O.K., the Fuel-Economy Bill Is Signed into Law; Now What?

Now that President Bush has signed a bill into law increasing corporate average fuel economy (CAFE) standards from 25 mpg to 35 mpg by 2020, you might think the auto industry could get to work meeting the new requirements.

Not so fast, says Annette Sykora, the incoming chairman of the National Automobile Dealers Assn. and owner (with her husband Patrick) of Smith South Plains Ford Mercury in Slaton, TX, and South Plains Ford Lincoln Mercury Dodge Jeep Chrysler in Levelland, TX.

“It's not like the fight is over,” she says. “We (dealers) have to stay involved.”

The problem is, the bill dictates what the end result is but doesn't say how the industry is to get there.

“The devil is in the details,” John Hawkins, a California dealer and chairman of the American International Automobile Dealers Assn. says.

“We know what we don't know, but we don't know what the answers will be,” says researcher Brett Smith at a seminar for journalists on the eve of the North American International Auto Show.

Smith, who is an assistant director, manufacturing, engineering and technology at the Center for Automotive Research, thinks it may be a while before the industry has a firm grasp on how the new CAFE standards will affect model lineups in the future.

The National Highway Traffic Safety Administration (NHTSA) is responsible for setting the standards and determining how they will be met. Meanwhile, the Environmental Protection Agency (EPA) handles the actual calculations for auto makers.

Some experts doubt NHTSA will do anything before the presidential election. A new president likely means a new NHTSA director. So any work done this year probably would be tossed aside when the new director assumes control.

Still auto makers are moving forward developing new power-train technologies that will put them in a better position to meet the new standards.

Product planning is the issue, though. And this is where dealers need to step up and be involved, Sykora says.

The fear is that NHTSA's guidelines, and not what customers are buying, could end up determining which vehicles will be built and sold.

“We interface with consumers and have insight into what they will buy,” Sykora says. “And that needs to be part of the decision process.”

As auto makers develop new technologies, they need to be aware of what consumers are willing to pay for.

“This stuff doesn't come free,” Smith says. “The question for auto makers is ‘What are people willing to pay?”

For example, despite the success of Toyota's Prius hybrid — which Smith calls a “cult” vehicle — hybrids generally are not a hit with customers.

According to Mike Jackson, chairman and CEO of AutoNation Inc., 70% of the public dealer group's customers want to talk about hybrids, until they get to the price. Hybrid technology can add as much as $5,000 to the price of a vehicle. The result: the group's closing rate on hybrid sales is a measly 2%.

Another example of how consumer demand — or the lack of it — can affect how a vehicle is brought to market is the Nissan Altima. A hybrid version is offered only in the eight states with the most stringent fuel emission standards.

The Altima example raises another critical issue — and that is, what will the states do?

A recent law in California, being challenged in the U.S. Supreme Court by the EPA, requires a 30% reduction in carbon-dioxide emissions by 2016, but starts to go into effect in 2009.

Several other states are close to passing similar laws. The state level is where the real fight is going to happen, and according to Sykora, dealers need to get to work now lobbying their state officials.

A law such as California's likely will do significant damage to dealers' profitability. The law will end up forcing customers to buy small, compact cars. Anything larger will carry a price tag far beyond most customers' wallets.

This could get real ugly — real quick.

The threat to dealers is so great, the issue is the first one Sykora mentions during an interview with Ward's at the auto show in Detroit. It will be a main theme during her NADA chairmanship.

So what are you waiting for? Get on the phone with your state officials and start lobbying. You also might want to start a campaign to educate your market about the dangers of such laws.