According to WSJ article Fuel Rules May Aid GM, Ford: Overhaul Could Ease Burden On Makers of Big Pickups and SUVs (subscription required) the Bush administration is considering changing the rules to assist GM and Ford.
Current rules punish companies that rely heavily on sales of the biggest pickup trucks and sport-utility vehicles -- a category that is dominated by GM, with its Yukon and Tahoe SUVs, and Ford, which sells more than 900,000 of its F-Series pickups a year. These companies are forced to sell smaller trucks at smaller profit margins, or even a loss, to make sure they sell enough of the more fuel-efficient vehicles to bring their fleetwide averages up to the government's 21-mile-per-gallon requirement.
The government now calculates auto makers' performance by averaging their entire fleets' gas mileage. A complex rewriting of the rules, expected for release by Labor Day, seems likely to change that.
Under the proposed new regime, light trucks -- a category that includes pickups, SUVs and minivans -- would be judged against other trucks of similar size, though not by weight, according to auto industry and environmental lobbyists. Smaller vehicles would be required to meet higher mileage targets than larger ones. This shift would help domestic auto makers, while causing problems for Toyota, which has had an easier time meeting the current standards.
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Important aspects of the overhaul aren't clear and could be changed. The administration could set a relatively high mileage standard for the biggest gas guzzlers, which would thrill environmentalists but hurt U.S. auto makers. It could also tighten the definition of a "light truck," now so vague that the PT Cruiser qualifies. And it could close a loophole that exempts any truck more than 8,500 pounds -- such as the Hummer H2 -- from fuel-efficiency regulation. When the original rules were written, nobody anticipated a truck that large would be used to pick up groceries. (A separate mileage standard for cars isn't under review.)
This move will help the GM and Ford in the short-run. But the reality is that with higher prices the demand for these monsters will lessen, especially if the economy weakens as many expect. If current oil prices of about $60 per barrel are sustainable, I expect we will see a shift away from SUVs and Hummers to more economical vehicles. I just typed environmental, Hummer into Google's search engine and got 180,000 hits. This is an example of the public focus on the gas guzzlers. So although GM and Ford may be helped in the short-run, to solve their longer-term problems will require much more than a simple fiddling with a few regulations.
I continue to remain short GM shares.
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