62 MPG Standard Could Add $10,000 to Cost of New Car

New study warns of sales collapse, loss of jobs.

by on Jun.15, 2011

To save fuel American motorists might have to spend heavily on new automotive technology, warns a new study.

With federal regulators studying the possibility of raising the Corporate Average Fuel Economy, or CAFE, standard to as much as 62 miles per gallon, a new study warns that such a move could increase the cost of the typical American automobile by as much as $10,000.

The report, by Ann Arbor, Michigan’s Center for Automotive Research, or CAR, also warns that annual automotive sales could tumble by as much as 5.5 million units, with motorists choosing to hang onto their existing vehicles longer rather than pay a steep price hike that will be difficult to make up in fuel cost savings.  In turn, said the CAR study, that could cost as many as 265,000 U.S. jobs.

“The risk,” warned the new report, “is serious.”

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But the new report is sharply contrasted by another study released this week which found that it might cost as little as $2,000 to adapt to a 62 mpg study, largely by adopting new technology to improve the time-tested internal combustion engine, rather than trying to switch to more advanced battery or hydrogen propulsion systems.

The new CAR study appears to assume that more advanced technologies would be needed to meet future mandates, such as the 62 mpg standard the EPA is considering for 2025, which would mark a more than 60% jump from the current 37.5 mpg target set for 2016.

“Consumers will shun these technology costs by holding onto their used vehicles longer, especially if fuel prices are low,” perhaps around $3.50 a gallon, the CAR study stated, “resulting in lower sales and a loss of automotive employment. Over 260,000 jobs may be lost if the highest mandate is passed and fuel prices stay.”

The 62 mpg standard would require an annual improvement in fuel economy of around 6%.  Regulators are under pressure to scale back, if not abandon the mileage standards entirely, and are looking at lower numbers, possibly in the range of 47 mpg.

But even if the U.S. holds off on boosting CAFE, the industry won’t be entirely off the hook.  European bureaucrats are taking an even more aggressive approach.  The Continental concern is global-warming CO2, and they are expected to mandate a sharp reduction in the emission of that gas. Since CO2 production is directly linked to fuel consumption, however, the Europeans may effectively demand an increase to somewhere around 100 mpg.

The new CAR study runs in conflict, meanwhile, with another new report prepared by the Boston Consulting Group.  (Click Here for the full story.) While CAR warns vehicle prices could surge by as much as 28%, the BCG analysis projects that by 2020 the cost of meeting new fuel economy mandates in the U.S. would add only about $2,000, or about 7% of today’s typical vehicle price.  That could readily be made up by owners in terms of fuel savings, especially if gas prices rise, as many analysts anticipate.

The BCG study contends advanced gasoline engine technologies, such as direct injection and turbocharging, can achieve significant gains, minimizing the need for a wholesale switch to electric propulsion.  In fact, the consultancy anticipates that all forms of battery-based vehicles will capture barely a 15% share of the worldwide automotive market by 2020.

The huge gap between the two studies was not lost on various industry watchers.   On one extreme, conservatives used the CAR data to warn against the Obama Administration’s proposed mileage hikes.  But the Union of Concerned Scientists countered that the Michigan group’s report was little more than “propaganda” for those who prefer the status quo.

The CAR study explored the expansion of automotive safety standards as well as increased mileage regulations, and cautioned that new mandates will increase the cost of a car by $1,500 by 2025.

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3 Responses to “62 MPG Standard Could Add $10,000 to Cost of New Car”

  1. r123t says:

    Maybe it is just me, but when I think of what might happen 14 years from now, what policies might be enacted, what the politics might be like, I think where we were in 1997. I think of what I considered reality 14 years ago and that tells me that while certainly it is an absolute that we do “what if” planning, thorough contingency thinking, and game-plan things to the best of our human abilities, there is just too many things that we do not know about future technologies to really be thinking that 62 mpg, or 100 mpg, might or might not be affordable, not affordable, possible, or not possible. Fourteen years ago I was happy with internet dial-up, my cell phone was huge and service was limited, my 25-inch TV weighed 150 pounds, economically times were good and we thought they’d never end, and my mid-size car got 20 mpg on a good day. As a history major in college, I learned that things in the past were never as good as they seemed and the future is never as bad as one might fear, so count me as one who thinks that fourteen years from now technology will exist that conveniently, and relatively inexpensively, meets these standards. No, I don’t have any objective science to back this up, but as I look to the recent past and see how quickly technology has changed, I have few doubts that science, engineering and manufacturing will come together to meet this challenge. Dare I say the political world, given the rise of younger leaders who see the world in a much different way than my aging baby-boom group, might actually facilitate this change?

  2. Michael Rose says:

    Questions about how particular fuel economy policies will play out reminds me of what economist John Kenneth Galbraith said about his profession, “The primary purpose of economic forecasting is to make astrology look respectable.”

    • Paul A. Eisenstein says:

      LOL…Great point, Michael. Consumers clearly don’t help. They generally demand better mileage, all the more so when fuel prices spike. Yet the sales data often conflict with those demands. Notably, by July 2008, sales of large cars and trucks had started to recover — even before the previous gas price run-up had hit its peak.
      Paul A. Eisenstein
      Publisher, TheDetroitBureau.com