The Cat Fight Over the Fuel Economy Rules: Would 62 mpg Bankrupt Detroit?
The Center for Automotive Research (CAR), often associated with Big Three-friendly positions, has taken one giant whack at the idea of requiring carmakers to get their fleets to 62 mpg by 2025. The Center predicted on Tuesday that a 62 mpg standard could sour consumers on green cars by making them too expensive, create an employment holocaust (260,000 jobs lost) and backfire--because people would keep their ancient clunkers rather than pay as much as $9,000 extra for clean tech.
It's all very sobering. The government would adopt well-meaning legislation that would have the unintended consequence of keeping us behind the wheel of rusty Ford Tauruses. (Hey! Those are the very cars people call Car Talk about. Come to think of it, maybe Tom and Ray would find themselves in favor of CAR's position? Okay, I highly doubt it.) But the respected Union of Concerned Scientists (UCS) says it's merely a revision of an earlier report (taken to pieces here by the International Council on Clean Transportation), and both are based on faulty data. "This latest version has again dismissed basic facts and made carefully selected assumptions in order to argue against a higher standard," UCS claimed.
Two federal agencies, the EPA and the National Highway Traffic Safety Administration (NHTSA) are considering the new standard, which could fall between 47 and 62 mpg. A decision is expected soon, but it may not be announced until the fall. I talked to CAR's president, Jay Baron, and he was emphatic that consumers are going to reject high-mileage cars. "We do see 47 mpg as potentially viable," he said. "But we don't see 62 mpg as viable under any circumstances. There would have to be gas prices in excess of $10 a gallon. If the fuel savings don't justify the added expense for the green technology, then people will reject them and keep their current cars longer."
I reminded Baron that a failure to field competitive small cars was a factor in General Motors' and Chrysler's bankruptcies, but he said the auto industry has moved on from there. "The Chevrolet Cruze is an example of a domestic car that gets slightly more than 40 mpg [though only in the special Eco edition]," he said. "But unfortunately you end up with relatively small vehicles that don't have the functionality consumers expect today. Hyundai said it can get to a 50-mpg fleet average by 2025, but it typically makes smaller vehicles and not trucks or SUVs."
Yes, but maniacally focusing on trucks and SUVs is what got Detroit into the pickle it's in. Baron thinks that the auto fleet of the future will fail if it moves too far into electrification, but the industry is definitely plugging in, and companies without EVs could fail for that reason.
UCS's Jim Kliesch says that if CAR corrected the errors in its math "it would have found fuel savings exceeding costs within the first five years of owning a vehicle." He accused CAR of "cooking the books about the benefits of higher vehicle efficiency," and claimed that if all of the center's errors are filtered out the net effect would be "a net savings in 2025 and an increase in auto industry jobs."
Baron said that environmentalists are mellowing and recognizing that they're not going to get 62 mpg. "It's like when you ask for a 10 percent raise but then settle for five percent," he said. But the greens are sticking to their position that 62 mpg is achievable. They point, ironically, to companies that have joined with the CAR and the Auto Alliance in opposing the higher standard, while actually fielding better and better cars. Forty mpg is the new 30, and Ford is even aiming for 50 mpg with a new line of turbocharged three-cylinder engines (for cars like the Focus and Fiesta). If they don't build cars like that, they'll get creamed in the world of $4-plus gas.
I got some second opinions on this. James Bell, an executive market analyst formerly with Kelley Blue Book, said that "CAR does a good job of analyzing business, but it's also very protective of the domestic industry. Maybe not that many people are buying electric cars now, because fuel prices aren't killing them yet. But when they walk into the showroom of the future and 80 percent of the offerings are electric, hybrid or plug-in hybrid, you bet they'll buy one. We're going to see electrics ranging from full boat like the Nissan Leaf to the Buick LaCross mild hybrid with eAssist. The LaCrosse would have struggled to get 25 mpg 10 years ago, but now it's a mid-sized vehicle that reaches the mid-30s."
But Michelle Krebs, a senior analyst at Edmunds Auto Observer, said that consumers are very price-sensitive, and that's a danger with expensive green cars. "Income isn't going up, and prices are high," she said. "Even if you're talking about a $3,000 increase, as opposed to the $9,000 CAR cites, it's still sticker shock. But with volume, prices will come down." Krebs agrees that people are holding on to their cars longer, a natural outcome in straitened times.
Lions don't lie down with lambs, and the greens aren't going to agree on this. My guess is that EPA will push for a higher standard, maybe 52 to 55 mpg, and NHTSA will want to come in closer to the 47. They'll meet somewhere in the middle. There won't be a 62-mpg standard for 2025, but the final number will top 50. And auto companies, crying wolf now, will meet the new mandates.