Light Truck Average Fuel Economy Standards; Model Years 1996-1997 |
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Topics: National Highway Traffic Safety Administration
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Barry Felrice
Federal Register
December 28, 1994
[Federal Register: December 28, 1994] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF TRANSPORTATION 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] BILLING CODE 4910-59-P