Big 3 lose with fuel rules, analyst says
WASHINGTON -- A Senate bill to raise fuel economy mandates by 40 percent
would force Detroit's Big Three automakers to dramatically reduce sales
of profitable larger sport utility vehicles and pickup trucks, according
to one Wall Street analyst.
Under the Senate bill, which passed 65-27 last Thursday, fuel economy
mandates would increase to 35 miles per gallon for cars and trucks by
2020. Automakers have said such a mandate would require them to add
costly technology, reduce the size of some vehicles and stop selling
some larger vehicles.
"We estimate the Big Three could meet the 35 mpg standard only by
dramatically reducing sales of large SUVs and pickups by 60 percent,
while improving car fuel economy by about 34 percent and truck fuel
economy by 25 percent," Brian Johnson, an auto analyst with Lehman
Brothers in New York, wrote in a report Monday.
Automakers say the Senate bill, which would be the first passenger car
fuel economy increase in 25 years, would cost them tens of billions of
dollars. DaimlerChrysler AG's Chrysler Group has said it could bankrupt
Environmentalists and others in favor of tougher mileage standards have
argued there would be no need for automakers to downsize vehicles to
meet the requirements.
What isn't disputed is that SUV and pickup truck sales have been the
bread and butter of General Motors Corp., Ford Motor Co. and Chrysler
for years. In 2007, 34 percent of GM sales have been large SUVs and
full-size pickups. At Ford, it's 31 percent, and for Chrysler it's 20
By comparison, large SUV and full-size sales have accounted for just
10.5 percent of Nissan Motor Co. sales so far this year and 8 percent of
Toyota Motor Corp. sales.
One major area of concern for GM and Ford is their reliance on large and
powerful but less efficient engines, Johnson said.
While about 60 percent of Honda Motor Co.'s and Toyota's 2006 production
was four-cylinder engines, only 14 percent of Chrysler and Ford engine
production was four-cylinder and only 21 percent of GM's.
The Alliance of Automobile Manufacturers, a trade group that represents
the Detroit Three and Toyota among others, said the report shows there
are real impacts to a dramatic increase.
"Fuel economy standards need to be increased, but at reasonable levels
so workers around the country do not lose their jobs or pensions or
other benefits," spokeswoman Gloria Bergquist said. "As this reports
shows, the economic threat is real and it is serious."
In May, Standard and Poor's issued a report arguing that tough fuel
economy and vehicle emissions legislation would "pose a real risk to
global automakers' financial performance, particularly as some are
already under pressure from razor-thin margins."
Dingell steps in
With the Senate bill passed, the legislation now moves to the House,
which isn't expected to address raising Corporate Average Fuel Economy
mandates until the fall.
On Wednesday, the House Energy and Commerce committee is expected to
approve a package of six bills to improve fuel efficiency.
U.S. Rep. John Dingell, D-Dearborn, chairman of the committee and an
ally of the auto industry, on Friday called the CEOs of GM, Ford and
Chrysler, along with the United Auto Workers president, to talk about
the fuel economy bill, the Detroit News has learned. He urged the
companies to be more aggressive in emphasizing what they can agree to do
to improve fuel efficiency.
Dingell also held a closed-door meeting with automakers' top Washington
officials late Monday.
House Speaker Nancy Pelosi will have an event Thursday to tout the
Democrats' energy package -- including the six bills from Dingell's
committee -- but she does not plan on including fuel economy as part of