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Wednesday, July 27, 2011

The Truth About 60MPG

There is furious lobbying going on, as the automakers and the greens try to sway the Obama administration on future CAFE standards.  The greens, including Consumer Reports, NRDC, and others are claiming that not only is 60MPG feasible, but it will be good for us. Here are some of their main claims.

1)  60MPG will increase jobs and profitability of the Big 3.  Apparently, Citibank looked into a crystal ball and decided that the Big 3 market share and margins would increase with higher fuel economy vehicles.  But the Big 3 rely on large vehicles, even today, for a lot of their profits.  And jobs?  That depends.  If free trade with China continues, I see batteries and other components coming from China, which is a powerhouse in rare earth mining and raw materials processing.  Look at it this way--in the rise of Li-Ion batteries for tools and laptop computers, where are all the parts coming from?  China and Korea.

2) 60MPG will not cost much, and will pay for itself.   True, at $4/gal, a 60MPG car will pay back a sizeable premium in 3-4 years.  However, the cost estimates of some the technology are pie-in-the-sky.  What happens to li-ion battery costs if we start making millions of relatively huge car batteries?  Are the greens ready to strip-mine China for lithium?  What about the supply of rare earth metals for the powerful magnets needed by the motor/generators?   

3) Americans want 60MPG cars.  Sure they do--but they don't want to pay much for them.  As many surveys have shown, when you attach costs to highly efficient cars, interest drops off rapidly.  Today, there are numerous highly efficient small and medium cars available.  However, trucks and SUVs are still hot sellers.   What Americans really want is free efficiency.  They want large cars and cheap gas.  They want fat free french fries.

4)  60MPG is within easy reach, with off the shelf tech.  Sure, for small and mid-sized cars.  Give me a B/C platform and let me add a couple of thousand dollars in engine upgrades, more transmission gears, aluminum and high strength steel components.  You'll have a 60MPG small car that costs $25,000.  Great.  Now, how do you do it for a mid-sized SUV or minivan?  Or the Texas workhorse, the 1-ton pickup?  Not so easy.

Here are some of my thoughts about CAFE standards.

A)  Reducing vehicle weight will reduce overall safety, or add cost due to expensive countermeasures like additional airbags.  It's physics.  In a two car crash, the heavier car does better.  Until all the old heavy vehicles are off of the road, about 10 years after the lightweight ones are introduced, the new vehicles will be at a disadvantage.

B)  High CAFE standards will increase up-front costs, and reduce sales.   Suppose CAFE adds $4,000 in today's money to a typical family vehicle.  Some people will respond by buying used, some will buy smaller or cheaper, and some will defer their purchase.   Yes, you will save money down the road.  But you have to pay the down payment and the taxes now.  I agree with the AAM that sales volumes will be decreased.  Fewer new car sales means fewer jobs in sales and manufacturing.  However, there may be a renaissance in the old car repair industry, as people keep their old beaters longer.

C) High CAFE standards will reduce consumer choice.  How do you make a pickup truck which can pull a 10,000lb trailer, or haul 2,000lbs of bricks in its bed, which gets close to 60MPG?  I don't think it is possible.  Batteries are heavy and reduce payload.  Beefy suspensions and large engines all work against efficiency.  Even with efficiency improvements, in order to be able to sell pickup trucks, the automakers will have to get people to buy smaller cars to offset them.  That's how CAFE works.  The only way to do this is through price manipulation--either lose money on small cars, or jack up margins in large trucks.  Since method one nearly killed the Big 3 once already, I suspect the answer is going to be method two.  People who want muscle cars or pickup trucks will have to pay a lot more for them or do without.  Instead, there will be strong pressure on consumers to pick small cars and range limited EVs.  Products like high-performance sports cars may be very different under a 60MPG regime--slower, more expensive.

So what is the answer?

If you want to influence consumers directly, and do it in a transparent way, you need to tax fossil fuel.  Don't specify a fleet efficiency standard, rather, increase gas taxes slowly until consumers start to respond.  You can make it revenue neutral by rebating the taxes, or offsetting somewhere else.  But there isn't political will to do that.  It's easier to hide behind CAFE.  

Eventually, though, people will notice that CAFE is just another tax, just applied in a more complicated, hidden way.  Unfortunately, it may be too late, after the industry has changed in drastic ways.


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33 comments:

Concerned Citizen said...

I have a question. Why? If we have to raise gas taxes to do it, why do it at all? Just because the government demands it? The problem isn't cars, the problem is government.

Anonymous said...

Whereas an increase in gas taxes (the much more efficient solution) would result in hordes of incumbents being tossed out of office, CAFE gives them some semblance of political cover. CAFE is all central planning and political chicanery. I say, if necessary, raise the gas tax and throw the bums out.

The Ghost said...

Again why is it up to the government to influence the cars we buy ?

If you cite AGW I'm going to pull the last of my hair out with tweezers ...

AGW IS A SCAM !!!

Anonymous said...

Get the d*mned government out of it. Let companies build what they want and people buy what they want, let the free market work. If there is a market for high fuel efficiency then someone will start building cars to fill it.

And if people want to buy gas guzzlers its their business. If we run out of oil then so be it. The market place will respond with correspondingly high fuel prices and demand will go down when people can't afford gas. Then the marketplace will respond with other technologies.

Why is it so hard for government to stay out of it and let the free market work?

Anonymous said...

The answer is, Congress should accept European/Auusie emissions and crash standards as "sufficient" for sale/use in the US. We would then see a huge uptick in good, small cars that get high milage here. Not the cheap cr@p that Detroit is making, but what their subsidiaries such as Vaxhall and Holden, and others, like Pugeot and Renault, are making.

And the rebadging would be easy.

Roger Fortier said...

No CAFE, no taxes to "influence" consumers. None of the government's business what car I drive.

The central issue is tyranny by a minority of do-gooders. Let's not forget that.

Jeff H said...

The old canard about "saving money down the road" just rings completely hollow when you actually look at the numbers.

Example: current car gets 15 mpg, drive 12,000 miles per year. Cost of new 60 mpg car: $40,000 (unrealistically low estimate, but it makes the point any way).

Fuel costs per year, current car (assuming $3.75/gal): $3,000. Fuel costs per year, new 60 mpg car: $750. Difference: a seemingly "whopping" $2,250.

But wait. To recoup that $40,000 you just spend on your new car, in terms of fuel cost savings, at current price ($3.75) and driving the same miles per year, would take 17 years and 9 months.

Think that car will still be getting 60 mpg at 17 years of age?

Anonymous said...

Jeff H:

I think Auto Prophet's post is pretty persuasive, but there's a problem with your example.

You assume that there is no cost to your current, 15 mpg car. That is literally true, but misleading. A more realistic comparison would be choosing between buying a (for example) $25,000 car that gets 15 mpg and a Car of the Future that gets 60 mpg, at a cost of $40,000. Applying your math means a payoff point of about seven years. That may not seem unreasonable to a lot of people.

Anonymous said...

the technology is already there to have a truck that can pull large loads quickly and get good mileage. It's already been done even. All it takes is the commitment to do it. http://www.fastcompany.com/magazine/120/motorhead-messiah.html?page=0%2C0

Anonymous said...

This all misses the real point, which is that with the creative arithmetic and thermodynamics the EPA uses to calculate "MPG equivalent" for electrics, the only way to get the fleet average MPG this high is to sell a significant number of electrics.

This is entirely to give a boost to electrics and plug-in hybrids.

Number Six said...

Part of the problem is the California emissions standards that become a de facto standard throughout all of North America. That's why Americans cannot buy a VW Golf with a powerful TDI Diesel engine that get's 45 MPG, the same cars that have been cruising around Europe for several years now.

Hell ! I used to get 30 MPG in a simple 68 VW Beetle back in the 1970's.

The problem isn't technology. The problem is Bureaucracy and Corruption. Bureaucrats are accountable to no one and elected by no one but they have vast power to cripple the economy. Think of a dog carrying hundreds of ticks, each one sucks just a little blood. But eventually they'll kill the dog. That's our economy being killed by parasites.

Anonymous said...

Instead of an excise tax on gas, why not an import tariff on crude? That does a couple of good things:

1) Takes money away from the bad guys

2) Encourages domestic production of energy while letting the market decides what type to produce (Wind, solar, nuke, CNG, oil)

3) Encourages fuel efficiency

4) Helps with the deficit

5) Gives the GOP a "revenue raiser" that can be traded off for entitlement reform.

Win, win, win

rocketeer67 said...

Huh? 60 mpg CAFE standards will make the Big 3 more profitable?

Excuse me, but if that were true, we'd already be well on our way to 60 mpg cars WITHOUT government-imposed mandates.

EdWoodsReviews said...

Since people associate quality small cars with foreign automakers, why would anyone think domestic companies would benefit from higher CAFE standards?

That just doesn't seem right for me. I would expect Toyota and Honda to eat everyone's lunch.

D

Anonymous said...

Hang on AP!! Instalanche!!!

Anonymous said...

Applying your math means a payoff point of about seven years. That may not seem unreasonable to a lot of people.

Seems more like, as inflation will skyrocket under the socialist agenda being forced upon us, it will take much longer than seven years to pay off such a vehicle in 2025.

I see high-speed bicycles in our future.

Anonymous said...

All, or even most, heavier vehicles will not be off the road ten years after Carmageddon, unless they're rounded up and crushed. Will there be no more delivery trucks?

How about trees and fenceposts? Shall we wrap them all in Nerf?

Corky Boyd said...

To my recollection this is the first time in history a CAFE mandate will exceed the most fuel efficient current car at the time it is issued. The Prius has a combined rating of 50 mpg so this means the average vehicle must exceed that figure. This includes minivans and other vehicles for soccer moms.

What is happening here is the administration trying to stay ahead of CARB's new mandates to have a single standard. While a single standard is highly desirable, a single unreasonable standard is suicidal. The other problem is CARB will always want a different standard. That is their reason for existing. They would be out of jobs.

If EPA says 1,000 mpg, CARB will say 1,200. That's just California.

They did the same thing with EV's back in the 1990s. Mandated 10% of all vehicles sold (purchased) in California be ZEVs. Only one maunfacturer did a purpose built ZEV (GM). While the car was adored by many of the 1,200 who leased one, this two-seater was not a car 10% would buy. Even GM stated it was marketed as a third or fourth car for upscale families.

CAFE should be based on reality, not wishful thinking. In reality liberals want you out of your car and into mass transit. For anyone who has suffered the degradation of a NY subway during morning rush hour, with folks who haven't taken a bath in a week pressing against you, and I have, it's not a pleasant experience.

What will happen if CAFE conforming cars don't fit the market and become too pricey? Folks will just keep their old cars and not buy something the size of a Smart Car or a Yugo.

PapayaSF said...

All I ask is that whatever the CAFE is, we have a law that members of Congress and employees of the EPA must only own or lease vehicles that get that average or better. I suspect we'd get more rational standards....

caradoc said...

Without taking the time to do the math, I'd like to point out that both the 17 year and 7 year fail to consider opportunity cost. The up-front price could be spent on something else, including something that generates additional income.

regardless of that they government needs to stop forcing choices like this on us, on principle. And on a practical basis they are clearly incapable of downstream analysis and will end creating many problems that weren't there before. How will we dispodse of these batteries? As noted in the article, how much environmental devastation will we tolerate in getting the materials? When the demand skyrockets for these materials, what will that do to the costs of other things that use them? We're worried about being beholden to terrorist states for oil, but what happens if we're dependant on China for battery materials (same thing as oil, a source of [stored]energy)? Those are just a few obvious questions off the top of my head, and yet they never get discussed.

DowlanSmith said...

Three premises.
1. There is a lot of gaming the system and not-real-world estimates in a cars EPA rated MPG.
2. The faster a car goes, the worse the gas mileage.
3. The heavier a vehicle is, the lower the gas mileage is, while the road damage and crash damage increases.

Conclusion: Have the maximum speed limit on a car based on the mpg of THAT car at THAT speed. For example twice your MPG.
- A car getting 30 MPG could go up to 60 miles per hour.
- A car getting 20 MPG could go up to 40 miles per hour.

Refinements could be an additional 10% per passenger or ton of cargo.

Anonymous said...

Dowlan Smith:

Apparently, you've never watched an American Le Mans Series race.

vehicle transportation companies said...

CAFE is all central planning and political chicanery. I say, if necessary, raise the gas tax and throw the bums out.

DowlanSmith said...

1. No I have "never watched an American Le Mans Series race."

2. I'm not sure how that relates to CAFE standards. Do they only have a certain amount of fuel for the race?

CGS cat back exhaust said...

Intervention by the government regulates certain factors like emission, gas consumption and many more. This will go on whether we like it or not.

mike dovan said...

Just wanted to say thanks to the author for posting. Brought some certain things to light that I hadn't thought of before.

Anonymous said...

I get 17 mpg in my truck, truck cost 11 grand brand new in '05. In order for me to make back money and some when buying a 60 mpg vehicle, lets say one thats 20K$ with 5K$ back from my trade-in. Lets say gas is 3.80 a gallon, and I drive 15,000 miles a year. At 3.80$ I spend 3400$/yr in gas. For 60 mpg, I would spend 1000$/yr in gas. If I net 1400$ per year, it will take 14 years to break even (cost of gas + original price of vehicle). It will take another 5 years afterward to justify the cost of buying one of these vehicles. So why don't you people just buy a good used car or new car and keep it, forget about the mileage, a car with over an avg of 25 mpg is diminishing returns when it comes to yearly fuel costs anyway. Unless you drive cross country on business.

Kia Bloomington said...

One concern is that auto makers will produce much lighter cars in order to meet the CAFE regulations. Lighter cars are great for mpg but not so great in case of an accident.

Nigel said...

Only in Detroit would somebody argue AGAINST more efficient cars. No wonder we had to bail them out.

Plbmak said...

In the real world, even super efficient small engines here in Europe don’t get 60mpg. Who makes up this stuff?

Matt Blanchard said...

I don't see what all the fuss is about. I've been driving Geo Metros since 1993 and my 1992 XFI got 59 MPG. It was an $8,000 car. Not only is this possible, it has been done and is now old technology.

Auto Prophet said...

Matt, your Metro would not pass current crash standards, and is missing a lot of required safety equipment such side airbags, stability control brake system, etc. If OEMs were allowed to make tiny light cars that don't meet current standards, they could get crazy good gas mileage too, no problem.

RLWinkler said...

I believe everyone wants better MPG. The issue, as many have stated is price. If you consider the current auto/truck industry, we do not have the technology yet to go beyond fossil fuels, efficiency-wise; meaning efficiency in cost, performance, consumption, etc. Take the hybrids, they get about the same mileage as their cousin gas models in several instances but cost way more. In trucks it is worse. Chevy's hybrid light duty truck cannot compare to the performance of a regularly aspirated model. Diesel is still best for loads. We have come a long way and are on the right track but, government forcing people from diesel or fossil fueled vehicles with high fuel prices when we are still so dependent on them is wrong.