The federal government finalized new automobile efficiency rules today for cars and light trucks for model years 2017–2025. The rules require an average fuel economy of 54.5 miles per gallon (mpg) in 2025.
Proponents of the rule advertise the more stringent mpg standard as a win for producers, consumers, and environmentalists. The fact is that top-down fuel efficiency standards are unnecessary and have numerous unintended consequences.
The Administration is saying that the new standards will save consumers money, reduce emissions, reduce oil consumption, and create jobs. But will consumers actually save money? It depends on whom you talk to.
The government acknowledges that increased fuel efficiency standards will increase the upfront cost of a vehicle but that these higher prices will be offset by savings on gasoline. Generally, these cost savings assume that the buyer keeps the vehicle for its entire lifespan, which usually doesn’t happen. Further, consumers tend to drive new, fuel-efficient vehicles more, which reduces the estimated price, oil, and emissions savings.
These advertised savings also assume that the government’s increased price tag estimate for new vehicles is accurate. Automotive systems engineers argue that it’s not—the real price is much higher. Robert Bienenfeld, senior manager for environment and energy strategy at American Honda Motor Company, emphasized, “There is concern that if there is too much cost associated with it, we’re going to be hurting demand. It’s a challenge. You can get too far ahead. You can make too big of a leap and go for a higher fuel economy that maybe the market won’t bear.”
Higher prices reduce demand and force people to hold onto their older vehicles longer. Reduced demand means fewer cars produced, which means automakers have to shed jobs. Although not directly applicable to the Administration’s new rule, the Michigan-based consulting firm Defour Group projected that a 56 mpg standard would destroy 220,000 jobs.
At the heart of the issue is consumer choice. Consumers have plenty of vehicles to choose from, including more than 160 different models today that get better than 30 mpg. While some may argue that the increased efficiency came as a result of mandated fuel efficiency standards that have been around since the 1970s, fuel efficiency has always been a top priority for consumers—whether they are purchasing compact cars, light-duty trucks, or heavy duty trucks.
Producers have the incentive to make fuel-efficient vehicles without obligating consumers to make sacrifices for other vehicle preferences. Americans also need larger, safer vehicles for practical reasons: to take their kids to soccer practice, to tow their boats to the shore, or to haul equipment or produce on small farms. Those decisions should be up to the auto manufacturers to balance those tradeoffs to supply the vehicles that consumers demand. If they can’t, their sales will suffer as a result.
It’s not the role of the government to determine this balance. In fact, the government could be backing the production of vehicles consumers do not want. For instance, GM is suspending production of its electric vehicle, the Chevy Volt, for a month because of slow sales.
Even though President Obama stressed that he had “no intention” of running General Motors when he bailed out the company, these new fuel standards effectively foist a management decision on all automakers.
