Bloomberg News

Toyota Said to Support U.S. Fuel-Economy Plan After Concerns

July 27, 2011

(Adds comment from Honda executive in seventh paragraph.)

July 28 (Bloomberg) -- Toyota Motor Corp. plans to say this week it supports a proposal by President Barack Obama’s administration to boost U.S. mileage standards to 54.5 miles per gallon by 2025 after initially expressing concerns, according to people familiar with the carmaker’s position.

Toyota, based in Toyota City, Japan, and some European carmakers have argued that Ford Motor Co., General Motors Co. and Chrysler Group LLC are gaining an advantage because fuel- economy standards for light trucks will increase more slowly than for cars, said three people, who declined to be identified because the talks aren’t public. Obama is scheduled to make an announcement about the fuel standards on July 29.

The three U.S.-based carmakers agreed to the mileage standard earlier this week, people said.

For the past two decades, Corporate Average Fuel Economy, or CAFE, rules were easier on Japanese carmakers because they already sold smaller, more efficient vehicles and had to make fewer adjustments to meet a corporate fleet average. GM, Ford and Chrysler sold bigger vehicles and had to do more to be in compliance, said Maryann Keller, principal of a self-titled consulting firm in Stamford, Connecticut.

“The Japanese were always the winner on CAFE because the standards allowed them to make more less-efficient vehicles,” said Keller, who served on a National Academy of Sciences panel on fuel economy in 2003. “Now they will have to start really improving the fuel economy of their cars.”

Toyota, Honda

Mike Michels, Toyota’s U.S. vice president for public affairs, declined to comment on the matter.

Honda Motor Co. has worked with the administration on the proposal and supports it, John Mendel, executive vice president of U.S. sales, said in a statement.

“Honda embraces this challenge, which will be good for our customers and for the environment,” Mendel said.

Toyota in 2009 and 2010 recalled more than 8 million vehicles worldwide for defects that may cause unintended acceleration. Toyota and NHTSA later faced criticism at congressional hearings about the timing of the recalls and whether Toyota notified the regulator quickly enough.

Cars Vs. Trucks

Under the proposal, cars must improve fuel economy at least 5 percent a year from 2017 to 2025, while trucks must get 3.5 percent more efficient a year from 2017 to 2021 and 5 percent in the last four years, three people said.

The proposal also has some exceptions that make it easier to sell large pickup trucks with smaller fuel-economy increases than are required for other vehicles, people said. From 2017 to 2019, there will be no increase in pickup-truck fuel-economy mandates, a person said.

GM, based in Detroit; Ford, based in Dearborn, Michigan; and Chrysler, based in Auburn Hills, Michigan, had said they would agree to a deal if the new rules are lenient on fuel- economy improvements for pickup trucks, which are more profitable than cars for them, three people said. Non-U.S. carmakers chiefly sell passenger cars and SUVs in the country.

“If the companies say they can do it, it should be done,” Representative John Dingell, a Michigan Democrat, said in an interview in Washington. Last week, Dingell and other members of the Michigan congressional delegation sent a letter to Obama calling the proposal of 56.2 MPG that was then being debated “overly aggressive and not reasonably feasible.”

Hyundai Motor Co. supports “the efforts of the administration to set strong fuel-efficiency standards,” said Chris Hosford, a spokesman for the Seoul-based automaker.

“These higher standards are good for the country, good for the auto industry and good for consumers,” Hosford said. “They’ll save new car buyers money at the gas pump and reduce the country’s consumption of oil.”

BMW, Daimler

BMW AG and Mercedes-Benz parent Daimler AG have been among dissenters, saying that the leniency on trucks places a greater burden on companies that rely more heavily on passenger car sales, three people said.

Mercedes-Benz’s “current understanding of the proposal raises some concern, and we’re continuing to review it,” Donna Boland, a spokeswoman for the carmaker, said in an e-mail.

Tom Kowaleski, a BMW North America spokesman, declined comment except to say that Transportation Secretary Ray LaHood has spoken with company management and the conversation was “positive.”

No deal has been signed yet.

‘Major Move’

“I think it’s a major move in the right direction,” Representative Sander Levin, a Michigan Democrat, said in an interview in Washington. “I want to see the final, but it’s moving in the right direction.”

Changes to the proposal can be made before the first draft of the rule is published by Sept. 30. The final rule will be published next year and take effect in 2017.

The Environmental Protection Agency and NHTSA are writing the rule with California’s Air Resources Board, which has the authority to write its own air-quality rules if it disagrees with U.S. rules. If California hadn’t agreed to the proposal, it wouldn’t have been offered to automakers, a person briefed on the negotiations said.

A provision in the proposal requires the three agencies to review the rule midway through and adjust it “if appropriate,” said Michael Stanton, chief executive officer of the Association of Global Automakers.

“These are challenging new standards and many important details still need to be worked out as the proposal moves through the federal regulatory process,” Stanton, whose Washington-based group includes Toyota and Honda Motor Co., said today in an e-mailed statement. The association is “pleased” that the agencies have agreed to a midterm review, he said.

Technology Credits

The government proposal includes credits for equipment that can reduce fuel consumption, such as technology that shuts off engines when cars are idling and louvered front grilles that improve aerodynamics, three people said. The administration is considering giving pickup trucks more credit than cars for using the same such technologies, said a person familiar with the discussions.

Pickup trucks need more powerful engines for hauling. Those larger V-8 engines are less fuel efficient and carmakers are concerned that meeting regulations will make it difficult to sell pickups at current volumes.

Toyota, the maker of the Prius hybrid, also sells a large pickup truck, the Tundra, that competes with the Chevrolet Silverado, Ford F-150 and Dodge Ram. The Japanese carmaker had 5.8 percent of the U.S. full-size pickup market through June and 12.8 percent of the overall vehicle market.

--With assistance from Puneet Kollipara in Washington, Alan Ohnsman in Los Angeles and Makiko Kitamura in Tokyo. Editors: Andrea Snyder, Bernard Kohn

To contact the reporters on this story: David Welch in Detroit at dwelch12@bloomberg.net; Angela Greiling Keane in Washington at agreilingkea@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net


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