Higher Fuel Economy Standards Will Increase Car Prices And Slash Jobs

As President Obama pushes automakers to develop more fuel efficient vehicles, a study by the Center for Automotive Research predicts that higher mpg requirements would make cars more expensive, decrease the demand for cars, and cut jobs.

Based in Ann Arbor, the center estimates it would cost automakers between $3,744 and $9,790 per car to develop vehicles that would achieve the government’s proposed mpg standards, which would range from 47 mpg up to 62 mpg by the year 2025. The center’s estimate is much greater than what the Environmental Protection Agency and National Highway Traffic Safety Administration previously estimated, $770 and $3,500 per car.

The center also believes the increase in cost to produce vehicles will exceed the money saved on fuel, which will discourage potential car buyers. As these fuel economy standards only apply to newly produced cars, car buyers may be driven to shop for a used car instead. By 2025, the study predicts up to 5.5 million buyers could be lost due to the higher prices for vehicles which would result in 25% a drop in sales. This decrease in demand for cars translates to a loss of 260,000 car manufacturing jobs.

By 2016, the government wants the average fuel economy for vehicles to be 34.1 mpg. The NHTSA estimates from 2012 until 2016, it will cost automakers $51.5 billion to reach those standards.

Automakers have also been active in opposing high mpg requirements. The Alliance of Automobile Manufacturers, a trade group consisting of Ford, GM, Chrysler, Toyota, BMW, and other automakers, believe costs are much higher than what the EPA and NHTSA predict. They have been advertising on the radio that high mpg standards could take away jobs in the auto industry. One of the Alliance’s ads stated “we also know that a big drop in sales can lead to a big loss of jobs. Let’s wisely raise fuel economy levels, while at the same time preserving affordability and jobs.”

On the other hand, environmentalists and advocates of the 62 mpg standard by 2025 say estimates by automakers and their supporters are exaggerated. Says Ronald Hwang of the Natural Resources Defense Council, “Over the past four decades, the auto industry has consistently exaggerated the cost for meeting new pollution standards by as much as 9.5 times the actual costs.”

Also, environmentalists regard these studies and estimates as “propaganda”. They point out that the Center for Automotive Research receives substantial funding from federal, state, and local governments and some corporate funding from automakers. Says David Friedman, of the Union of Concerned Scientists’ Clean Vehicles program, “The Obama administration should ignore this industry-advocate propaganda piece and focus on setting the strongest vehicle efficiency and global warming pollution standards based on credible scientific analysis.”

The center insists the study was not commissioned by the auto industry and consisted of data and information acquired from the National Research Council and J.D. Power and Associates. The center also claims that the estimated costs they presented were considered conservative by two automakers that analyzed the study.

Environmentalists also claim costs to make vehicles more fuel efficient will decrease as new technologies are developed. For example, some experts believe the new “P2” hybrid systems used in current hybrid versions of the Volkswagen Touareg, Infiniti M35, and Hyundai Sonata offer the same fuel economy as the hybrid system in the Toyota Prius, but can cost up to a third less.

The Obama administration has estimated a 47 mpg standard would reduce greenhouse gas emissions by 3 percent and a 62 mpg standard would reduce emissions by 6 percent. The 62 mpg standard has been supported by 17 U.S. Senators, who wrote a letter last month expressing their support for higher mpg requirements.

Photo credit: flickr.com/photos/foot-slogger/1328074340/

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