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Light Truck Average Fuel Economy Standards; Model Years 1996-1997

American Government Special Collections Reference Desk

American Government Topics:  National Highway Traffic Safety Administration

Light Truck Average Fuel Economy Standards; Model Years 1996-1997

Barry Felrice
Federal Register
December 28, 1994

[Federal Register: December 28, 1994]



National Highway Traffic Safety Administration

49 CFR Part 533

[Docket No. 91-50; Notice 5]
RIN 2127-AE42

Light Truck Average Fuel Economy Standards; Model Years 1996-1997

AGENCY: National Highway Traffic Safety Administration (NHTSA).

ACTION: Denial of petition for reconsideration.


SUMMARY: On April 6, 1994, NHTSA issued a final rule establishing the 
corporate average fuel economy (CAFE) standard for light trucks 
manufactured in model years (MY) 1996-97. That rule also discontinued 
NHTSA's practice of separating domestic manufacturers' light trucks 
into two fleets, domestic and ``captive import,'' and requiring each 
fleet to meet the CAFE standards. The United Auto Workers Union (UAW) 
petitioned the agency to reinstate that practice.
    NHTSA has decided to deny the petition. The distinction between 
domestic and captive import fleets was not statutorily required and the 
agency believes that it is no longer relevant. Discontinuation of the 
practice has no impact on current actions by the domestic vehicle 
manufacturers since none of them supplement their sales of domestic 
light trucks through the sale of imported trucks, nor, given prevailing 
market conditions, are they likely to do so in the foreseeable future.

SUPPLEMENTARY INFORMATION: On April 6, 1994 (59 FR 16312), NHTSA issued 
a final rule establishing CAFE standards for MY 1996-1997 light trucks. 
The final rule terminated the agency's prior practice of dividing the 
fleet of each domestic light truck manufacturer into two fleets and 
requiring each to comply separately with the light truck CAFE 
standards. One fleet consisted of domestically manufactured trucks and 
the other of captive import trucks. Captive imports are trucks which 
are not manufactured domestically, but are imported by a manufacturer 
whose principal place of business is the U.S. (49 CFR 533.4).
    The agency's first light truck fuel economy standard, which applied 
to MY 1979, did not separate the fleets of domestic manufacturers into 
domestic and captive import segments in calculating their CAFE values. 
Beginning in MY 1980, however, the agency required domestic 
manufacturers to separate their light truck fleets and meet the CAFE 
standards for both their domestic and captive import fleets. As 
described in the preamble to the final rule for MY 1980 (43 FR 11996), 
the purpose of the distinction was to ensure that the CAFE standards 
did not create an incentive for domestic manufacturers to increase the 
importation of high-mileage compact light trucks in order to increase 
their overall CAFE values.
    The final rule for MYs 1996-97 returned to the original practice of 
calculating light truck CAFE values and determining compliance for 
domestic manufacturers without regard to whether the trucks are of 
domestic manufacture or are captive imports. In eliminating the 
distinction, NHTSA noted that the captive import segment of the 
domestic light truck market had decreased from 14.7 percent to less 
than 0.5 percent between MY 1980 and MY 1992. Many factors have 
contributed to this decrease. The agency believes that the combination 
of the significant rise in value of the yen, higher Japanese labor 
costs and the tariff on many imported light trucks has been 
particularly important. General Motors (GM) discontinued the use of 
captive imports after MY 1982. Ford's importation of captive imports 
became negligible after MY 1982 and ended entirely after MY 1987. For 
MY 1993, Chrysler sold only 6,000 imported light trucks (all 
manufactured in Japan by Mitsubishi). Chrysler has now discontinued 
this practice, entirely eliminating the captive import sector of the 
domestic light truck market.
    On May 10, 1994, the UAW filed a petition seeking reconsideration 
of the agency's decision to eliminate the distinction between domestic 
and captive import light truck fleets. The UAW argued that requiring 
the two fleets to separately meet the CAFE standards helped prevent the 
loss of domestic jobs from increased use of captive imports. The union 
did acknowledge that the current use of captive import light trucks is 
``minimal''--it is, in fact, zero--but claimed that elimination of the 
distinction could combine with other economic factors to encourage 
renewal of the use of captive imports. The UAW's specific arguments, as 
well as NHTSA's responses, are set out in more detail below.

The UAW's Arguments

    The UAW objected to the combination of domestic and captive import 
light truck fleets, claiming that allowing the averaging of CAFE values 
``could result in the resumption of captive imports at the expense of 
U.S. production and employment.'' The union noted its belief that the 
separation of the fleets, beginning in MY 1980, has helped to prevent 
domestic manufacturers from outsourcing light truck production as a 
means of improving fleet-wide fuel efficiency.
    While the UAW acknowledged that domestic manufacturers are not 
currently importing light trucks, it noted that the practice was 
prevalent in the past and may return in the future. The union pointed 
to national and international politics and economics, citing drastic 
changes in oil supplies, the gradual movement of exchange rates and the 
evolution of new technology, and argued that they had a broad impact on 
the performance of the automotive industry during the past two decades. 
The UAW asserted that the future cannot be predicted well enough to be 
sure that these influences will not again create incentives for 
domestic companies to resume the use of captive imports as a means of 
meeting a unified light truck CAFE standard.
    The union noted that domestic auto workers have experienced 
``tremendous job loss and dislocation since the late 1970s.'' Claiming 
a 22 percent job loss in automobile and parts manufacturing since 1978, 
the union foresees further job loss from continuing competitive 
pressures generated by imports, transplants (vehicles produced in the 
U.S. by manufacturers whose principal place of business is not in the 
U.S.), outsourcing and productivity gains. The union concluded by 
asserting that domestic auto workers should not have to suffer further 
losses due to changes in the light truck CAFE standards.

Responses to the UAW's Arguments

    NHTSA continues to believe that there is no need to maintain 
separate domestic and captive import light truck fleets for the purpose 
of determining compliance with the fuel economy standards. Domestic 
manufacturers have stopped importing light trucks for sale in the U.S. 
and current market conditions and domestic production capacities make 
it unlikely that the practice will resume in the foreseeable future. 
The UAW concedes that there is currently no threat presented by captive 
import light trucks. Its argument that future conditions might 
encourage the resumption of light truck imports is conjectural and 
cannot by itself justify the maintenance of an obsolete regulatory 
category, especially in light of an array of significant countervailing 
market forces.
    Since 1980, domestic automakers have created substantial compact 
truck production capacity in the U.S. and Canada. Their current 
domestic production capacity exceeds 3,900,000 units per year (foreign-
based manufacturers add another 440,000 units per year of domestic 
capacity). In total, domestic and foreign-based manufacturers offered 
only 3,446,000 light trucks for sale in the U.S. during MY 1993. This 
leaves domestic light truck manufacturers with substantial domestic 
capacity to absorb any unexpected increase in compact truck demand 
without needing to resort to the use of captive imports. Today's 
situation contrasts sharply with that of the late 1970's when domestic 
production capacity of compact trucks was nearly non-existent. At that 
time, demand for compact trucks was not high enough to justify devoting 
plants and production lines to them. Ford and GM had been meeting that 
demand by importing a small number of compact pickups for several 
years, but never more than 70,000 units each. When demand for these 
vehicles (as well as compact vans and utility vehicles) rapidly 
expanded in the 1980s, domestic production began.
    Additionally, captive imports no longer offer domestic 
manufacturers the fuel economy advantages that they did in the early 
1980's. At that time, imported compact pickup trucks tended to achieve 
the greatest fuel economy among light trucks. Now, however, a wide 
variety of domestically produced light trucks, including, but not 
limited to compact pickups, achieve fuel economy comparable to their 
imported competition.
    Further, notwithstanding the discontinuation of the captive import 
category, domestic manufacturers still face strong disincentives to 
importing light trucks. All imported pickups and some two-door utility 
vehicles are subject to a 25 percent tariff. Evidence that the tariff 
alone is a powerful incentive to produce U.S. market trucks 
domestically is found in the experience of foreign-based companies. 
Having never been subject to the two fleet CAFE standard, foreign-based 
companies still sought to avoid the tariff by shifting production of 
the majority of their U.S. market pickups to the U.S. and discontinuing 
importation of many two-door utility models.
    As further reason for continuing the captive import distinction, 
the UAW referred to the general job loss and dislocation suffered by 
auto workers since the 1970's. Without presenting any supporting data, 
the union predicted continued job loss due to competitive pressures 
from imports, transplants, outsourcing and productivity improvements. 
Finally, the UAW insisted that workers should not be further threatened 
by changes in the CAFE regulations. NHTSA does not believe that auto 
workers will be harmed by elimination of the two fleet distinction. 
There is now a healthy and competitive domestic light truck 
manufacturing industry producing high-mileage light trucks. NHTSA 
believes that the future of U.S. employment in the auto industry 
depends primarily on the continuing productivity improvements of U.S. 
manufacturers in cooperation with U.S. labor. While those productivity 
improvements may lead to the elimination of some jobs, they will be far 
more effective than reinstating the captive import provision in 
assuring the economic viability of domestic light truck production 
against the other competitive challenges that the union cites.
    In conclusion, NHTSA has determined that the maintenance of 
separate CAFE requirements for domestic and captive import light trucks 
is not required by 49 U.S.C. 32902(a), and that continuation of the 
separate standards no longer serves any useful purpose. Though 
circumstances may arise in the future which could warrant 
reconsideration, at this time NHTSA sees no viable rationale for 
applying the fleet distinction at any time after MY 1995. The division 
of light trucks into separate fleets is a matter committed to the 
agency's discretion and the UAW has provided no convincing reason why 
the practice should be continued. Based on the foregoing discussion, 
the UAW's petition for reconsideration is denied.

    Authority: 49 U.S.C. 32902; delegations of authority at 49 CFR 
1.50 and 49 CFR 501.8.

    Issued: December 21, 1994.
Barry Felrice,
Associate Administrator for Rulemaking.
[FR Doc. 94-31850 Filed 12-27-94; 8:45 am]

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