A 35 mpg future for your car

Car buyers' needs won't change but car companies will have to get more creative at meeting them.

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By Peter Valdes-Dapena, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- An energy bill that requires the average fuel economy of all the nation's cars and trucks to be 35 miles per gallon by 2020 sounds sweeping, but don't look for any immediate big changes in the kinds of vehicles sold in this country.

On the face of it, 35 mpg may sound like a huge leap. It would be the first major increase in fuel-economy standards in more than 30 years, and there are only a couple of mass-market cars - the Toyota Prius and Honda Civic Hybrid - that actually get Environmental Protection Agency-estimated fuel economy better than 35 mpg in combined city and highway driving.

Current rules require cars to get an overall average of at least 27.5 mpg and trucks to average at least 22.5 mpg. In both cases, the actual average of all such vehicles exceeds those numbers, said Charles Territo of the Alliance of Automobile Manufacturers, an industry trade group.

But there are several important points to remember about these new rules. They're very complicated. Manufacturers say they provide needed flexibility, though.

Here's a simplified run-down of the main points:

Higher numbers

When talking about fuel economy rules, we aren't talking about EPA estimated fuel economy. The Corporate Average Fuel Economy (CAFE) rules are administered by the National Highway Traffic Safety Administration (NHTSA) not the EPA and the CAFE program works with a different set of fuel economy figures. The fuel economy figures used for judging CAFE compliance are at least 25 percent higher than the EPA figures the public sees, according to EPA documents.

Different companies, different numbers

Under these new rules we're talking about, 35 mpg would be the average for all vehicles produced by all manufacturers. Individual fuel economy goals for each car company would by set by NHTSA in such a way that the all the the vehicles sold by all manufacturers will average out to 35 mpg.

A simplified example: One car maker could have a NHTSA-required target of 31 mpg. Another car maker might have 36 mpg, and another would have 38. Average the three together, and you get 35 mpg.

The first goals will be set in 2011 and goals will gradually become more stringent, as needed, until the 2020 goal is met. By 2020 some manufacturers will have goals that exceed 35 mpg, others will have lower goals.

Different vehicles, different numbers

As the proposed rules are currently written, manufacturers' fleets are still divided into cars and light trucks. Each company will be assigned a separate goal for its cars and for its trucks.

Credit spending

Under the new rules, Territo explained, a manufacturer that exceeds its assigned mpg goal for either cars or trucks gets credits that can be applied to the other goal, if needed.

Or the company can save those credits in case it falls short of a goal any time in the following five years. Credits can also be used to wipe out a missed target in any of the three prior years.

And, for the time being at least, car companies will still get fuel economy credits for making vehicles that can burn ethanol or biodiesel blends instead of just gasoline.

Under the proposed rules, those credits will be phased out before 2020 but in the meantime, you could expect to see many more "Flex Fuel" vehicles produced.

No cakewalk

Even though these rules might not be quite as stringent as you would have thought, meeting these requirements won't be easy. General Motors (GM, Fortune 500) executives have said they will have to completely rethink their future product plans if these rules are enacted.

But there are several steps car companies can take in the short term to meet new fuel economy rules as they become gradually more strict. (And they will come stricter for all car companies. Nobody gets to stand still.) The challenge will be meeting consumer and government demands at the same time.

"It's not actually a problem of available technology, but technology that the customer will be willing to pay for," said Sandy Stojkovski of Ricardo, Inc., an auto-parts supplier specializing in fuel-economy technology.

In the near term, diesel engines, which get much better fuel economy than gasoline engines, will probably play a large part. The challenge is getting consumers to accept that the modern diesel really is much better than the clanky, coughing, belching beast of the 1980s, the last time they were widely sold here in passenger vehicles.

Other solutions will be mild hybrids that do less to save fuel than full hybrids, but that also cost much less to produce and have smaller battery packs.

Another technology that many car companies are working on, but that still needs more research, is homogenous charge compression ignition, or HCCI. HCCI burns gasoline using compression rather than a spark. It's almost the way diesel engines burn diesel fuel.

HCCI promises diesel-like fuel economy but, since gasoline burns more cleanly than diesel, it doesn't require diesel's expensive exhaust treatment.

Plugging in

Consumer-ready plug-in hybrids are probably 10 years away, said Ford Motor Co. (F, Fortune 500) spokeswoman Kristen Kinley. But that would make them available in time for the 2020 deadline.

Considering that plug-in hybrids can run on pure electricity for up to 40 miles, their calculated fuel economy depends very much on how far you drive them.

If you measure fuel economy after 30 miles of driving, it would literally infinite. No fuel at all would have been used by that point. If you measure it at 60 miles it could still be hundreds of miles per gallon.

A few vehicles that get hundreds of miles per gallon could go a long way to improving a company's fuel economy average.

In the end, fuel economy really will increase dramatically but don't expect that we'll all be driving Priuses. Car buyers will still demand a variety of vehicles of all sizes and car companies will have to work within these rules to provide them. To top of page

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.