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President Announces Next Steps in Vehicle Fuel Economy

Posted on July 29, 2011 by Scott C. Dunsmore

On July 29, 2011, President Obama announced the next stage in increasing fuel economy for vehicles sold in the U.S. According to the rule, the corporate average fuel economy rating will be bumped up to 54.5 miles per gallon by 2025. That’s a significant bump from the current 35.5 mpg that the manufacturers have to deal with for the 2012–2016 model years.
 
This arrangement has been underway for about two years. In fact, during the president’s announcement, he was accompanied by executives of all of the major auto manufacturers of the U.S. marketplace, including the Big Three from Detroit. My initial response was positive. I felt good that the industry is working hard to find a balance between consumption and natural resource utilization and environmental impact. As a side note, the president touted the efforts as a way to reduce the country’s reliance on foreign oil and save consumers $1.7 trillion dollars in fuel cost (a very nice side benefit indeed).
 
At first glance, it would appear that all manufacturers are on the same playing field. However, in reality, the non-U.S. companies bring an advantage to the game. This juxtaposition is best illustrated in a recent report in USA Today regarding the positive, yet tenuous, financial position of the Big 3 U.S. auto manufacturers. In discussing the potential risks to the Big Three’s positive growth and recovery, one line regarding the EPA’s planned fuel economy rating boost struck my attention,
“Ever-tightening federal fuel-economy regulations almost dictate many more small, lightweight cars for automakers to hit the required average of 35.5 mpg in 2016 and perhaps 54 mpg by 2025, according to the latest not-so-private discussions between the White House and the auto industry. But you can’t sell what people won’t buy.”
This thought was further clarified by Kelly Blue Book’s market analyst, Jack Nerad, “Americans don’t have an affinity for small cars. When they can, they like to get into bigger, more comfortable cars.”
 
The U.S. maker’s success at introducing smaller, more fuel-efficient cars seems to fall flat when compared to the success of foreign ones. Foreign manufacturers have built a reputation around reliable, yet smaller vehicles. The U.S. manufacturing base has had greater success in feeding the U.S. appetite for larger sedans, SUV, and light-duty trucks. If the marketplace is going to be forced to purchase smaller, more fuel-efficient vehicles, I wonder if the Big Three can survive (they won’t be able to live on pick-up sales alone).
 
I believe most people are in favor of a reasonable balance between manufacturing/consumption and environmental protection/natural resource preservation. However, with the U.S. manufacturing industry limping along (the auto industry, in particular, in a precarious position), is the timing of this effort and the extent of this change the best for U.S. manufacturing and the economy? For me, the jury’s still out. What are your thoughts on this policy?
 
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