Are these new fuel economy standards a good thing? Really?

Yesterday was a perfect example of what’s wrong in Washington and why we need a “cap” on spending and a balance budget amendment. President Obama announced a new fuel economy standard that US auto makers reluctantly agreed to- 54mpg average (between all vehicles sold in the US) by 2026. Sounds like a good thing, right?  It’s not.

First of all, consider that last year, in spite of their fuel economy and the high price of fuel, hybrid vehicles only accounted for 2% of the vehicles sold in the US last year. Ford sold TWICE as many F150 trucks as they did all of their hybrid models COMBINED! Auto makers argued, this is clear evidence that Americans are not interested in these high-priced vehicles, regardless of their fuel economy.

Secondly, car makers warned that raising the fuel economy standard as high as the president wanted could lead to job losses. Auto prices are already at record highs with some pickups costing in excess of $70,000. In order to meet the proposed new standards (which call for an average mpg rating), vehicles will have to be developed that far exceed 50mpg; and the investment required to develop the new technologies will drive vehicle prices much higher. With consumers already balking at vehicle prices, especially on hybrids, market analysts warn that increased prices will lead to a slump in auto sales which will result in a loss of jobs in the auto industry and among small businesses that supply components to the auto makers.

In spite of these sensible economic objections, auto makers were convinced by the President to sign on to these new fuel economy standards. How, you may ask? Did the car companies have some sort of awakening? No. The President ‘sweetened’ the deal by offering tax credits to auto makers and including a policy review in 2017! What does this mean? It means that the American taxpayer will, essentially, subsidize the development of fuel economy vehicles that Americans won’t be able to afford and have already shown a reluctance to buy; and which will, inevitably, cost jobs. The analogy has been made, by economists, that this is like dealing with obesity by forcing clothing companies to produce nothing but small sizes.

The Administration and it’s supporters have spent the last 2.5 years blaming government subsidies, loopholes and tax credits to corporations and favoritism to special interest groups for a significant portion of the debt and the current budget crisis. Now, at the height of the nation’s biggest fiscal crisis EVER, the President engages in yet another spending spree to advance an environmental policy that he personally likes and that his political base likes. A policy that Americans doesn’t want, can’t afford and will cost American jobs.

Political analysts say that this an effort by the administration to mitigate damage among liberal Democrats that are angry with the President over his apparent willingness to negotiate on entitlement reform.  Business as usual in Washington- at it’s worst.

Politicians, on both sides of the aisle, are suffering from the “I don’t mind cutting as long as it doesn’t effect me” disease! Unfortunately, the President seems to suffering from it even worse than many others. It would be one thing if this move had a trade-off of significant job creation or would have a positive economic effect for the average American, that would outweigh the cost. Unfortunately, the BEST Americans can hope for is more expensive vehicles that are unlikely to provide fuel cost savings that outweigh the additional cost of the vehicle and that will be subsidized with taxpayer dollars. The WORST case is the same result in addition to a massive loss of jobs when auto sales slump because vehicles are too expensive to afford!

In addition, previous fuel economy standards have led to decreases in vehicle safety, increases in automobile related deaths and questionable reductions in overall emissions. Studies by groups like the National Highway Transportation Safety Administration, The Brookings Institute and the National Academy for Science have found that similar fuel economy standards (CAFE standards) led to reductions in vehicle safety and led to between 41,600 and 124,800 deaths, depending on the study. Additionally, the studies found that CAFE standards led to between 352,000 and 624,000 additional serious injuries in traffic accidents.

Whether or not government-imposed fuel efficiency standards actually reduces emissions is hotly debated. For every study that claims emissions will be reduced, there is another that shows they won’t. Studies that claim emissions will reduced ASSUME that (and rely on) people will not change their driving habits when presented with a more fuel efficient vehicle. Unfortunately, studies into this particular question show the opposite. As people acquire more efficient vehicles, they drive more; which often leads to a net increase in emissions as compared to their previous habits in their old car.

Additionally, there are many indications that the prices that auto makers will be forced to charge for these high fuel efficiency vehicle will be more that most consumers can afford. Even today, with the high price of fuel, sales of current hybrids and electric cars are extremely slow, to say the least. They are, frankly, out of reach of most Americans and many just don’t see how they can recoup the enormous cost of these vehicles through the increased mileage they offer. Don’t forget that on top of the vehicle sticker price, most buyers will pay interest charges that total thousands of dollars before the vehicle is paid off.  It takes a LOT of driving just to save $1000 off fuel economy.   and a HIGHER cost to the consumer, rather than the promised savings.

Remember, the new standard requires that the average mpg rating  of all the vehicles an auto maker SELLS (not produces) meets a particular standard. So, if a particular car maker sells work trucks (i.e. Dodge 2500 pickup, Ford F350 pickup, etc.) that only get mileage in the 20’s, they are required to sell enough vehicles that exceed the 54mpg requirement so that that the average of all sales is 54mpg.  If they don’t there are penalties. With current sales of hybrids and alternative fuel vehicle only accounting for a tiny fraction of the market, and all the issues already discussed, its reasonable to assume they will only account for a small percentage of sales when the guidelines go into effect.  Who will incur the penalties when these standards aren’t met?  The consumer.  The car makers may, initially, pay the ticket but they will pass those costs on to the consumer eventually; further raising the costs of vehicles.

With all these negatives and the fiscal crisis, it’s hard to imagine any reason, other than a political one, why the President would press this issue right now. It’s actually hard to understand why such a proposal would be put forth period, at any time, were it not for political concerns. One thing is for sure, this announcement smacks of the hypocrisy, poor timing and influence of special interest groups (particularly environmentalists) that have plagued Washington and led to much of the current debt and budget problems. The only way to begin to curtail this reckless type of favoritism and spending is to impose some sort of “check” or “cap” on spending; and the only way to permanently limit it is to implement a balanced budget  amendment to the constitution. If politicians are only given a a specific amount they can spend to get EVERYTHING done, instead of the power to borrow as much as they want, they will have to consider what they spend money on. Just like we do. IF a balanced budget amendment were in place and they want to implement a new program, they would have to find they money within the budget instead of simply borrowing it or printing it like they do now.

If you want to do some more reading on fuel economy standards and their real effects, check out this article from the Institute for Energy Research


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