New fuel standards spur change
Looking at the dozens of new models introduced at the New York International Auto Show, it's clear that the industry is undergoing dramatic change, most of it driven by tough new fuel economy standards. The EPA's Corporate Average Fuel Economy mandate — also known as CAFE — requires that an automaker's fleet average 29 mpg. That will rise to 36.6 mpg in model year 2017, a mere three model years from now, on its way to a lofty 54.5 mpg by 2025. That may sound far away, but it's not as distant as it sounds.
That poses a problem for luxury automakers, whose vehicles tend to be thirsty. It's easy to sell a buyer of a low-priced or moderately priced car on one with a smaller engine; it's much harder to convince luxury buyers of the same thing.
Larger models are becoming more efficient through the use of diesel or turbocharged engines, eight- and nine-speed transmissions, and costly lightweight materials, such as aluminum and carbon fiber. But it's not enough to get the job done.
Consider the midsize Mercedes-Benz E350 sedan. It returns 23 mpg in combined city/highway driving, according to the EPA. At 26 mpg, the E400 Hybrid is more fuel-efficient, but not nearly enough to meet the new rules. So it's easy to understand why Mercedes-Benz is introducing the CLA in September. It's a compact sedan with a thrifty four-cylinder engine that starts at less than $30,000. Given this is about the same price as a mundane midsize sedan, the car should be a game-changer for the brand and the marketplace.
The German auto manufacturer has revealed a subcompact five-door hatchback that runs solely on electricity, the B-Class. Its price will be close to that of the Chevrolet Volt.
Mercedes-Benz is not alone.
BMW's most popular vehicles, the compact 3 Series and subcompact 1 Series, suffer from fuel economy that belies their size. BMW has downsized engines and will offer a diesel variant of the 3 Series later this year. It will be joined by the i3, an electric car that will offset the thirsty ways of other BMW models.
Cadillac is taking a similar path. Earlier this year, at the Detroit auto show, General Motors' luxury marque introduced the Cadillac ELR, a plug-in hybrid electric car that shares its running gear with the Chevrolet Volt, rated by the EPA at 62 mpg.
They're following the example set by Lexus. Its flagship sedan, the LS 460 L, returns an OPEC-friendly 19 mpg, while the LS 600h L hybrid returns 20 mpg. Both cars cost close to, or more than, six figures. The entry-level Lexus, base price $32,050, is a subcompact hatchback that's rated by the EPA at 42 mpg.
Despite the flood of alternative-fuel vehicles, they accounted for just 3.3 percent of the U.S. market in 2012, according to auto industry publication Ward's Auto. By contrast, the Ford F-150 pickup truck accounted for 4.5 percent.
So, why are automakers releasing electric cars and hybrids given their meager sales? It's simple: Under the new EPA rules, every electric car sale is counted as two sales when it comes to CAFE compliance.
But you have to wonder what this means for luxury brands. The prestige of any luxury label is based on its scarcity and its pricing. If you can buy a Mercedes-Benz or BMW for little more than a loaded Honda Accord, is it a luxury car or is it a pretender?
That's for the marketplace to decide.
Larry Printz is automotive editor at The Virginian-Pilot in Norfolk; email@example.com.