The National Highway Traffic Safety Administration, in a move mainly benefiting General Motors Corp. and Ford Motor Co., tentatively has agreed to reduce the federal fuel economy standard for the 1986 model year. The NHTSA will announce its proposal today, according to federal and auto industry sources.
The NHTSA's action comes nearly three weeks after the Environmental Protection Agency gave GM and Ford extra credits, on a corrected basis, for fuel-economy performance over the last five years.
The EPA credits effectively put GM and Ford in compliance with fuel-economy rules through 1984, but did little to help the companies in model years 1985 and beyond. Reagan administration sources said yesterday that the EPA and NHTSA rulings are separate.
NHTSA today will propose reducing the current Corporate Average Fuel Economy (CAFE) standard from 27.5 miles per gallon to 26 mpg for the upcoming model year. GM and Ford last March asked the agency to lower the standard to 26 mpg for at least three years, beginning with 1986 models. Industry sources said yesterday that one year may be insufficient relief.
GM and Ford say that they need the lower standard to continue meeting strong consumer demand for large, high-performance, less-fuel-efficient cars. Record sales of those cars are bringing big profits. But big-car success also means that GM and Ford are running afoul of CAFE laws -- risking criminal penalties and civil fines totaling hundreds of millions of dollars.
The two auto makers have threatened to curtail large-car production rather than remain outside of the law.
A GM-Ford cutback in large cars could lead to an annual loss of 750,000 new U.S.-made automobiles and an attendant loss of up to 110,000 jobs, the Department of Commerce said in a recent study.
The NHTSA agreed that failure to grant relief to GM and Ford could cause "severe adverse economic consequences," according to a summary of the agency's CAFE proposal obtained by The Washington Post yesterday.
"Based on its independent analysis, NHTSA tentatively concludes that the two largest domestic manufacturers, General Motors Corp. and Ford Motor Co., will not be able to meet the 27.5 mpg standard without severe adverse economic consequences," the agency summary said.
The summary indicated that GM and Ford will have to show cause for being granted CAFE relief beyond the 1986-model year. For example, the agency said that it "anticipates responding to petitions" for reduced standards for model years 1987 and 1988.
Hearings on the 1986 ruling are set for Aug. 8 and 9.
At issue is the efficacy of the 1975 Energy Policy and Conservation Act, passed by Congress as one of several federal responses to acute fuel shortages caused by Arab oil embargoes.Under the law, penalties are calculated at $5 for each tenth of a mile per gallon an auto maker falls below the effective CAFE level. GM is operating at 2.4 mpg below the current standard, and Ford is running at 1.6 mpg under compliance.
Opponents of the law, such as the House Republican task force on regulatory reform, argue that the law unfairly penalizes auto makers for providing a "full line" of vehicles, including large cars. The standards were established at a time when gasoline was expected to cost $2.50 per gallon by now, the Republican task force said in a recent analysis of the law's performance since its implementation in 1978.
"But the CAFE standards appear to make little sense in today's energy and automobile markets," in which gasoline is relatively cheap and where all auto makers have increased the overall fuel efficiency of their new-car fleets, the House Republican group said.
But supporters of stronger CAFE standards, Chrysler Corp. being the most vociferous among them, contend that diluting the standards will encourage fuel consumption and discourage auto makers from putting their best gears forward in increasing fuel efficiency.
Chrysler has spent more than $4 billion since the late 1970s reducing the individual sizes of its cars and improving the overall mileage performance of its new-car fleets.