Fuel rules spur hybrids, auto engine efficiency

WASHINGTON/NEW YORK (Reuters) - Industry will build cleaner-burning diesel cars, plug-in hybrids and more efficient gasoline engines to achieve the 42 percent increase in fuel efficiency mandated by the U.S. government for 2016.

The initiative mandated by Congress and toughened by the Obama administration over the past year represents the first meaningful increase in fuel mileage targets since their introduction in the 1970s. It also will be the first federal effort to regulate tailpipe emissions.

New standards drafted by the Environmental Protection Agency (EPA) and the Transportation Department to be unveiled in Washington on Thursday will be phased in starting with the 2012 model year.

They will raise fuel economy gradually each year to a fleet average 35.5 miles per gallon for 2016 models. That is up 42 percent from the current 25 mpg.

Higher mileage requirements aim to reduce U.S. greenhouse gas emissions by 900 million metric tons and save 1.8 billion barrels of oil over the life of vehicles built through 2016.

That is equivalent to taking 58 million cars off the road for a year, President Barack Obama said on Tuesday in an address on energy policy initiatives that include higher fuel mileage goals and plans to expand U.S. offshore oil and gas drilling.

"Overall, this is a huge step forward. It's the biggest thing this government has done to reduce consumption of oil and curb global warming pollution," said Ann Mesnikoff, transportation expert at the Sierra Club.

Brian Carolin, senior sales and marketing vice president for the North American unit of Nissan Motor Co, said the new rules present each company with challenges.

"All of these regulations are tough," Carolin told Reuters in an interview at the New York auto show. "Ford has their own road map to get there. We will have our own unique solution."

Industry insiders say U.S. and overseas carmakers have to pull all their levers to meet the new Obama fuel standards, which for each company is an average of their fleet performance.

Consumers already have choices that come close, meet or exceed the 2016 standard, mainly from the gasoline-electric hybrid designs.

The 2010 Prius hybrid sedan made by Toyota Motor Corp averages 51 mpg in city driving and 48 mpg on the highway, according to EPA. The Ford Motor Co Fusion hybrid gets 41/36 mpg and the Honda Motor Co Civic hybrid achieves 40/45 mpg.

All electric cars or those designed to run predominantly in electric mode are also part of the mix. Nissan plans to launch the Leaf in December and General Motors Co is getting ready to roll out the Volt.

But the hybrid and electric U.S. sales markets are narrow now, and their future mass appeal is not known even with gasoline prices projected to top $3 per gallon this summer.

Karl Brauer, editor in chief at automotive researcher Edmunds.com, said consumer demands to save money at the pump is embedded in manufacturer product planning. Automakers are focused very hard on improving conventional engines and transmission systems to realize noticeable gains.

"I don't think there is one of them that hasn't made strides," Brauer said. "Things that were exotic technology five or 10 years ago are now mainstream."

For instance, manufacturers are making smaller engines more powerful, fuel delivery systems are advancing, and transmissions include added gearing to improve efficiency.

Suppliers have a large role in driving change with new component designs.

Volkswagen and Germany's BMW AG, the world's largest maker of luxury vehicles, are aggressively trying to popularize clean diesel technology in the United States as a gasoline alternative.

In highway driving, the Ford Focus gets 35 mpg and the Chevy Malibu, 33 mpg. The Volkswagen Jetta tops out at 42 mpg.

A challenge for carmakers is to deliver the changes at costs that do not drive away consumers. Generous state and federal tax credits worth thousands of dollars for car owners will help push hybrid and electric car sales.

Production changes related to the new government fuel and emissions goals are expected to add an estimated $1,300 to the price of a car, on average.

"We will need consumers to buy lots of these high mileage cars to meet the standards," said Gloria Bergquist, a spokeswoman for the trade group representing GM, Ford and other carmakers, the Alliance of Automobile Manufacturers.

"We have to use every tool that we have. There is no single technology that is going to get us there," Bergquist said.

(Additional reporting by Deepa Seetharaman in New York and Tom Doggett in Washington; Editing by David Gregorio)