How About A Matchbox Car To Drive

smallcarBefore long the only car I will be able to drive is one of my son’s Matchbox cars. 

President Obama announced that he wants the auto makers to improve fuel efficiency standards (CAFE) to 35.5 MPG by 2016 – four years earlier than required by law.  At the front end, this sounds great.  I would love to have a car that got 35.5 MPG, but at what total cost?
The current standard is 27.5 MPG for cars and 24.5 MPG for light trucks.   Jumping from 27.5 MPG to 35.5 MPG in just over six years is a massive jump.

Obama Said:

“The projected oil savings of this program over the life of this program is 1.8 billion barrels of oil.”

My initial questions are:

  • How much will these cars be with typical increases in cost over those three years? 
  • Will the price increases eat up these potential savings?
  • Where will the Government get the additional tax money not collected through the gas tax (reduced consumption = reduced tax money)?
  • Why the accelerated push to increase the standards?

Don’t get me wrong, I’m all for reducing dependency on foreign oil and a cleaner environment, but it seems that these standards are really a wash in the end.  We will probably pay more for gas with added taxes and we will be forced to drive smaller cars down the road.  The Government will obviously not come into your house and take your gas guzzler, but choices will be diminished. 

There really is no other way around it.  Auto companies will have to have an average of 35.5 MPG for their whole fleet.  So…if an SUV only gets 15 MPG, another car in their company must average higher than the standard to meet the average.  Without saying it, this high standard will reduce choices for consumers in the long run.   Not to mention the safety issues for a lighter car – all those SUV’s will not immediately go away.  It is obvious that President Obama is taking advantage of the weak auto companies by accelerating the standards. 

 

Here is a full video of the press conference:

To be fair, these standards have been around since the mid 70’s and have been supported by many administrations, but that doesn’t make it a good idea to force auto makers to produce cars that the consumer is not interested in buying.  It is obvious that the public wants more fuel efficient cars but have been unwilling to give up comfort to achieve this end – those two ideas don’t intersect very often.

This is much ado about nothing catering to the EPA and the environmentalists.

Of course, this is just my opinion.

Rob’s Rant

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10 Responses

  1. […] This post was Twitted by robsrantings – Real-url.org […]

  2. My Accord gets 32 mpg. A VW can easily get 40 mpg. I don’t see this standard as being hurtful.

    Thinking strategically as I am paid to do, revving up the standard will make American cars more competitive and revive the dreadfully moribund domestic auto manufacturers.

    There are three drivers for car buyers: quality, interiors, and mileage.

    If you have a family of 4 or 5, which is typical, they are going to buy a larger car. I don’t expect them to purchase a sedan. But they can build them to be much more gas efficiently than they have been.

    Americans bought SUVs as a compromise between space needed to transport the family and the cost of fuel. They were then, and they are still today, willing to pay more for fuel.

    That elasticity has helped auto manufacturers. Otherwise they would have gone bankrupt back in 2000. With the economy in serious trouble, consumers are in a savings binge. It is no longer buy any old thing.

    They really need to work on quality, with mileage close behind.

  3. I’m glad to see that you have a couple of fuel efficient cars. That is your choice to buy those vehicles – I’m in the same boat as you – I choose mileage over style. The financial problems the US automakers are experiencing have more to do with their self imposed legacy costs than poor manufacturing. The foreign auto makers do not have the same long term costs for pension, healthcare, etc. to deal with – smart on their part in my book – but that’s neither here nor there.

    My major complaint with these type of standards is that I see this reducing choices for the consumer in the long run. Improved fuel economy is great, but you’re not going to get the 35.5 in an SUV – and to achieve this level you will have to have a whole fleet of highly fuel efficient cars – that the public will actually buy – to equal things out.

    I hope that the manufacturers will build more fuel effiecient cars, but they really don’t have much of a choice in this fight, do they? Sounds like they need to learn a thing or two from the foreign auto makers.

  4. I disagree that self-imposed long term costs on American auto manufacturer’s has anything to do with their problems. Their single biggest problem is market share. I would go as far as saying mind share.

    The proof of the above statement is that if overnight their legacy costs could vanish, their crappy cars would still be here. I would think of them as crappy until they proved otherwise.

    Toyota today makes cars that are more expensive than GM or Ford, yet they manufacture and sell more cars in the US than GM. Your readers should know also that a GM car is over 50% foreign manufactured (parts, sub assemblies).

    About your choices and standards. Standards are not placed arbitrarily by someone who all of the sudden decided a number sounds good. It is placed there by what researchers say can be accomplished. Obama accelerated lenient, foot dragging, Bush era rules. Notice Toyota isn’t complaining!

    As for choice, eventually technology could probably build an SUV that gets 40 even 50 mpg. It may be a hybrid that at slow speeds and a coasting speeds burns no fuel and at acceleration or high load pulls uses fuel. That could even reach 90 mpg.

    • OK, let’s run the scenario.

      Let’s say the car prices for foreign manufacturers are higher and that ½ of the parts on many “U.S. Made Vehicles” are made overseas. That being said, those same foreign based manufacturers (Toyota, Nissan, etc.) do not have to deal with the heavy legacy costs and the restrictive union rules. Here is a great explanation on legacy costs – although I’m sure you know all about these.

      The U.S. Automakers are about in the middle of the pack as far as quality. I personally own two Ford vehicles, but have owned numerous other vehicles from U.S. manufacturers with minimal problems. I have no problem with buying a “foreign” auto (not quite the term it used to be since all major “foreign” manufacturers have US plants). I choose the best quality vehicle that gets decent gas mileage without a lot of extra effort on my part, but that’s me.

      The biggest problem that the U.S. Automakers have had for years is the UAW. The per-hour cost imposed is exorbitant and restrictive to a competitive environment. How would they be performing if these restrictions were not there and they had non-union shops like Toyota, Nissan and others? Toyota and Nissan are not complaining because they know that they can beat the big three on per unit cost every day but Sunday regardless of how much they charge for their vehicles.

      It is obvious that quality can be improved and gas mileage should be improved – that we can agree upon – but I don’t believe that enforcing accelerated CAFE standards on an already crippled US Auto industry will actually speed their recovery. I’m guessing that this will send them deeper into their already massive problems.

  5. One of the reasons we are so polarized in the US is that information is often consistently misrepresented. I stop listening when a think-tank consistently repeats falsehood. The Heritage Foundation is notorious in this regard.

    PolitiFact was setup to check claims made by democrats and republicans alike. I give you three sources

    http://www.politifact.com/truth-o-meter/statements/2009/jan/13/spencer-bachus/big-three-wages-inflated/

    http://www.leanblog.org/2009/02/problem-isnt-union.html

    http://blog.cleveland.com/letters/2009/01/the_truth_finally_surfaces_reg.html

    The big-3 have lost approximately 2/3 of their market share. That is huge. In your last response you acknowledged the quality issues that GM and Ford have, calling them “about in the middle of the pack as far as quality.” Why settle for the middle and pay thousands of extra to repair a vehicle? Why not just buy the best consistent quality? Apparently 2/3 of GM and F customers have done just that.

    GM and F have for years deeply discounted cars in an effort to boot short term sales. This, plus mid range quality, have caused resale values of these cars to drop.

    Contrast this with European and Asian cars whose strategy is to avoid deep discounts. This creates a much healthier dealer network, and retains resale value.

    European manufacturer’s have significantly higher employee costs, which begs the question of why is that GM, F and C are bankrupt. The answer isn’t labor costs. The answer is the substantial falling demand for their vehicles.

    I have owned GM and F cars. They all had quality issues. They can keep their cars.

    • I figured the Heritage link would get you going, that’s the reason I put it out there.

      Through the links you have posted, you have made my point about the high legacy costs. Most employees don’t think of their “wage” as the total of their salary or hourly wage plus all the benefits included. My company did an assessment of each employee a couple of years ago highlighting not only salary but health benefits, retirement benefits paid by the company, etc. I was not surprised at my total salary – but most were.

      Now, my company was not short sided enough to put money in a ridiculous pension system and pay for retirees health care for the rest of their lives, but we don’t have a union either.

      I’m all for letting the chips fall where they may. Yes that would mean lost jobs across the board, but I believe we are just delaying the inevitable by pumping money into failed business models. I thought it was a bad idea to bail out everyone when it started before the election and I feel the same today. Maybe this is something that we agree on – or maybe not. Either way, it’s a bitter pill to swallow – but it needs to be taken to get better in the long run – if there is a long run to get better for.

  6. Actually, it doesn’t prove your point (I’ll elaborate why below). Your point has been that labor costs have pushed GM to bankruptcy. My point is that their crappy cars (you call it average quality) has destroyed their market. Let’s look at that theory.

    – If GM’s legacy costs would disappear tomorrow, GM would still be in trouble. It has last 2/3 of its market. It has fallen below the tipping point of recovery.

    – It’s lost all of this market share because of quality and because it’s discount system has destroyed resale value.

    To prove my points, GM will enter bankruptcy this week or next. It will substantially reduce it’s legacy costs: people, pensions, obsolete buildings, and supplier contracts.

    We will have lean and mean GM. It will still be crappy. Not a single new buyer will buy their cars.

    My second point is that CAFE can be the rebirth of GM. To get new buyers it should lead in CAFE standard, not avoid them. At least then there will be a reason to buy GM.

    Those were my two points. I think they are proven.

    To prove legacy costs all you have to do is to go to the balance sheet. Those huge costs should have been funded earlier like a fund. Most of those costs were substantially funded that way. It doesn’t carry them on the balance sheet.

    Further, your links don’t compare Toyota with GM. It simply compares Toyota hourly rate with a supposed GM hourly rate — which is wrong on all counts. Again, Heritage doesn’t disappoint in producing distorted data. It would appear to me that you buy it hook, line, and sinker. I choose to use more reliable sources.

  7. 50mpg is already commercially available
    http://www.newsweek.com/id/130439

    • Great, but that really doesn’t solve the problem that was posed. If you want a smaller car, then you will get better gas mileage. If you a larger car or truck or van then you trade lower gas mileage for comfort and/or capacity. Time will tell if the car companies can actually get the higher mileage average they will be required to by the US government.

      I’m more than done with government bailouts for any of these industries. If they have a problem with their business model and they are bleeding money then they need to fix the problem. As we have seen in the past week, there are compaines willing to take on parts of GM. The cry of foreign ownership falls on deaf ears in my book as this is a symtom of the much larger problem with organized labor demanding short term gain at the expense of long term viability.

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