DETROIT (Bloomberg) -- When President Barack Obama proposed new fuel-economy standards today, he set a pace that's more aggressive than the industry has managed in the past four years -- or for any sustained period in the last 100.
With the introduction of cars such as Nissan Motor Co.'s electric Leaf and the proliferation of Toyota Motor Corp.'s hybrid Prius, fuel efficiency has gained almost 2 percent a year on average since 2007, according to U.S. data. To meet Obama's targets, automakers need to improve cars by 5 percent a year and trucks by 3.5 percent most years.
Accelerating the improvements will be possible with lighter vehicles, smaller engines and fuel-saving technologies such as fuel-injectors and turbochargers. Obama's plan is for the average vehicle by 2025 to be rated by the Environmental Protection Agency at 54.5 mpg, a level that translates to about 37 mpg on a window sticker.
"The car companies will have to adopt technology at a faster pace than they would like," said Jeremy Anwyl, chief executive officer of Edmunds.com, a Santa Monica, Calif.-based auto-research website for consumers. "Trucks will get a bit of a break but the standards will still be a stretch."
Obama has pledged to reduce dependence on imported oil by a third, and he said the standards announced today are aimed at helping him attain that goal as well as reducing greenhouse-gas emissions. California, which has the authority to set its own rules that are stronger than federal regulations, is helping write the national fuel-economy standards.
Not George Jetson
"All the companies have the technology to achieve these standards," said Dan Becker, director of the Safe Climate Campaign. "It will require more extensive use of better engines, improved transmissions, high-strength, lightweight materials, better aerodynamics. But it's not going to require cars to turn into George Jetson-type vehicles."
The average fuel economy of new vehicles rose to 29.3 mpg last year from 26.6 mpg in 2007, the U.S. said.
The administration is seeking to more than double the EPA-rated fuel economy of the vehicles sold in the U.S. in less than two decades. Given that the 1908 Model T was estimated to have gotten about 17 mpg, it would be about five times the progress made in the previous century. Some in the industry question whether the increases can be achieved or will be too expensive.
"It's not doable unless there's enough in the fine print that they won't have to get there anyway," said Eric Noble president of The CarLab, an automotive consulting firm in Orange, Calif. "It's not achievable, nor would consumers accept those vehicles."
Automakers may try to weaken the standards during a mid-term review that people familiar with the proposal have said is included, said Becker, who is based in Washington.
"The automakers insisted on a mid-term review," Becker said. "We are concerned that that review will be an opportunity for automakers to lobby to try to end or weaken that program."
The corporate average fuel economy, or CAFE, figure is based on a vehicle's performance in laboratory tests rather than real-world driving conditions, and is typically higher than the window-sticker figure consumers see when shopping. For example, Toyota's 2011 Prius hybrid, with a window sticker of 50 mpg in combined city and highway driving, has a CAFE test rating of 71 mpg, according to the Union of Concerned Scientists, an environmental-advocacy group.
Seven models currently available for sale get 39 mpg or more, about what would be needed to meet the 2025 standard. That's more than twice as many as three years ago, because of new entries, such as Ford Motor Co.'s Fusion hybrid and General Motors Co.'s Chevrolet Volt plug-in hybrid.
While the technologies will add to the price of a new vehicle, the Boston Consulting Group say that the cost could be as low as $2,000 per car. In the past, automakers have opposed CAFE rules even as fuel economy has improved and vehicles became more affordable.
"The new rules won't change how cars behave," said John German, a project manager with the International Council on Clean Transportation, an environmental public-policy group in Washington. "Consumers will have to pay more for vehicles up- front but they will get back the cost in fuel savings."
The new rules will add more cost as automakers offer more technology such as hybrid-electric systems, turbochargers for smaller engines and lightweight materials. They will also shrink engines to boost efficiency.
Analysts, automakers and government officials differ on how much costs will rise to pay for that technology.
The Obama administration estimates that meeting the current 35.5 mpg target by 2016 will cost the industry more than $50 billion. It didn't immediately provide an estimated cost for the 2025 proposal today because of last-minute revisions. The final rule to be proposed in September and completed next summer could still be revised.
Under an earlier proposal that would have raised targets to around 56 mpg by 2025, administration officials estimated the cost at $2,100 to $2,500 per vehicle.
Meeting the 2025 standard will be more costly, automakers say, because it will require the industry to invest in different types of vehicle technologies, such as gas-electric hybrids and plug-in battery-powered vehicles. A spokesman for the National Automobile Dealers Association told The Wall Street Journal that the new standards could cost the industry $150 billion.
The EPA estimates that it will cost about $2,400 a vehicle to improve fuel economy by 5 percent a year from 2017 to 2025.
Boston Consulting Group estimates that it would cost about $2,000 a vehicle to improve fuel economy from a 26 mpg today to 39 mpg by 2020.
The Center for Automotive Research in Ann Arbor, Mich., estimates that it would cost $8,214, including $1,500 in safety upgrades, a vehicle to hit 56 mpg. CAR predicts that the government will have to revise the standards downward because the costs will be too high for consumers, said Jay Baron, the group's president.
The costs should be lower than $8,000 a car because new technologies will get cheaper as automakers spend more time developing them, said Jim Hall, principal of 2953 Analytics Inc., a consulting firm in Birmingham, Mich.
While vehicle prices will increase, it's too early to tell by how much, said Jim Lentz, president of Toyota's U.S. sales unit.
"The million-dollar question is what type of technologies are going to be embraced by the consumer," Lentz said in an interview after Obama's announcement.
"Is the regulation tough? You're damned right it is," Hall said. "You'll get smaller engines and some cars will get lower performance. Costs will go up, but I can't say that they will be more expensive in inflation-adjusted dollars."
Because the proposed rules don't take effect for six years and govern cars sold in the next decade, it's difficult to accurately assess how much more cars could cost, Hall said.
Which estimate is correct will make a big difference for consumers. In five years of ownership, EPA estimates consumers will save $4,710, twice its cost estimate, and CAR sees savings of $4,363, or half of its projected expense.
While vehicles became more efficient over the last four years, their cost relative to wages declined. It took 23.2 weeks of median family household income to earn as much as the average vehicle price in the first quarter of this year, down from 24.7 weeks four years earlier, according to Dallas-based Comerica Bank.
To meet the new fuel rules, carmakers are all looking at smaller engines, said Anwyl, the Edmunds.com CEO. Pickups are already selling in higher volumes with V-6 engines.
In June, Ford sold more F-150 pickups with its turbo-charged V-6 than those with V-8 engines for the first time since the 1980s. Ford is also working on a turbo-charged, three-cylinder engine for its Fiesta subcompact and Focus compact, both of which run on a four-cylinder engine now.