07/28/2011 12:40 am ET Updated Sep 26, 2011

Obama to announce new fuel economy standards Friday

By Ayesha Rascoe and Deepa Seetharaman

WASHINGTON/DETROIT (Reuters) - The Obama administration has reached a compromise with automakers on a new fuel economy target for cars and trucks, ending months of negotiations on this pivotal mandate for the auto industry.

Automaker fleets will now have to average 54.5 miles per gallon by 2025, according to people familiar with the plan.

Chief executives at the major automakers could sign off on the plan as early as Wednesday night, one of the people said.

U.S. President Barack Obama will officially announce the new guidelines on Friday, the White House said.

The White House would not comment on the substance of the negotiations, but spokesman Jay Carney said the agreement would result in "significant cost savings for consumers at the pump" and cut pollution and reduce oil consumption.

The compromise is slightly less than the administration's original proposal for corporate average fuel economy, or CAFE, standards. But it is a major step up from current standards that require automakers to achieve 35.5 mpg by 2016.

Earlier, the administration had proposed increasing the CAFE target to 56.2 mpg between 2017 and 2025, but that plan ran into opposition from the industry and some lawmakers.

The push to boost fuel efficiency has forced automakers to redesign vehicles and use lighter but more expensive materials. These efforts are likely to raise the cost of vehicles and may pinch automaker margins.

That has caused resistance from lawmakers in states with a heavy auto manufacturing presence, as well as the United Auto Workers union, which is concerned about jobs.

The new proposal includes average increases in fuel economy of 5 percent for cars and 3.5 percent for light trucks through 2021, with a 5 percent increase for all vehicles after that.

One person said there will be a midterm review that may allow trucks to stay below the 5 percent target after 2021.

Sources told Reuters that some overseas automakers were reluctant to embrace the plan because of the more phased in schedule for light trucks, which remain a bread and butter segment for U.S. manufacturers and include pickups, SUVs and vans.


But the biggest sellers - General Motors Co (GM.N), Ford Motor Co , Chrysler, which is run by Italy's Fiat (FIA.MI), Toyota Motor Corp and Honda Motor Co (7267.T) -- are all expected to sign on to the agreement, which will be the backbone of a new federal rulemaking on fuel economy.

Obama has pushed hard for sharply higher fuel efficiency through new technologies like improved batteries for gas/electric hybrids and electric cars.

Ford spokeswoman Meghan Keck said there are still some issues that need to worked out regarding the new standards.

"We continue to believe that the talks are productive, that there are a couple of details that we're still ironing out and that we hope to be able say more soon," Keck said.

While declining to discuss the 54.5 mpg figure, Toyota spokeswoman Martha Voss said discussions on the new rules have been "positive."

Environmental groups and Democratic leaders have pushed for strong fuel economy standards to lower carbon dioxide emissions and decrease U.S. oil use.

"These new fuel efficiency standards represent the single greatest step our country has taken to reduce our dependence on foreign oil and to encourage a new generation of advanced vehicle technology entrepreneurs," said Representative Edward Markey in a statement.

U.S. passenger vehicles emit about 20 percent of the nation's carbon emissions and consume about 44 percent of its oil, figures show.

(Additional reporting by Tabassum Zakaria and Roberta Rampton and John Crawley in Washington and Ben Klayman and Bernie Woodall in Detroit; Editing by Paul Simao, David Gregorio, Gary Hill)