Pickup, SUV Revival Stalls U.S. Auto Fuel-Economy Progress

Source: By Jeff Plungis and John Lippert, Bloomberg • Posted: Friday, December 18, 2015

Americans have flocked back to pickups and SUVs as gasoline prices have fallen and that’s slowing U.S. automakers’ progress on fuel economy targets, according to new data released by the U.S. Environmental Protection Agency.

The U.S. fleet of passenger cars and light trucks averaged 24.3 miles per gallon in 2014, showing no increase from the 2013 model year, according to revised EPA figures released Wednesday. The previous year saw a 0.7 mpg jump in fuel economy.

Automakers are widely using pollution credits to meet regulatory requirements on fuel efficiency despite efforts to sell hybrid and electric cars and improve technology for gas-powered engines, two reports released by the EPA Wednesday found. Pollution credits can be used to avoid penalties if automakers fail to meet the fuel efficiency standards.

Automakers can gain credits by selling optional flexible-fuel vehicles, which can run on either gasoline or ethanol, by using certain air-conditioning technology or they can buy credits from other car manufacturers.

“While the auto industry may crow that it is technically in compliance, the bottom line is that automakers are no longer improving mileage and emissions,” said Dan Becker, director of the Safe Climate Campaign, a Washington environmental group. “The auto industry is exploiting the program’s loopholes to boost gas-guzzler production and thwart the rules.”

Minimum Targets

Still, the industry continues to exceed the minimum targets established by the EPA and the National Highway Traffic Safety Administration to help reduce greenhouse gas emissions. Automakers are using better engine technologies to deliver both more engine power and more efficiency, the EPA said.

“For the third year in a row, manufacturers have exceeded the GHG emissions standards by a wide margin,” Christopher Grundler, EPA’s director of the Office of Air Quality and Transportation, said in a statement. “It’s clear that our standards are working, spurring technology and innovation, and we are on track to achieve significant greenhouse gas reductions.”

In the last 10 years, fuel economy has improved by 5 mpg, or 26 percent, according to the EPA. Beginning in 2017, automakers will have to meet a tougher set of standards requiring even more engine and vehicle improvements through 2025.

Extra Credits

The EPA data shows that automakers are garnering additional pollution credits from meeting targets early and introducing advanced technologies. Eleven of the 13 largest automakers used banked credits to meet their regulatory requirements in 2014.

In the past five years, Honda Motor Co., Nissan Motor Co. and Toyota Motor Corp. and Tesla Motors Inc. sold credits to other automakers. Fiat Chrysler Automobiles NV and Daimler AG and Ferrari NV bought credits. In each of the last two years, FCA has bought more than 1 million credits from Tesla, the EPA said.

Credits shouldn’t be considered loopholes, EPA spokeswoman Laura Allen said. Credits are given for meaningful greenhouse-gas reductions and provide flexibility for the industry, making for stronger standards and leading to larger emissions reductions, she said. The industry is about one year ahead of where it needs to be to comply with the regulations, she said.

All-Time High

“Every vehicle type, from cars to trucks, SUVs to pickups, improved in model year 2014,” Allen said. “Automakers are continuing to add technology to improve all types of new vehicles, and we are exactly where we projected we would be.”

The EPA revised its calculated fleet average for the 2013 model year, from 24.1 mpg when first reported last December to 24.3 mpg. Even without an increase in 2014, the fleet average is at an all-time high, the agency said.

Nearly three-fifths, or 59.8 percent, of new vehicles purchased in the U.S. were light trucks in August, compared with 40.2 percent cars. That’s the widest gap in preference for trucks in 10 years, according to Bloomberg Intelligence.

The trend is benefiting the domestic automakers: Fiat Chrysler, Ford Motor Co. and General Motors Co. The three companies with operations in Detroit generated 75 percent of their combined volume for trucks, the highest ever according to BI.

Truck Revival

“Without concern about gasoline prices, consumers are choosing to buy light trucks over cars,” analysts Kevin Tynan and Tanner Murphy wrote in a Dec. 7 note.

Automakers have questioned whether they can achieve the required fleetwide averages of 54.5 mpg by 2025. The industry backed the standard, negotiated with President Barack Obama’s administration, after it won a pledge to review progress halfway through the eight-year program and possibly adjust the mandate.

While the EPA report is showing progress across the fleet, and automakers are deploying more technology to improve fuel economy and reduce emissions, keeping up the pace “will be challenging,” Scott Hall, a spokesman for the Alliance of Automobile Manufacturers, said in an e-mailed statement.

“Our compliance is based on sales, not what we put on showroom floors,” Hall said. “Consumer purchases of fuel-efficient vehicles still go up and down with the price of gasoline, and sales of our most energy-efficient vehicles will need to rise to meet future standards.”

Mid-Term Review

That mid-term review could change fuel-economy targets for the years 2021 through 2025. Because of the long lead time manufacturers need to make changes in car designs, that review will begin in 2016.

The EPA report shows the current standards are well designed, and there are improvements even with the consumer shift to light trucks, said Luke Tonachel, director of the Natural Resources Defense Council clean vehicles and fuels project. While the fleet average was flat, light truck fuel economy was at an all-time high of 20.4 mpg, he said.

“Consumers are collectively saving billions of dollars at the pump and carbon pollution is being reduced,” Tonachel said. “Clean vehicle standards have put us on a pathway to a cleaner, less oil-dependent future.”

Previous EPA reports have credited technologies used to improve gasoline-powered engines, such as direct-injected and turbocharged engines, and more efficient transmissions for improvements in fuel economy. Automakers have also used engineering to improve horsepower, which has more than doubled in the last three decades.

Fiat Last

Among the large manufacturers the EPA ranked for fuel economy, Mazda Motor Corp. was the highest with an average of 29.4 mpg in 2014. Fiat Chrysler, for the fourth year in a row, was at the bottom with 20.8 mpg.

Fiat Chrysler strongly supports a comprehensive national program to limit greenhouse-gas emissions, the company said in a statement on its website today. FCA remains in full compliance, it said.

“We have made significant strides — often exceeding industry averages — in improving the performance of those types of vehicles most preferred by our customers,” the company said. “We continue to invest in relevant and effective technologies.”

The EPA calculations on fleetwide fuel-economy averages are based in part on automakers’ preliminary sales forecasts. They’re projecting an overall average of 24.7 mpg in 2015.