehicles that propel themselves efficiently with a minimum of gas consumption, but these vehicles also must appeal to buyers whose selection is based on a whole array of criteria. Fuel economy is just one factor that buyers weigh, and it’s not usually even the most important one.
The federal government holds automakers accountable for the results of this balancing act, and in a pretty stringent way, with a targeted corporate average of 54.5 mpg by 2025. These federal regulations are an ongoing cause for concern among OEMs and suppliers as they force companies to make speculative decisions about trade-offs.
The situation has been complicated in a new and completely unexpected way with the windfall to consumers of low gasoline prices.
In mid-2008, car owners were paying more than $4 a gallon at the pump. It seemed at the time that there was only one direction to expect for gasoline prices, and that was upward.
But with new sources of domestic oil production through hydraulic fracturing, and the fact that oil-producing countries elsewhere declined to cut back their individual production to tighten supply, the price for a barrel of crude oil began to fall dramatically, from $130 in 2010 to about $30 a barrel now.
Last year, average prices to consumers ranged from $2 to $2.80, according to GasBuddy.com, and in Michigan we are currently paying less than $1.80 per gallon.
While that still exceeds the prices of less than $1 per gallon that some of us remember from childhood, it is still a welcome change for the average American.
For corporate strategists, new vehicle developers, production planners, and others engaged in the business of getting desirable vehicles onto dealer lots, low gas prices are a good news-bad news proposition. Any kind of dramatic change in direction is difficult for large organizations with long lead times to cope with, and the vehicles you expect to sell at $4 per gallon gas are not necessarily ones that will be popular at half that fuel price.
The implications of this shift are visible in reports of industry performance, such as the recent headline in the Wall Street Journal: “New-Car Dealers Plea: More Trucks, Fewer Cars.” At the same time, the prescribed targets and timeline for fuel economy improvement have not changed.
The big question now is whether the regulations will, in fact, be revised to take into consideration the facts on the ground. There is a mechanism to do so, built into the Obama administration’s 2011 agreement with the automakers to pursue tighter fuel economy and greenhouse gas reduction standards.
The midterm evaluation to be conducted by the Environmental Protection Agency (EPA) in coordination with the National Highway Traffic Safety Administration (NHTSA) and the California Air Resources Board (CARB) will determine whether the light-duty vehicle standards for model years 2022 through 2025 are still appropriate, or whether they should be strengthened or softened.
The EPA will look at factors including developments in powertrain technology, lightweighting and vehicle safety impacts, consumer acceptance of fuel efficient technologies, trends in fuel prices and the vehicle fleet, and more. Its Draft Technical Assessment Report containing preliminary findings will be released for public comment in June of this year.
Automotive component suppliers that are particularly eager can track the status and the technical projects that are underway to inform the midterm review. The EPA’s Office of Transportation and Air Quality is committed to a data-driven, transparent approach, so there is a great deal of substantive information on its website.
There are many West Michigan suppliers, such as Shape Corp. and GHSP, who are making structural or functional parts and who have an interest in whether lightweighting will be a sustained initiative. The many companies making stamped steel parts and assemblies, including Pridgeon & Clay and Gill Industries, might be thinking about risks of displacement by plastic at some point once higher-impact measures have been exhausted.
Suppliers already established in the lightweight plastics space have been pitching in for fuel economy improvement. For example, Lacks Enterprises has developed a composite wheel technology that its tests show will increase mpg by 4 percent to 6 percent and improve aerodynamics.
Everyone is watching and waiting, but the likely outcome is that both the commitment to fuel economy and consumer demand for a range of vehicles will march on. The auto industry will just have to make the best of it.