New fuel economy standards could mean more money for deferred maintenance

After months of heated debate, lawmakers on Capitol Hill have reached an agreement that will save the nation's approximately 237 million drivers some serious cash at the pump. The bi-partisan accord, which was brokered last week, will also boost the fuel economy standards of the nation’s cars and light-duty trucks for the first time in 30 years.

"This landmark energy legislation will offer the automobile industry the certainty it needs, while offering flexibility to automakers and ensuring we keep American manufacturing jobs and continued domestic production of smaller vehicles," House Speaker Nancy Pelosi, D-Calif., said in a public statement.

The proposed bill will raise mileage standards to 35 miles per gallon by 2020 and would require automakers to maintain a minimum fleetwide mileage average, although that minimum has not yet been decided. In addition, the bill differentiates between acceptable fuel economy standards for cars and light duty trucks, which include SUVs.

Raising mileage standards is projected to eventually save consumers money on fuel, which Jonathan Carey, an investment banker with BB&T Capital Markets, calls a win-win situation.

"We think that consumers have in mind a budget of what they want to spend on their cars, and when more and more of that budget is taken up by fuel costs, they will continue to delay required maintenance on their vehicles," he says. "Assuming gas prices remain where they are, better fuel economy will free up money for consumers to spend on some of the deferred maintenance that's built up over the last few years."

And if the bill passes, BB&T's Carey predicts another upside — shops will begin to see more money come rolling in.

"If fuel economy standards are tougher, that will free up some budget dollars for consumers to spend on deferred maintenance. Bottom line, I think it's a win for the shops to have consumers able to spend more money on maintenance. And it will be good for the economy as a whole, too."

While Detroit automakers have successfully fought previous attempts to increase fuel economy standards, the pressure from lawmakers and activist groups has caused them to change their tune in recent years. Now, they are lending their support to the proposed bill.

"We believe this tough, national fuel economy bill will be good for both consumers and energy security," says Wade Newton, a spokesman for the Auto Alliance, when questioned about the bill by members of the Aftermarket Business staff. "We support its passage."

Newton continues: "What we like is that the bill has two separate standards for cars and light trucks. That us essential for the automakers, and will allow them to keep manufacturing a wide variety of automobiles."

Rick Wagoner, chairman and CEO of General Motors, commented on the proposed bill in a prepared statement to the media. "There are tough, new CAFÉ standards contained in the energy bill before Congress that pose a significant technical and economic challenge to the industry," he says. "But, it's a challenge and GM is prepared to put forth its best effort to meet with an array of engineering, research and development resources."

In fact, GM — like other progressive automakers — has a long history of green innovations. During the past 30 years, GM has doubled the fuel economy for all of its passenger cars and increased fleet fuel economy by 60 percent for all light trucks. In addition, the company is planning to release its new front-wheel-drive, two-mode hybrid system in the Saturn Vue Green Line SUV in early 2008. This hybrid technology is expected to deliver up to a 45 percent improvement in combined city and highway fuel economy compared with the non-hybrid version of the Vue. GM also plans to introduce this system in the Chevrolet Tahoe and GMC Yukon full-size SUVs.

Toyota, which issued a statement in support of the proposed bill, is also taking independent strides to green its product line and has pledged a 40 percent increase in fuel economy by 2022.

"We commend congressional leaders for their diligence in hammering out a difficult deal on fuel economy," says Jim Lentz, president of Toyota Motor Sales, USA, Inc. "We have long said that we want a bill this year, and now the Congress appears poised to deliver. This bill will challenge all automakers to achieve dramatic fuel economy increases and represents a major step in the right direction."

Many of the automakers who once objected to the concept of tougher fuel economy standards have been placated by this new proposal, which will give them room to maneuver. For example, not every automaker will have to meet the 35 m.p.g. industry-wide goal, and some may even have a lower target number. The rules would also allow automakers credits for renewable fuels and a new ability to trade gains in one class of vehicle for shortfalls in the other — something the current rules don't allow. Automakers can keep their credits for five years, and borrow against credits they expect to earn up to three years in the future. In addition, the energy bill requires motor fuel refineries to use increasing amounts of corn-based ethanol and, starting in 2013, increasing amounts of advanced biofuels using other feedstocks.

Rep. John D. Dingell, D-Mich., the auto industry's key congressional ally, has expressed his approval of the bill. He recently issued a statement voicing his support, saying that he finds the prescribed "standards both aggressive and attainable" while still "providing incentives to preserve approximately 17,000 domestic assembly plant jobs."

And although the proposed bill represents a split decision among environmentalists and automakers, lawmakers and industry watchers alike agree that it is a fair compromise for all involved.

"We are hopeful that the bill passes," Newton says. "If this legislation passes, Congress will have established aggressive, nationwide fuel economy requirements, concluding a longstanding debate."