Car makers are fighting back against proposed fuel efficiency standards

© AutoEvolution/ what the market wants

Last year Mike asked Should we be worried? After years of improvement, fuel economy has hit a new plateau in U.S.; This year, the answer clearly is YES, we should be worried. The EPA and the auto makers are fighting over the future standards for fuel efficiency, currently calling for a fleet average of 54.5 miles per gallon by 2025.

fuel standards© WSJ/ Data via Michael Sivak and Brandon Schoettle, UMTRI

The trouble is, the fuel economy average has gone beyond plateauing and is actually decreasing, according to the the University of Michigan Transportation Research Institute. That's because car buyers are not buying cars; now 58 percent of passenger vehicles sold are SUVs and pickup trucks, thanks to cheap gas.

Mike Spector of the Wall Street Journal
notes that the EPA is standing pat on the standards:

“Oil and gasoline prices fluctuate and are unpredictable,” an Environmental Protection Agency spokeswoman said, adding that current rules portend unprecedented emissions reductions by 2025. “The standards…function as insurance so that fuel prices don’t stall progress on cutting greenhouse gases.”

The car makers on the other hand, want to deliver what the market wants.

“Just as it takes two to tango, building compliant cars isn’t enough,” said Mitch Bainwol, head of a Washington lobbying group representing a dozen car makers. Regulators should “examine real life behavior rather than anticipated purchase patterns,” he said.

My favourite line in the article comes from the Audi president:

“Imagine if you were the CEO of McDonald’s and they say to you, ‘OK, in 10 years…25%, 30% of your business is going to be vegan. Go make it happen,’ ” said Scott Keogh, president of luxury-car manufacturer Audi AG’s U.S. operations. “That’s exactly what we’re staring at here in the automotive business.”.... “We can’t get into this world of, ‘We are doing this because the government is making us do it, so dear customer, please help us buy this compliance car that’s in the showroom,’ ” he said.

He has a point; it is hard to sell something that people don't want to buy. However if the real costs of driving were built into the price of gas, people would be paying a lot more and probably buying more fuel-thirsty cars.

Gas would cost a lot more if they increased the gas taxes to cover the real cost of maintaining the road system and all the externalities, like pollution, highway police, medical costs of dealing with the 32,000 deaths and 4 million injuries that occur each year. (The National Safety Council estimates the cost of deaths, injuries and property damage was $ 152 billion for the first six months of 2015). In fact, the federal gas tax hasn't been increased since 1993.

James Surowieki writes in the New Yorker about why the gas tax should be raised, and doesn't even get into the fuel economy issue; there are enough other reasons to do it.

It’s a user tax: if you don’t drive you don’t pay it, and if you drive less it costs you less. It helps to correct, at least mildly, a clear market failure: people who drive don’t pay the full costs of the externalities they create, including the wear and tear they put on roads, the pollution they emit, and the congestion they help produce. And while certain taxes disincentivize, to some degree, things we like (such as work or investment), the gas tax, by raising the cost of driving, gets us less of things we don’t like (pollution, carbon emissions, and road wear).

It will also disincentivize the purchase of big honking SUVs and pickups by people who don't really need them.

Car makers are fighting back against proposed fuel efficiency standards
People want big SUVs and pickups, not little fuelsippers. What's a car maker to do?

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