Should Detroit Dial Down The Doom & Gloom Over High-Mileage Rules?

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Barack Obama

Barack Obama

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We've heard this script before.

Some agency of the Federal Government proposes a new rule that will affect the design and performance of cars in some way, sometime in the future.

Instinctively, reflexively, automatically, viscerally, the industry lashes out.

Horror, catastrophe, misery, bankruptcy!

It will cost BILLIONS of dollars! Consumers will pay THOUSANDS more per car! Sales will plummet! Jobs will vanish! It will DESTROY the industry !!!

It happened with the earliest safety requirements, with every round of emissions and gas-mileage regulations, with new roof-crush standards, and so on. Remember, the auto industry even fought seat-belt rules and shoulder-harness requirements--vigorously--half a century ago.

So it's time for some perspective on the gas-mileage rules now being developed by the National Highway Traffic Safety Administration (NHTSA) and the Environmental Protection Agency (EPA) for 2017-2025 cars, under the direction of the Obama administration.

Think they'll devastate the auto industry? Bring rack and ruin upon long-suffering auto workers? Don't believe everything you read.

Beyond 34 mpg average

The current rules will require passenger vehicles to reach a fleet average of roughly 34 mpg by 2016. Today's average is about 25 mpg.

Eminem in Chrysler's Super Bowl XLV ad

Eminem in Chrysler's Super Bowl XLV ad

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And the main way it will happen is through smaller, more efficient gasoline engines. Sure, we'll see more hybrids, and plug-in cars will slowly start to enter the fleet. But wringing more miles out of each drop of hydrocarbons in your tank is largely what will get us there.

New rules now being considered could raise that average to 48 mpg, perhaps as high as 62 mpg. And, appropriately, various entities are trying to assess the costs and benefits of the proposed rules--independently of the EPA and NHTSA, which have their own numbers.

Car sales to fall by 50 percent ?!?!?

Detroit media have given quite a lot of space to dire predictions from the Center for Automotive Research (CAR), which says proposed fuel economy averages of 47 to 62 mpg will cost carmakers and consumers from $3,750 to $9,800 per vehicle.

U.S. Environmental Protection Agency adminstrator Lisa Jackson and President Barack Obama

U.S. Environmental Protection Agency adminstrator Lisa Jackson and President Barack Obama

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The NHTSA and EPA, which are evaluating proposed new standards now, said meeting the rules would cost $800 to $3,500 per vehicle.

That would more than be offset by money saved on gasoline over the life of the car, depending on projections of future fuel prices.

The CAR report further predicted that annual sales would fall by 5.5 million vehicles--that's half this year's total, and one-third the normal sales level--and destroy more than a quarter-million jobs.

Study not funded by carmakers

CAR, based in Ann Arbor, Michigan, is closely associated with and partially funded by the industry. President Jay Baron told Automotive News, however, that the study was "internally funded."

The domestic auto industry is now in the middle of a wrenching transformation. Ten years ago, all the profits at GM, Ford, and Chrysler came from pickup trucks and large sport-utility vehicles, and their passenger cars were largely uncompetitive.

That's no longer the case, but those three companies still rely far more heavily than Toyota, Honda, Nissan, and Hyundai on trucks versus cars. They have the most to lose from higher mileage standards.

So perhaps it's worth asking whether there are any counterweights to CAR's gloom and doom.

Well, maybe not

Lo and behold, yesterday the Boston Consulting Group released its own projections. They are considerably less dire.

First 2011 Chevrolet Volt built on production tooling at Detroit Hamtramck plant, March 31, 2010

First 2011 Chevrolet Volt built on production tooling at Detroit Hamtramck plant, March 31, 2010

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In fact, says BCG, improvements in gasoline engine efficiency will allow automakers to cut fuel consumption by fully 40 percent over the next decade. That's more than better aerodynamics, weight reduction, better transmissions, and more efficient accessories added together.

And it would let automakers meet the mileage standards proposed for 2020 at a cost of $2,000 per vehicle or less. That's before taking into account any impact from electric cars or plug-in hybrids, which would further reduce fuel consumption.

That $2,000 is half the cost of the same improvement in diesel engines, due to the pricey emissions aftertreatment required, 40 percent of the cost of either a hybrid-electric system or natural-gas conversion, and just one-fifth of the cost of a fully electric car.

$2,000 or less

Phil Gott, managing director of industry analyst IHS Automotive, says his projections are far closer to BCG's. "The cost impact on the average powertrain," he says, "is well within that $2,000 limit."

Ford Four-Cylinder EcoBoost Engine

Ford Four-Cylinder EcoBoost Engine

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He points out that today, complete powertrains including the fuel system cost the carmaker from $10 to $30 per kilowatt of output. That means a 100-horsepower engine runs from $750 to more than $2,200. The new rules may add 50 to 60 percent to that cost.

But, he notes, everyone's costs will go up, and the net effect for consumers is that cars will be somewhat pricier. Which, he says, will reverse the years-long trend of cars getting cheaper in real (inflation-adjusted) dollars even as they have gotten more powerful and added vastly more features.

"Doom and gloom?" he asked. "I don't think so."

Onus on the EPA

Analyst Dave Sullivan of AutoPacific also points out that the EPA will likely have to adjust its calculations to account for the impact of new technologies not currently factored in.

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Comments (14)
  1. The former Detroit Big Three have been crying like that since the 1970s. They HATE it when told what to do by the NHTSA and EPA. Buncha kids!

  2. Higher CAFE and increased vehicle costs will have two negative effects: slower fleet turnover due to the higher initial cost, and, for those purchasing the high MPG vehicles, lower driving costs leading to higher miles driven. Both effects will lessen the expected reduction in oil consumption, unless the political will can be found to gradually increase the federal fuel tax, thus motivating people to buy the new cars and drive less.

  3. The claim that the gov rules have proven worthwhile is pure bunk. Antilock brakes have long been known to have zero effect in reducing either the number or severity of accidents. The DOT's safety tests are a joke and totally fraudulent : equally rated
    cars can have zero similarity in actual safety performance. The govt rules will likely, as always, be irrelevant - if gas prices stay high, sales will move to smaller cars, but if not, people will simply keep their big cars. Those who think that Detroit has nothing to fear are nuts - With their high labor costs, the unionized Big Three cannot exist making small (or inexpensive) cars. These mileage regs will bankrupt GM and Chrysler,losing our $105 billion "investment" to save them

  4. Another issue here are the cost estimates. The govt has NEVER estimated anything properly and their estimates are always very optimistic. For example, here they are simply trying to add up the costs of the parts or design changes to increase mileage.
    But what they don't realize is that the more complicated the machine, the higher the maintenance
    and repair costs and the less reliable the car. Antilock brakes are a good example. They ALWAYS go bad and are useless, but must be repaired and they cost a fortune to fix. So here we have the govt mandating a device that doesn't work, and costs far more than their original estimates. Govts aren't qualified to do anything. Look at the economy.

  5. Voelcker is right on here. You need only look at the Toyota Prius to see that cars can be made with much higher fuel efficiency, at a profit, for a price people are quite willing to pay.

    All too often, people will put up the money for "larger" and "faster acceleration". That same money could be put to use for better MPG, saving the customer money in the long runs.

    As for the industry claims, typical BS that hopefully people can see right through. A few years ago, the FCC was looking to mandate digital TV tuners in all TVs just as TVs of the past had analog tuners. The industry claimed it would cost $250 per TV. This was at a time when you could purchase external digital tuners for $150. Flat out lying. Real cost

  6. Although I agree that the D3 cried wolf for years about simple requirements like air bags and seat belts, I also suspect that nobody here is an engineer in the industry, either. Incorporating 5-10 different technologies to improve mileage 150% by 2025 (if 62 MPG is chosen) simply won't happen for $800-$1,200 as some claim.
    Between cylinder deactivization, start-stop, electric power steering, turbocharging and direct fuel injection, just to name a few, costs will go up much more. Fine with me, actually, but the changes will not be as cheap as many assume.
    One easy example: J. Briggs comment about TVs; only $150, you say? Liars, you say? Okay, if an external tuner is $150, what does it cost to move the tuner inside as needed? Next post...

  7. What does it cost to develop an internal tuner? How many months of concepts, validation work, testing, etc... How much would it cost to re-work TV factories to make the modified TVs? Developing a new internal tuner isn't free, nor is testing, validation, changes to production, etc...
    It's just not that easy. Seat belts and air bags were small areas, not the work across many areas that better mileage requires.
    Again, to be clear, I'm okay with the added costs because of the payback, but to claim that improving mileage 150% can be done for less than $2,000 is a stretch. And yes, sales will be reduced, although I think more 10% than the panic numbers shown. The tipping point will cause a few to delay, but most consumers will still but. My $.

  8. @robok2 I am an engineer that has worked directly in consumer electronics. True, it many cost a million to validate a design, but for a high volume product, that unit cost is extremely low. Also, once you have a design in hand (and all the TV makers did) the incremental costs of requalificating for another TV is very low. Don't forget, the have to qualify the TV anyway, the tuner is just one component of it. This is just normal business in a world of FCC and UL requirements as well as internal company tests that are probably even more extensive than the governments require test.

    In any case, these companies exaggerate.

  9. Also, you seem to think that automobiles are sold in a "cost +" environment rather than in the market price environment that they are sold in. The fact is, as Voelcker hinted at in another post, that high fuel efficient cars might not be any more expensive. They might however be missing expensive features like power leather seats.

    If the target price point is $29,000, car companies will either add in fuel efficiency equipment or leather seats to meet that price. They won't exceed the price because the market is not there.

  10. It's funny (or sad) that we so often trash "Detroit" because it's what we know... You are likely unaware that European automakers (especially those from Germany) have been digging in their heels against tougher EU emissions regulations. But of course you didn't know that... It doesn't fit the simpleton "good vs. evil" agenda of the typical auto journalist. BTW, who can tell me how many years after catalytic converters were developed by GM and mandated in the US, were they required in Europe under their Euro I emmissions standards?
    Clue: Rhymes with "eighteen"

  11. @John B, I stand corrected if you're an engineer but to compare consumer electronics and automobiles is a major stretch to begin with. I work for one of the largest motor suppliers in the world for both industrial/IT and automotive and please let me know when a TV has thousands of components, some that share fluids, some which combine mechanical/electronics, etc...
    The comparison with seat belts and air bags is particularly useless, one component compared to dozens. Yes, dozens, meeting 62 MPG (which I generally support) means transmission changes, more turbos, higher overall motor efficiencies, etc. I've got a list of 5-10 gas -saving technologies and what we estimate cost per system and you won't be reaching anywhere near CAFE for $2k.

  12. @Robok2,
    You may be right about $2,000 not being the right number for reaching 62 MPG.

    I didn't wish to compare a TV tuner to an automobile. I only wanted to say that there is a great tendency of corporate officials to greatly exaggerate the cost of government mandates. The TV tuner story is just one such case where the cost was said to be $250 and is probably more like $10.

    There may be some good news in all of this. If you look at something like the Prius, the total cost of ownerships is actually quite low. That is to say that the purchase price, fuel costs, maintenance, etc are below average.

    Hopefully government mandates on fuel end up benefiting the consumer rather than costing more.

  13. @John B. I agree with you and think our thinking is still 90-95% similar. I've always been a harsh critic of the D3 but I just think the scale here is different, that's all. In the end, whatever it costs, I think it's likely to be worth it in the end, but we will have to see.

  14. I'd like to know more about why you've always been a "harsh critic of the D3", and why you think their business model is different than any other manufacturing company?

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