Indiana manufacturers struggling with fuel economy standards

Automotive manufacturers and their suppliers have had a lot of numbers thrown at them in the past few years.

The White House wants automaker fleets to average 35.5 miles per gallon by 2016 and 54.5 mpg by 2025, improvements that will save Americans $8,000 per vehicle.

And companies that produce heavy-duty vehicles, such as buses and semis, are working for the first time with their own fuel efficiency regulations.

The National Highway Traffic Safety Administration and Environmental Protection Agency issued a final rule in August on the fuel economy and environmental standards. President Barack Obama described the new rigors of Corporate Average Fuel Economy, or CAFE, as “the single most important step we’ve ever taken to reduce our dependence on foreign oil.”

Companies under CAFE’s auspices—either directly or indirectly because their customers are affected—say they’re under pressure to rapidly develop technologies while not gouging customers.

“We know it’s out there and it’s floating around as an issue. We know it’s going to affect the type of technology out there,” said Stephen Spivey, leader of the automotive and transportation program at the research and consultation firm Frost & Sullivan.

“But [automakers] are kind of closed-lipped with it. I think there’s a lot of uncertainty on how these [standards] are going to be met.”

Indiana’s automakers and suppliers are pumping more money into research and development at a time many of their sales departments struggle with a slowing global economy.

Some of the state’s largest companies saw earnings drop in the third quarter, but they maintained or even increased research and development funding.

Columbus-based Cummins Inc., for instance, took a $100 million year-over-year hit to its profit last quarter, but the diesel engine manufacturer boosted R&D spending $22 million.

The slide—although expected to be short—prompted Cummins to lower its 2012 sales forecast 5.3 percent and lay off 1,000 to 1,500 employees, 150 of them in Indiana.

But market demand and government mandates for fuel-efficient technologies that pollute less haven’t gone away.

“The work continues, right?” said Steve Charlton, vice president and chief technical officer for Cummins’ engine business.

“Let’s say [sales] would dip a little. We don’t instantly reduce the project work that’s going on. That’s set to a time line.”

MPG muddiness

Congress enacted CAFE in 1975, two years after the start of the Arab oil embargo.

The recent upgrades to the regulations ended a 20-year streak with little change.

Fuel mileage standards for passenger cars stood at 27.5 mpg between 1990 and 2010. Pickup trucks bumped from 20 to 23.5 mpg over the two decades, according to the National Highway Traffic Safety Administration.

Auto consumer website Edmunds.com cautions that the Obama administration’s calls for corporations to average 35.5 mpg across their fleets and 54.5 mpg by 2025 are misleading.

CAFE bases its mpg standards on a vehicle’s size, specifically the distance the wheels are spaced apart.

A Toyota Corolla would need to achieve 58.4 mpg by 2025 while a Ford F-150 needs only 30.2 mpg, Edmunds said.

A slew of credits and paperwork obfuscation will likely place the entire U.S. passenger vehicle fleet at an actual average of 36 mpg in 2025, the website said.

Monitoring mid- and heavy-duty vehicles—anything more than 8,500 pounds—gets even trickier because rules change based on the vehicles’ classes and how much cargo they carry.

Bulky or better mileage?

Also up for financial debate—automotive companies will have to decide whether to produce more small cars, with higher fuel economy ratings that are easier to hit, or find a way to improve trucks and SUVs, which yield better profits but will need more R&D.

“The problem is, up until now, selling a truck was a much more profitable proposition than selling a car,” said Bill Visnic, senior editor at Edmunds. “And generally, that’s been the formula in the industry. That’s kind of the problem for [motivating] the carmakers to change their behavior. Up until now, people have paid for size and not much else.”

Hybrids and all-electric vehicles aren’t enough of a market force to rely upon both the light-duty and heavy-duty sides of the industry.

Obama visited Indianapolis in April 2011 to tout the fuel-saving hybrid-propulsion technology that Allison Transmission Inc. was developing for transit buses.

But at slightly more than 6 percent of the mid- and heavy-duty vehicle supplier’s sales in the third quarter, the hybrid bus market is far from big enough to serve as the center for an entire R&D strategy.

Allison primarily makes transmissions for vocational vehicles, such as dump trucks, which means durability remains the top customer concern in North America, said Steve Spurlin, Allison’s executive director of global applications, engineering and vehicle integration.

Performance used to be No. 2 on customers’ lists, Spurlin continued, but that changed to fuel economy about five years ago. That has happened while the company has expanded in global markets, such as India, where fuel costs were already the top concern.

So the company faces developing transmissions that are durable, yet yield decent gas mileage and emit few emissions.

“As we think about expanding in places where fuel economy is way more important than it was in North America, our message has got to change,” Spurlin said.

Solutions

Some hybrid cars already hit the 2025 standards. A Toyota Prius can run at about 50 mpg on normal fuel, while paying $10,000 more for the plug-in version nets about 95 mpg when charged properly.

But hybrids’ higher sticker prices and lower sale rates don’t cut it for automakers.

That’s why it is going to take a technological mélange for companies to reach CAFE’s mpg and emissions marks, according to Frost & Sullivan’s Spivey.

He listed three other technological advancements that will likely play major roles in helping companies meet CAFE: turbo boosters, fuel injectors and electronic engine controls.

“I think they can squeeze some incremental improvements out of the technology they have,” he said.

There are also alternative energy sources for the drive trains besides electricity, such as natural gas, he said.

Cummins’ Charlton said one of the big efforts has been to identify where the company’s existing engines were wasting energy, such as heat from exhaust.

“When we’re cruising down I-65 at 60 miles an hour in a big truck, we can extract some of the energy from that and put it back into the engine itself to improve fuel economy,” he said.

While developing a full-fledged hybrid or electric vehicle might not be the best strategy, integrating more electronics will be key to reducing energy consumption.

“We talk about it like it’s one sudden change. It’s obviously an evolution of the power trains and power systems,” said Gary Cameron, director of advanced engineering for the electronic controls business unit at Delphi Electronics & Safety in Kokomo.

“It’s electrification that’s going on, not just jumping all the way into electric vehicles and electric hybrids.”•