By John Crawley
The Transportation Department had intended to complete the regulation laying out annual mileage targets from 2011-15 by year's end, but will now hand the matter over to the incoming Obama administration.
"The recent financial difficulties of the automobile industry will require the next administration to conduct a thorough review of matters affecting the industry," the agency said in a statement.
The rule must be finalized by April 1 to allow automakers time to incorporate tougher mileage standards in their design plans, but uncertainty about industry prospects and other factors could alter the timetable.
"Now more than ever automakers need certainty and this decision only further delays their ability to finalize future product plans," the industry's chief lobbying group, the Alliance of Automobile Manufacturers said in a statement.
The administration approved a $17.4 billion bailout of General Motors Corp and Chrysler LLC in December to avert the threatened near term collapse of one or both of them.
Ford Motor Co did not seek a bailout, but also is struggling financially. It would like a government line of credit to tap if its condition worsens more than expected this year or next.
Automakers receiving assistance must accelerate restructuring and show the government by the end of March that they can be financially viable or risk potential bankruptcy. Although the aid infusion eased fears of immediate failures, U.S. manufacturers still face serious uncertainty.
U.S. auto sales fell 35.5 percent in December from a year earlier, continuing a staggering business trend fueled by the global credit crunch, recession, and plummeting consumer confidence.
Although Japanese and other major foreign automakers are healthier than their North American rivals, their U.S. sales have also fallen sharply in recent months.
The Bush administration proposed an estimated 25 percent increase in fuel efficiency for cars and light trucks for the four-year period ending 2015. The change would cover two-thirds of the congressional mandate for an automakers' fleet to average 35 miles per gallon by 2020.
Transportation Department estimates the changes will cost car companies in excess of $100 billion by the end of the next decade -- most of it borne by GM, Ford and Chrysler, which is controlled Cerberus Capital Management.
U.S. car companies fought sharply higher fuel standards for years, but accepted them as political pressure grew to reduce U.S. oil consumption amid Mideast turmoil. Consumers also clamored for more efficient vehicles as fuel prices skyrocketed.
Industry hoped for Bush administration action on efficiency targets, believing its more business friendly posture would mean a softer landing.
But Obama has long been outspoken about making automakers meet tough fuel standards and changes in the proposed regulation could still be made, especially if the deadline is extended.
Environmental groups and some in Congress back tougher requirements.
Nick Shapiro, a spokesman for the Obama transition team, said Obama is committed to increasing fuel efficiency to reduce oil dependence and would "review this decision and the appropriate policy when he is president."
Automakers also wanted the federal standard in place by now as a regulatory hedge against a California law to curb tailpipe emissions, currently opposed by the Bush administration and tied up in court, that would require even higher increases in fuel efficiency sooner.
More than a dozen others states have pledged to follow California's lead if the law survives legal challenges and takes effect.
(Reporting by John Crawley; Editing by Andre Grenon)