The Most Fuel-Efficient Luxury Brands

Automakers have 12 years to boost the collective fuel efficiency of their lineups by 7.5 miles per gallon. Hitting that new government mandate could prove challenging for some luxury brands that already have trouble meeting the current standards.

Today, all passenger cars sold each year in the United States must collectively average 27.5 miles per gallon. Light trucks, which include minivans and SUVs, must average 22.2 mpg collectively. Under new Corporate Average Fuel Economy (CAFE) standards signed into law late last year, new cars and trucks together must achieve 35 mpg by 2020.

BMW passenger cars hit the current CAFE target in 2007 but missed it from 2003 through 2006. Porsche came up short with its cars from 2003 through 2007 and has yet to achieve CAFE standards for light trucks since introducing its Cayenne SUV in 2004.

Meanwhile, the imported fleet of cars from the former DaimlerChrysler, consisting almost entirely of Mercedes-Benz models, missed the CAFE minimum from 2003 through 2007.

The National Highway Traffic Safety Administration (NHTSA) assesses CAFE standards yearly, and any manufacturer that misses the mark gets fined $5.50 for every one-tenth mile-per-gallon below the standard, multiplied by the manufacturer's total production for the American market.

"BMW, Porsche, and Mercedes have been paying millions of dollars in fines," says Michael Omotoso, senior manager of global powertrain research for J.D. Power and Associates. "They basically see it as a cost of doing business in the United States, almost as a form of taxation. Because they charge premium prices, they make enough to absorb the fines."

Ranking the Luxury Automakers on Fuel Efficiency

As a guidepost for how much ground each luxury automaker must cover by 2020 to meet the federal government's new CAFE standard, we've compiled what amount to fuel-economy scorecards for each luxury brand. The list ranks the average fuel economy for every fleet of 2008 models sold by major premium nameplates — 13 total. We excluded companies that sell fewer than 5,000 vehicles in the United States annually. Hummer didn't make the list either, because its H2 SUV is exempt from the Environmental Protection Agency's fuel-economy requirements for passenger vehicles.

Go to the slideshow for the full ranking of luxury automakers according to their corporate average fuel economies as calculated by ForbesAutos.com.

Official CAFE figures for most luxury brands aren't available because the NHTSA doesn't break out the numbers for brands owned by larger corporate parents. Therefore Cadillac's CAFE score is lost within the figure for General Motors. Lexus is buried inside Toyota's CAFE result each year, and so on.

To devise our own fuel-efficiency measurement, we took the averages of EPA fuel-economy estimates for all variations of each model a luxury automaker sells. We computed city and highway mileage separately for each brand, then used those city/highway averages to calculate a combined miles-per-gallon rating for the nameplate.

For the miles-per-gallon averages in our ranking, each model variation is weighted equally, no matter how many are sold. And we treat cars and SUVs alike. Therefore these averages do not equal the brands' official CAFE figures, and comparing them to the 27.5 mpg (car) and 22.2 mpg (light truck) standards set by the NHTSA isn't recommended.

The NHTSA determines manufacturers' corporate average fuel economy by weighing how many of each vehicle a manufacturer sells each year. Models that sell in higher numbers have a greater impact on CAFE scores. So even if a company sells gas-guzzling road rockets, as long as few are produced relative to other more efficient models, CAFE scores don't suffer for it.

Our ranking is designed to show how luxury automakers fare in terms of fuel economy relative to each other and to assess the real-world efficiency of their lineups.

Who's the Most Efficient Overall?

Lexus, Volvo, and Acura made the top three spots in that order, with average fuel-economy ratings of 20.51 mpg, 20.44 mpg, and 20.27 mpg, respectively, according to our calculations. In theory, companies near the top of the list have less ground to cover in order to comply with the 2020 CAFE standards.

Brands such as Lincoln (17.22 mpg), Mercedes-Benz (16.54 mpg), and Land Rover (14.81 mpg) — the bottom three — sell vehicles that are, on average, the least fuel efficient in the industry. These companies, in theory, have the most work ahead of them to comply with the new fuel-economy standard, although the new CAFE standards do have a loophole that will make achieving NHTSA's standards easier for some companies. Read more about that in the section below titled "One Size Doesn't Fit All."

Luxury automakers insist that efforts to increase fuel efficiency were underway even before the new CAFE standards became law.

"Fuel economy was not on the radar screen of the luxury buyer in the past. Now for some luxury buyers it is in the mix," says Cadillac spokesman David Caldwell. "Technologies that increase fuel economy are entering the luxury market because they are desired by consumers."

As the public embraces conservationism, well-heeled drivers who typically wouldn't worry about gas mileage could start to do so, if for no other reason than fear of what their neighbors think.

"It may become unfashionable to drive a gas guzzler," says John Wolkonowicz, senior automotive analyst for the research group Global Insight. "People don't want to look like they're being socially irresponsible. They will want to drive a vehicle that looks more fuel efficient."

As evidence that the migration toward greater fuel efficiency is already underway, Cadillac's Caldwell points to improvements in the company's V6 engines that boost power while conserving gasoline, especially when compared to larger V8 engines.

"Direct-injection technology on our 3.6-liter V6 has boosted the desirability of the base engine significantly," Caldwell says. As a result, fewer than 15 percent of Cadillac STS sedan buyers choose the beefier, V8 upgrade. Several years ago, about 20 percent of STS buyers chose the V8. "Sticking with the base engine does not represent as much of a sacrifice as it did in prior eras," he says.

At BMW, an engineering program called Efficient Dynamics has been underway for five years. It focuses on reducing fuel consumption and exhaust emissions while at the same time enhancing the vehicles' driving dynamics, says BMW spokesperson Jan Ehlen.

The Efficient Dynamics improvements are not limited to engines. For example, an electric power-steering system being phased into various models reduces energy usage by activating the steering motor only when needed.

Engines with turbochargers, hybrid and diesel powertrains, as well as lighter materials are all part of automakers' efforts to improve fuel economy within the next decade, sources say. More radical alternatives, such as fuel cells that run on hydrogen, are further off.

One Size Doesn't Fit All

Under the new CAFE law, the penalty for missing annual fuel-economy requirements remains unchanged. However, the new law discards the single, uniform CAFE requirement currently imposed on all manufacturers alike. Instead, the NHTSA will devise different fuel-economy baselines for different manufacturers.

The various CAFE requirements will bring every new car and truck sold in the United States to an average fuel economy of 35 mpg. But the NHTSA will achieve this by assigning CAFE levels below 35 mpg to companies that make predominately large cars and assigning levels above 35 mpg to those that favor smaller cars, for instance.

The idea is to emphasize fuel efficiency relative to vehicle size and other variables, says Michael Harrington, the NHTSA director of external affairs.

"Under this bill, CAFE is going to be set per manufacturer. Carmaker A might be at 38 miles per gallon. Carmaker B might be at 33," he says. "This way, people can build the kind of models they want, but overall, all their models have to become more fuel efficient."

The rationale might seem counterintuitive, but the NHTSA and other industry sources argue that forcing all manufacturers to achieve one fuel-economy standard actually discourages them from improving the efficiency of models whose ratings are far below the norm, under the premise that it would be a lost cause.

Critics say uniform standards across the board could also hamper progress on vehicles that are already more efficient than the set standard, because no direct incentive would exist to further improve their fuel economy.

By assigning baselines according to realistic assessments of vehicle size and weight, among other factors, the idea is that manufacturers will be encouraged to improve efficiency for every vehicle.

The NHTSA plans to conduct public hearings on the new regulations beginning this spring, before mandating official CAFE assignments. New fuel-economy targets will be phased in beginning with 2011 models.

About our Ranking

The fuel-economy ranking in our slideshow gives an idea of how the nameplates currently stand with regard to fuel efficiency. Averages are based on the official fuel-economy estimates published for each model and its variants in the Environmental Protection Agency's 2008 Fuel Economy Guide.

Our ranking excludes General Motors' Hummer brand because the Hummer H2 is exempt from reporting fuel economy numbers to the EPA due to its mass, which qualifies it as a "heavy duty" vehicle. Otherwise, the averages include all low-volume, high-performance models and standard models from each brand.

The special-edition AMG models from Mercedes and the M cars from BMW pull down their fuel-economy averages based on our calculations more than they would affect the government's official CAFE rating. Still, they are part of these manufacturer's lineups and help show how high performance often hurts fuel economy.

Attending to both has become one of the greatest challenges luxury brands face.