Federal government should set more realistic fuel economy regulations for auto industry
Government agencies reviewing regulations for the Corporate Average Fuel Economy (CAFE) standards should realign current regulations with realistic, marketable goals. The fuel economy standards are already a challenge for the auto industry — particularly Detroit automakers — to meet fully.
And more stringent rules will only hamper auto companies' growth and increase vehicle prices for consumers.
The fuel standards are undergoing a "midterm review," to be completed by 2018. The standards, set by the Environmental Protection Agency, the National Highway Traffic Safety Administration and other federal agencies, are meant to reduce greenhouse gas emissions by requiring auto manufacturers to make vehicles with more efficient fuel economy and other environmentally-conscious qualities.
Rather than soften the standards, there's a good chance they'll toughen them.
To meet current benchmarks, auto manufacturers will have to almost double fuel efficiency from the current average of 27.5 mpg to the 2025 average of 54.5 mpg. But government officials could try to push the average to 62 mpg.
That's despite the fact small, fuel-efficient cars are selling at historic lows, and the sluggish sales are forcing auto plants to slow production. Estimates for electric and plug-in electric car sales have plummeted to less than 10 percent of the market.
Given cheap, abundant gas, consumer demand has turned to trucks and other less fuel conscious vehicles.
"People are listing fuel economy as the 10th most important buying attribute, and only one-third of vehicle buyers mention it as an attribute at all," said Sean McAlinden at the Center for Automotive Research in Ann Arbor of consumer surveys taken by auto manufacturers. "But the technical assessment report won't pay any attention to market issues or consumer feedback."
The Big Three have signaled they're not happy with the more stringent possibilities.
Ford Motor Co. CEO Mark Fields said consumers aren't adopting new technology and electric vehicles anywhere near levels that were expected.
General Motors Co. has been relatively quiet, and Chrysler, now known as FCA US, bought emissions credits from Tesla in 2013 to help meet requirements.
The credits, which auto manufacturers earn selling vehicles with the correct fuel economy, can be bought or sold to other companies and have provided a cushion. But they expire soon, and will be harder to come by as standards tighten.
The credits also heavily favor companies that specialize in small cars, and those companies can make millions of dollars per year effectively subsidizing the standards.
The government estimated new technologies to meet the tougher fuel standards would cost the industry $200 billion. Of course, those costs trickle down to individual consumers, who will likely pay $7,000 to $10,000 more per vehicle by 2025 than today.
The industry isn't refusing to improve emissions. It's already met improved standards, and wants to continue meeting with them, but more gradually.
"54.5 mpg in 2030 or 2035," McAlinden said. "That would make a happy auto industry."
Detroit relies heavily on a successful, profitable auto industry, and American consumers need affordable vehicles. But these regulations with arbitrary time stamps threaten to cause huge problems for both in the coming years.