Will new CAFE standards tank car sales?

Will new CAFE standards tank car sales?

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The federal government is about to enact one of the highest jumps in mandatary fleet fuel efficiency requirements, known as the CAFE standards. These rules require an automaker to make all the cars it produces reach a combined average fuel efficiency, which under the new regulations will be 34.1 mpg by 2016. This is the biggest jump since the standards were created in 1975.

As with all things related to government bureaucracy and the lobbyist-industrial complex, the formulation of the standard is extremely complex and filled with both loopholes and taxpayer-funded incentives. However, the bottom line from the point of view of the car buyer, which is let’s face it just about all of us, is that just the increased fuel efficiency requirements alone will raise auto prices about $1,000 on average.

That’s a good-size hit, especially when you consider how badly the auto industry has been doing in this recession. It makes you wonder whether this will be another reason for folks to hold onto their old cars for just a bit longer than they would have. I’m certainly not among those who buy a new car just because the old one is paid off, but a big chunk of the auto-purchasing public is. And basic economics tells you that for every dollar that you inflate the price of something, that’s another fraction of a percent of buyers you put off from buying it. How many buyers will forgo the new ride for an extra $1,000?

I’m not saying that higher fuel efficiency is bad, but the reality is that these standards are so convoluted, they don’t even really bear a relation to real world numbers. An automaker’s miles-per-gallon figure can be adjusted based on changes to the car’s design, what percentage of trucks and SUVs they sell, and all kinds of other metrics that have nothing to do with actual fuel efficiency.

I can’t wait to see how this continues to muck up the economy and the auto industry. Maybe by 2016 we won’t just own Government Motors (GM), but Ford and Chrysler too.

 

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Written by
Domenico Bettinelli

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