Why Detroit May Swallow Some Bitter CAFE

Even with Bush in power, the Big Three are now hardly in a position to fight calls for higher standards in corporate average fuel economy

By Lorraine Woellert

For more than two decades, federal regulators have forced auto companies to build cars that squeeze more miles out of a gallon of gas. The result is autos that on average now get twice the mileage that they did in 1975, while light trucks are getting 50% better.

In 1994, things changed. A boom in demand for gas-guzzling sport-utility vehicles, vans, and pickup trucks led the new Clinton White House to propose a hefty 40% increase in the required corporate average fuel economy (CAFE) for light trucks. Detroit appealed to Congress, which blocked the tough Clinton plan by prohibiting the Transportation Dept. from spending any money to develop stricter regulations.


  Now, even though a new, auto-friendly Administration is in the White House, a CAFE increase is all but certain. Lawmakers and lobbyists have given up on trying to block tougher rules. Instead, they're working to make any new standards as painless as possible through slow phase-ins of consumer tax credits for buying high-mileage cars.

What happened? The auto industry and its congressional allies may have overplayed their hand. For six years, congressional Democrats would introduce legislation to increase fuel economy, then Republican lawmakers would routinely add a CAFE freeze to annual spending bills. It became an annual ritual. The bills, favored by environmentalists, never went far, but they had the intended effect of making Detroit look intractable. And they put auto industry's allies into a voting pattern that could be used to label them enemies of the environment.

This year, with the brouhaha over global warming and California's rolling blackouts focusing consumer attention on energy use, the negative public relations of a CAFE vote loomed as particularly bad for Detroit. So, in mid-June when House Majority Whip Tom Delay (R-Tex.) asked auto makers if they wanted the usual fuel-economy freeze added to the Transportation Dept. spending bill, the Big Three declined. "We weren't seeking it because quite honestly we thought we'd be confronted with another floor vote," says a high-level auto industry lobbyist.


  Instead, Detroit figured it would take its chances with Bush and White House Chief of Staff Andy Card, a former top lobbyist for the Big Three. Unlike Clinton, the Bushies seemed sure to come up with fuel economy regulations that Detroit can live with. And there was an added plus for Bush, whose ballyhooed energy plan had flopped with the public and whose poll ratings were sinking: Tougher fuel-economy rules could help the White House polish its tarnished image.

This being Washington, however, things aren't working out quite as neatly as Detroit had planned. The auto lobby's seemingly laissez faire attitude toward fuel economy has given momentum to congressional bills that would mandate big increases in fuel economy. Some Republicans fret that they'll have to vote for a CAFE jolt or be painted as anti-environmental in next year's congressional elections.

Nearly 120 House members, including 21 Republicans, have signed a letter urging the White House to adopt tougher CAFE standards for the light trucks, minivans, and SUVs that account for half of all vehicles on the road. Even House Energy & Commerce Committee Chairman Billy Tauzin (R-La.) has said any energy package will have to look at reducing fuel consumption.


  Both houses of Congress are in on the action. A bill from Senator Dianne Feinstein (D-Calif.) has some 50 votes lined up, and its sponsors predict the energy crunch will stop opponents from mounting a filibuster. In the House, Representative Michael J. Rogers (R-Mich.) complains that Detroit has committed a "colossal error" in lifting its opposition to a freeze on CAFE standards. The decision, he says, could end up costing his auto-industry-reliant district billions of dollars and hundreds of jobs.

Nixing the freeze "sent a horrible message through the halls of Congress that the car companies don't think CAFE is all that bad," Rogers says. "It puts a guy like me in a very tough spot." DeLay spokeswoman Emily Miller is more blunt: "The industry shot itself in the foot."

Perhaps that's too harsh, given the rising public backlash against higher fuel prices. Still, top auto executives are now meeting with lawmakers to make the case for reasonable CAFE increases and to devise a way to fend off onerous legislation. One potential argument: A massive hike in fuel economy for light trucks won't have the intended conservation effect because Japanese carmakers, unlike the Big Three, having been banking CAFE credits.

That means even with new rules, the Japanese will have leeway, for a few years at least, to keep producing gas guzzlers. That would be even worse. "When Ford, Chrysler, and GM take their light trucks out of production, we're not going to have fewer SUVs and minivans on the market," Rogers says, "We're going to have more Japanese minivans." And if that scenario plays out, Detroit may have no one to blame but itself.

Woellert covers Congress from BusinessWeek's Washington bureau

Edited by Thane Peterson

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