New fed fuel efficiency standards solve everything
posted at 12:00 pm on July 16, 2011 by Jazz Shaw
Last month we took a look at some of the possible side effects of the administration’s proposed, higher fuel efficiency standards in light of the law of unintended consequences. Jumping the gun to guidelines calling for better than fifty miles per gallon vehicles before the science caught up to these desires was already looking pretty dubious. Now, Kelley Blue Book (one of the older names in all things automobile related) has weighed in on the subject and are equally unimpressed.
The typical recounting of the scenario largely goes like this: Federal sources estimate that increasing fuel efficiency to 56 mpg by 2025 will be accomplished at an average cost of $2,100 to $2,600 per vehicle, but the savings resulting from higher fuel economy would save vehicle owners $5,500 to $7,000 over the vehicle’s lifetime. Sounds just fine, doesn’t it? There will be higher initial costs, but they will be a good investment, because car buyers will save money in the end.
But if one looks past the rose-colored predictions of the politicians (from both sides of the aisle, by the way), the picture gets a little cloudier. First, what the previously cited estimates fail to mention is that the typical new-car owner won’t own the car over its entire lifetime, so one has to wonder how interested new-car buyers will be in paying significantly more for their vehicle – and an average of $2,500 is significantly more – for little obvious benefit to their own pocketbooks. (The cynical answer to that is if they want to buy a new car, they won’t have any choice). Given the scenario that has been painted to prepare the way for the approval of the new regulations, owners would break even sometime between two and-a-half and three-and-a-half years of ownership, when many cars are still in their original owners’ hands. But the breakeven point and the accuracy of the entire scenario depend on correctly predicting future fuel prices, which is an iffy prospect at best.
Their conclusions about the Obama administration’s predictions regarding 56 m.p.g. standards are rather harsh, and actually include the phrase, “built on a house of cards.” Other sources we have contacted have been less kind. You can try to force the auto industry to deliver higher mileage cars, but you can’t tell them to take a loss on the sale, so if the needed changes drive the price through the roof, guess who gets handed the bill?
People without jobs are looking to hold on to their cars for longer, and if they must replace them, they’re going to want the best deal possible. The number of unknowns which the White House is trying to juggle shoves this argument into the realm of fantasy. In addition to having to predict the cost of gas, what sort of loan arrangement will the buyer be able to obtain in an uncertain, floundering economy? What will the interest rates be to pay back a larger loan on a more expensive vehicle? All of these factors subtract from any projected savings and simply result in saddling the consumer with a higher price tag.
Before the White House decides to jump this particular shark, they may want to get a few more people involved in the discussion. Maybe somebody for example… oh, I don’t know… who actually designs and builds car engines? Food for thought.
Breaking on Hot Air