What the proposed fuel economy changes mean for automakers and consumers

Previously, one pathway to light-truck classification was that three-row vehicles with seats that either could be easily removed, stowed or folded flat could be considered light trucks.

NHTSA has proposed removing that pathway, which will have the effect of reclassifying minivans and likely most unibody three-row utility vehicles from light truck to passenger car, unless they meet one of the other light-truck criteria.

NHTSA also proposes more stringent criteria for a vehicle to be considered a light truck through its off-road capability.

Currently, a vehicle can be considered light truck if it meets 4 of 5 specifications (approach angle, breakover angle, departure angle, running clearance and axle clearance). NHTSA is dropping axle clearance from the list, leaving the other values the same.

However, under the proposed rule, a vehicle would have to meet all four criteria to be classified as a non-passenger vehicle via off-road capability.

A proposed new Light Duty Work Factor (LDWF) pathway to light-truck classification is new. LDWF reflects a vehicle’s ability to tow and carry payload, both considered ‘work’ functions. LDWF takes the sum of payload and towing, with towing weighted more heavily than payload, to arrive at a figure.

A vehicle may be considered a light truck if it meets a LDWF greater than 5,500 pounds and has four-wheel drive or is rated more than 6,000 pounds GVWR or meets the revised off-road criteria.

LDWF may provide a pathway for some trim levels of full-size, three-row body-on-frame SUVs like Chevrolet Tahoe, Ford Expedition and Toyota Sequoia remain in the truck category. It is less likely that full-size unibody three-row utilities like Buick Enclave, Ford Explorer, Hyundai Palisade or Toyota Grand Highlander would meet the LDWF as they do not have the towing capacity of body-on-frame SUVs.

The change may also mean that many smaller unibody utility vehicles are reclassified as passenger cars rather than light trucks, as they may not meet the revised off-road requirements. 

NHTSA developed proposed rules assuming the current $0 fine for non-compliance continues. In the absence of non-compliance penalties, it can be argued that the fuel economy standards have no teeth and there is little motivation to comply.

However, there are regulations through the Environmental Protection Agency (EPA) of both greenhouse gases (GHG) and of Tier 4 particulate emissions. These remain at levels set under the Biden Administration.

While the EPA is reconsidering the Endangerment Act, which gives the agency the authority to regulate GHG, rules on criteria pollutants regulations for 2027 to 2032 model years will remain.

Meeting Tier 4 regulations will require particulate filters and electrification. Non-compliance can result in EPA-enforced significant fines, permit revocation and orders for corrective action.

Vehicles with better fuel economy also emit lower emissions, of any type; improving fuel economy is a factor in meeting those regulations as well and supports long-term automaker sustainability strategies.

Automaker flexibility and product planning

Easing the compliance target will give automakers some room as they navigate demand for electrification while supporting continued demand for internal combustion engine vehicles, though the potential for affordability relief is not likely until 2028 model year.

Propulsion systems for vehicles planned for 2026 and 2027 model year are largely determined, and significant changes in offerings are less likely in the immediate term.

However, if these rules are finalized and automakers can meet these targets without having to rely on a high share of BEVs, automakers could further slow BEV efforts. Automakers are expected to continue down the path to BEV, but easing these regulations could result in more program delays.

A reduced effort to increase BEV sales can change the average vehicle price in the US, by having a richer mix of ICE and hybrid vehicles rather than reflecting a reduction in the cost of ICE and hybrid vehicles.

For the later years affected by these proposed rules, there may be cost relief from preserving ICE choice versus pushing higher volumes of more expensive BEVs. With less onerous compliance, less expensive technology may still achieve compliance in outbound years, compared with current CAFE vehicle standards.

Consumer costs and market implications 

However, vehicle affordability may not see a significant change compared with today. Vehicles will still need increased level of technologies to meet these proposed fuel economy standards, as well as to meet the EPA emissions standards.

Other industry factors provide headwinds to improving vehicle affordability. Among them are incremental safety features, connectivity and software technology and continued adjustment to a high automotive tariffs environment.

The cost of ownership for ICE means higher fuel costs and higher maintenance costs compared to most BEVs. On the other hand, ICE ownership also means lower insurance costs.

These new rules create more flexibility for automakers and create a more market-driven compliance environment. There is risk for the US market adoption of BEVs to continue to lag global markets in terms of share and volume, though there is pushback in other countries and regions on aggressive BEV targets as well.

Generally, global automakers are expected to continue to develop BEV technology. Having said that, there is a real impact on the timing and deployment.

Rather than prior expectations for a regulatory-driven market with BEV share estimated to be as high as 35% in 2030, S&P Global Mobility’s upcoming forecasts see that share between 12% and 13% in 2030, growing to about 21% in 2035 – a revision made prior to the release of these latest regulations.