Fuel-Thrifty BMW Benefits From EPA's "German Provision"

(MoneyWatch)  BMW is proud of what it describes as a 14 percent fuel economy jump in its U.S. car fleet between 1990 and 2005. In Europe, that improvement was even better in the same time frame, at 16 percent. In 2007, BMW AG's fuel economy improved at four times the average rate of other major manufacturers selling in Europe, according to an analysis of European Union data commission by the European Federation for Transport & Environment.

Fuel economy gains are closely related to greenhouse gas emissions. European Union rules require automakers to reduce emissions to 130 grams per kilometer by 2015, and 95 grams per kilometer by 2020. BMW's European division is a star here also, with a 10.2 percent cut in average carbon dioxide emissions in 2008. That's the best performance in Europe, followed by Mazda, with an 8.2 percent cut.

BMW's fuel efficiency is partly based on its fleet mix, which contains a few smaller SUVs but no trucks. At an Environmental Protection Agency hearing last week, Tom Baloga, BMW vice president of U.S. engineering, testified that because of this product mix, the company will face a significant 3.6 percent penalty (compared to larger carmakers) in meeting combined fuel economy/greenhouse gas regulations in place between model years 2012 and 2016.

"We sell neither large SUVs nor pickup trucks," Baloga said at the hearing. "Other limited-line manufacturers are in the same position. To meet the aggressive Corporate Average Fuel Economy standards, there must be accommodations for different-sized vehicles, and we accept and will comply with the footprint model."

Other manufacturers with limited lines include Volkswagen, Porsche, Mitsubishi, Mercedes, Volvo, Suzuki and Maserati. BMW and the others would probably be much more concerned about all this if it were not for what some have called the "German Provision" (though Japanese and Italian companies benefit, too). If carmakers sell fewer than 400,000 cars per year in the U.S., they can meet looser standards.

At the same hearing, Margo Oge, EPA transportation and air quality chief, told BNET Autos that the rules apply only to 25 percent of the carmakers' fleets on an annual basis. The emission levels are allowed to be 125 percent of larger company fleets, she said. The rules give the automakers "additional flexibility," she added, and will help preserve consumer choice in the marketplace.

The provision has gotten several constituencies angry, and for different reasons. As reported in The Truth About Cars, David Cole, chairman of the Center for Automotive Research at the University of Michigan, says it hands "a distinct competitive advantage" to German and other companies. Environmentalist Dan Becker of the Safe Climate Campaign doesn't like the provision because it will result in higher emission levels--he says BMW and its ilk should meet the same standards as GM and Ford.

BMW itself doesn't see it that way, obviously. The program, Baloga said, "is so constructed that no one gets a free ride. It uses a balanced approach, incentivizing innovation."

When enacted in 1976, the CAFE provisions exempted carmakers then selling fewer than 10,000 cars a year, a/k/a "the Porsche clause."