This week, the Obama administration finalized new-car fuel economy rules that’ll nearly double the mpg standards for cars and light trucks by 2025. The new “CAFE” (corporate average fuel economy) standards mandate that automakers average 54.5 mpg for their cars by 2025, compared to 29.7 mpg now. How will consumers and the auto industry as a whole be impacted by such groundbreaking, across-the-board regulations?
Speaking to U.S. News, Jesse Toprak, analyst for the car-research site TrueCar.com, called the new rules a “win-win-win for everybody” (“a win for consumers, a win for manufacturers, and a win for the environment”), but some players appear to be coming out as bigger winners than others. And some of the involved parties say that the regulations actually represent a loss.
Here are some of the effects the new regulations are likely to have in the years to come:
Drivers will pay more upfront. Previously, the National Automobile Dealers Association (NADA) had forecast that new car prices could rise by as much as $12,000 when the new mileage standards take effect. NADA’s more recent studies indicate that the standards will “hike the average price of a new vehicle by nearly $3,000 when fully implemented.” Because of the price increases, NADA states that roughly 7 million people won’t be able to afford new cars. What’s more, “If this rule suppresses new vehicle sales, achieving the nation’s greenhouse gas and energy security goals will be needlessly delayed.”
Republican presidential candidate Mitt Romney has also bashed the new standards. In a statement to MLive.com, a Romney spokesperson described the regulations as “extreme,” noting that “The president tells voters that his regulations will save them thousands of dollars at the pump, but always forgets to mention that the savings will be wiped out by having to pay thousands of dollars more upfront for unproven technology that they may not even want.”
But drivers should save in the long run. Despite higher initial costs, cars that get better mileage are expected to wind up as net money-savers for future drivers. A 5 mpg improvement would save over $500 per year in gas for someone who drives 15,000 miles annually. Consumer Reports, which estimates that new technologies will boost car prices by $1,800 to $2,200, says that the price hikes “would be more than offset by fuel savings.” Government sources indicate that drivers will save around $8,000 over the life of a vehicle that meets the new mpg standards.
Natural gas-fueled cars should see a sales boost. The car models with the highest mpg ratings—hybrids and plug-in electric vehicles—obviously stand to benefit when the new mileage standards take hold. But they’re not the only cars likely to experience rising sales. One of the new tweaks to the mpg standards gives extra credits to automakers selling natural-gas-powered vehicles in the U.S. The credits can be used to bump up the manufacturer’s overall mpg average. As Bloomberg reported, Honda is currently the only automaker currently selling such vehicles in the U.S. Naturally, a Honda executive was quoted saying that the credits make sense, not just because the incentives benefit Honda, but because “a dedicated natural gas vehicle reduces CO2 emissions by 25 percent and petroleum consumption by 100 percent.”
Clean diesel car sales will rise too. While pointing out that sales of clean diesel vehicles have already risen 27.5% in the first half of 2012, the Diesel Technology Forum (DTF) issued a statement welcoming the new standards—and proclaiming that these cars will grow more popular because of them. “Because clean diesel autos are 20 to 40 percent more efficient than gasoline vehicles, diesel will be a major player in the nation’s effort to achieve the new mileage standards,” said Allen Schaeffer, DTF executive director.
V8s will virtually disappear. Nowadays, about half of new cars have 4-cylinder engines, up from roughly one-third in 2007. Family cars and SUVs like Ford’s Escape and Edge are now equipped with 4-cylinder engines rather than V6s, and many pickup trucks have downsized to V6s from V8s. Speaking of the V8, Chrysler and Fiat CEO Sergio Marchionne tells the Detroit Free Press that the high-powered engines now used in muscle cars like the Dodge Charger will become “as rare as white flies” thanks to new fuel-economy standards.
Cars will get lighter and lighter. Automakers are shifting to smaller engines not only because they are more fuel efficient, but because they are lighter—allowing cars to get by with less power. In addition to downsizing engines, brands such as Ford, Mazda, GM, and Land Rover are launching major initiatives to drop weight in cars, all with the idea of improving mpg ratings.
Dealerships, automakers, and auto workers will cash in. In recent years, drivers have been willing to pay more for small cars not only because of their superior fuel economy, but because the small cars of today come with more options and a better overall feel than the bare-bones, rinky-dink vehicles of the past. As consumers grow more interested in small cars, automakers can get away with charging more for these cars. So, as U.S. News’ Rich Newman put it, the increase mpg standards come as “good news for automakers, because they’re able to make better profits on small cars that typically have razor-thin margins.”
Adam Lee, chairman at Lee Auto Malls of Maine, issued a statement predicting that the new mileage standards “will help me to sell even more cars.” With “absolute confidence,” Lee said that “my customers want cars, trucks and SUVs that go farther on a tank of gas. I support the 54.5 mpg standard because it will keep American automakers competitive in the world market, it will keep my customers happy, and it will help me to sell even more cars.”
For obvious reasons, workers in the auto industry are also welcoming the new standards, which bring with them the need for upgrades, innovations—and more work. “The standards will also provide certainty for manufacturers in planning their investments and creating jobs in the auto industry as they add more fuel-saving technology to their vehicles,” United Auto Workers President Bob King said in a statement. “Bringing this additional content to market requires more engineers and more factory workers, expanding employment in the industry.”
Um, something or other will happen to help the environment. Somewhat lost amid the debate about new mileage standards is one of their main purposes—to minimize our impact on Mother Nature. Per USA Today, the environmental advocacy group Natural Resources Defense Council offered some insight as to what the regulations mean: “We’re very happy. This is a good rule, a strong rule,” said Roland Hwang, NRDC transportation director. “This is the biggest step this country’s taken to reduce pollution and our dependence on oil since the original 1970s.”