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Odd couple: Detroit & higher fuel standards

After years of fighting off tougher fuel economy standards, even automakers admit tougher rules are coming.

By Chris Isidore, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- Detroit automakers have seen more than their share of losses in recent years but they had one consistent winner they could count on: fighting off tougher fuel economy rules in Congress.

But that's about to change - even the nation's automakers concede that higher fuel economy standards are coming for U.S. cars and trucks.

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"There's some certainty there is going to be some kind of reform," said Wade Newton, a spokesman for the auto industry's main trade group, the Alliance of Automobile Manufacturers. Newton said the change in attitude in Congress is about far more than the Democrats taking control of both houses this year.

"Right now the issues of climate change and energy security are issues for everyone," he said. "And we do support reform as long as it's reasonable."

Record high gasoline prices in May also fed bipartisan calls for tougher standards and an early vote in the Senate could come as soon as this week.

The new rules could cost the automakers billions in development costs, and even some environmentalist concede they won't be the most efficient way to cut the nation's gas and oil consumption.

But despite the legislative outlook, the details of the legislation will determine how big a hit the automakers will take, or whether the changes are ones they can easily live with.

Automakers essentially have been able to keep fuel economy requirements for car models unchanged since model year 1990, while standards for pickups, SUVs and other light trucks have risen just 2 mpg, or 10 percent, since model year 1992.

Bob Schnorbus, chief economist for J.D. Power & Associates, said the automakers realize the political realities have left them little choice but to try to affect any legislation that is passed, rather than try to kill it altogether as they did in past years.

"They realize they don't have too many choices other than to follow suit," he said. "They're going to join the bandwagon, try to have some input. It makes more sense than to be shut out of the debate."

Automakers have long criticized the whole idea that raising fuel economy standards would help cut gas consumption. General Motors (Charts, Fortune 500) Vice Chairman Bob Lutz, for example, has compared raising mileage standards to fighting the nation's obesity problem by forcing clothing manufacturers to sell garments in only small sizes.

The higher gasoline prices of recent years may have done more to change consumers' buying habits than any regulation, as the long-term shift away from car models to light trucks has shifted back in recent years.

Some experts argue that only significantly higher fuel taxes could make a significant drop in gas and oil consumption. But relatively few politicians are willing to argue for that option, and even environmentalists who see the value of higher gas taxes say higher fuel standards are also needed.

"The real issue is there is not adequate choice for (consumers) to buy more fuel-efficient vehicles," said Ann Bordetsky, policy analyst with the National Resources Defense Council. "Fuel economy standards have been a proven method to cut oil consumption."

The acknowledgement by the automakers that tougher rules are on the way hasn't stopped them from trying to influence the debate, and the legislation moving through both houses of Congress. The automakers' group spent more than $1 million recently on radio and print ads in about a dozen states, and is considering expanding the campaign.

One radio spot features a mother saying how she feels her children are safer in a larger car, only to be told by a friend that a proposal in Congress would require automakers to build smaller cars. Another has two farmers talking about how they won't be able to get the pickup truck they need in the future if Congress passes legislation with a single fuel standard for cars and light trucks.

"You think any of those people in Congress know the difference between a truck and a car?" one asks. His buddy answers: "I don't think they even know most folks out here drive a truck."

Newton said the alliance is directing those ads specifically at one Senate bill that would combine car and truck fuel regulations, adding that automakers are not necessarily opposed to some changes in the rules.

The Alliance represents not only General Motors, Ford Motor (Charts, Fortune 500) and DaimlerChrysler's (Charts) Chrysler Group, but also Toyota Motor (Charts), Volkswagen and a number of smaller manufacturers. The traditional Big Three CEOs were on Capitol Hill recently, but found many of their typical allies backing the call for higher fuel economy rules this time around.

Sen. Ted Stevens, Republican from oil-rich Alaska, is one of the co-sponsors of a bill that would combine car and truck fuel requirements and write specific fuel economy into in law, requiring automakers to have an average fuel economy of 35 miles a gallon by 2020, rather leaving the details up to regulators, as the automakers would prefer. While he did voice support for different mileage standards for cars and light trucks, he also had introduced his own version of the bill calling for 40 mpg by 2017.

The rules under debate are the so-called CAFE standards, which stands for corporate average fuel economy. Automakers who sell more of the pickups, SUVs and minivans with lower fuel economy would face fines unless they could boost sales of more fuel efficient car models.

But the automakers hope that even if both car and trucks end up with tougher fuel economy rules, that the split between car and truck averages remains. The current rules call for a 27.5 mpg average for cars and 22.2 mpg for light trucks.

Environmentalists arguing for tougher rules say that even combined standards would allow enough flexibility so that pickup trucks don't have to meet the same standards as economy cars. But they say leaving the specifics of the targets in the hands of regulators, as the automakers prefer, rather than in the legislation would have the effect of leaving the standards unchanged.

"It is up to Congress to take this step," said NRDC's Bordetsky. "You have to make the standards binding or you allow the administration not to do anything. Otherwise the automakers will unleash a full-court press to throw up reasons there can't be any improvement."

Even with tougher requirements, the automakers could find a victory in the legislation if they're able to insert language to prevent individual states from imposing even tougher mileage requirements - something environmentalists vow to fight.

"The automakers know that's a non-starter," said Bordetsky. "The states have fought hard to take some action and solve global warming in absence in federal leadership." Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.