The CAFE debate has begun anew, and how it is resolved will have a major effect on automotive-related rubber companies.
The House Energy and Commerce Committee plans to consider a Bush Administration energy proposal that includes raising the Corporate Average Fuel Economy standard for sport-utility vehicles to 21.7 mpg, 1 mpg above the current standard. That's the conservative approach, fostered by powerful congressmen Billy Tauzin, R-La., and John Dingell, D-Mich. A much-more radical idea is championed by Edward Markey, D-Mass., and Henry Waxman, D-Calif., raising the fleet average for all vehicles to 40 mpg by 2017 from the current 20.7 mph for SUVs and light trucks and 27.5 mpg for cars.
It's a double-edged sword for the rubber industry, all based on weight. The lighter the car, the higher the gas mileage, which is why rubber has been displaced so many times in vehicles by materials that weigh less.
As the automotive industry continues to pursue vehicle weight loss, component makers come under more pressure from their original equipment customers. On the good side, achieving CAFE standards can foster innovation by the rubber industry; on the bad, it can drive companies out of the market.
For the tire makers, however, a much higher CAFE standard offers a real opportunity. If the auto makers really want to cut out weight, they'll embrace the run-flat and do away with the spare. That could give the tire makers the boost they need to make the more-expensive run-flat system the standard for new cars—as long as they don't, yet again, discount themselves out of profits.