Automotive News publisher says that after 34 years CAFE still doesn't work
In the wake of last week's announcement by President Obama that the proposed California greenhouse gas emissions rules would be adopted on a national level, Keith Crain, the publisher of Automotive News has published an editorial calling CAFE a failure. The imposition of fuel economy rules certainly played a part in the tremendous technical innovation that has occurred over the last three decades. Cars today are significantly more fuel efficient than they were back in early 1970s while emitting only a tiny fraction of the noxious pollutants they did then and producing much more power. Crain's point however, is that what needed to happen then was a change in American driving habits and the same is true now. The problem is that politicians tend to prefer the course of action that is likely to get them re-elected rather than the one that will actually address the real problem. Thus they have always resisted the idea of raising fuel prices even though that has consistently been shown to have a much larger impact on fuel consumption than any fuel economy rules.
This time around, the new rules may actually have some of the desired behavioral effect although in a round-about fashion. The larger vehicles that Americans have traditionally preferred are going to become substantially more expensive in order to meet the new rules. Rather than directly influencing fuel pricing, politicians think they can hide from the blame for more expensive vehicles that they helped create. The economics of car buying will drive consumers to the smaller vehicles that they will be able to afford.
[Source: Automotive News - Sub. req'd]
Reader Comments (Page 1 of 1)
Kumar 9:21AM (5/26/2009)
The constant counter-argument is that higher gas taxes are a poor-tax on those less able to afford transportation.
I think that's a grand cop-out of course, trying to take focus off of the severe lack of viable mass transit in most larger cities.
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Randy C. 9:26AM (5/26/2009)
The reason CAFE doesn't work is because the auto makers have to much influence over the policy makers. Every time CAFE was ratcheted up the auto makers would lobby to repeal the increase by saying "it's going to raise the cost of a car significantly".
In reality higher CAFE would mean they would have to make and SELL a greater number of smaller inexpensive cars. This would eat into their profit margin more than the fines. They love the profit margin provided by that large SUV. At took steps to make it attractive to a larger segment of the population.
This leaves America with a fleet of large gas guzzling cars. And factories that don't build the smaller car. We have significant problems will excess oil consumption and no alternatives like bio-fuels or electric cars. We can't even export the cars we do make to China because we can't comply with their environmental standards. But China is sure going to be able to send us the cars they make.
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jharlan 9:33AM (5/26/2009)
They key sentence in the piece "The problem is that politicians tend to prefer the course of action that is likely to get them re-elected rather than the one that will actually address the real problem" is profound. The CAFE standards will have little effect on fuel economy or pollution control. They will take the credit, but the factor that will be the real force behind the rapid advancement in auto technology will be competition. Times and things have changed permanently, and the competition for the consumer dollar (or Euro or pound) is getting brutal. I predict the standards will be easily met without huge increases in real price, because of the competition. Basically we look at GM (and Chrysler) and wonder what happened that forced the most powerful;l entity on earth to the verge of bankruptcy, but the answer is competition. Their business model couldn't compete with the Asians.
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lne937s 10:00AM (5/26/2009)
Let's remember that CAFE standard is NOT an absolute barrier set in stone that is punishable by death if you go below...
If your fleet goes below the average, the fine is $55 for every mpg under multiplied by total sales. It is an economic disincentive to make less efficient cars. Even if the automakers make no changes to their fleets for the new CAFE increase, the disincentive will less than $500 per car for most of them. This is easily dealt with if consumers really want less efficient vehicles and is smaller than many of the CO2-related taxes placed on cars overseas. However, in the quest to become profitable, most car makers have tended to comply with CAFE. Given the weakness of the incentive, I think it has been pretty effective.
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augustus 1:40PM (5/26/2009)
Yes but who drives what cars where? You can still buy a SUV and drive it on your daily commute. The environment isn't helped and fuel consumption isn't reduced when the people who buy Prius's (Prii?) are people who only drive ten miles a day. You want to get the commuters into fuel efficient vehicles and that is *at best* only a cost effective proposition as of the current batch of hybrids. CAFE fails at this, you need to make gas more expensive or offer hybrid discounts to people who have long commutes.
Oh and every time I see the ads for the 3rd gen Prius, I think that it was created by the people who do the Mass games for North Korea. Please stop selling the car to the cultists.
lne937s 3:31PM (5/26/2009)
While I support an increase in fuel taxes, it acts as much as a revenue source as a disincentive to burn fuel. For the greatest impact on consumers buying decisions for the least impact on net price of ownership, up front incentives are often more effective...
For example, a car going 15,000 miles per year that makes 10 mpg will see less than a $29 per week increase in fuel cost from a $1 increase in fuel prices. You could charge $1500 per year or $4500 every 3 years for registration based on mileage times miles per gallon, which would create a more visible incentive to buy a more efficient car at the same total cost. If you made the registration fee progressive as efficiency goes down or eliminated it on the most efficient vehicles, the incentive would have even greater impact on purchasing/scrapping decisions while making less total net impact on the market average cost of owning a car. If you figured on a 10 year lifespan, for the same net cost on that 10 mpg car you could apply a $15,000 tax to the purchase price of the vehicle- which would make many people think twice about buying it. If you apply it to the price the manufacturer pays to sell the vehicle (impacting their bottom line), the effect is amplified. People tend to balk a big upfront numbers compared to cost over time- think about solar panel sales.
I'm not saying that CAFE should be the lone means to improve fuel efficiency, but it has been effective in increasing fleet averages considering its very minor impact on consumer prices. The worst-case net impact (no higher-mileage cars to increase the average) of a car that makes 10 mpg (17 below the Standard) divided over a 150,000 mile lifespan is the equivalent of a $.06 increase in gas tax (which would have little impact on behavior). In practice, CAFE net cost broken down on a per-gallon basis is probably equivalent to a fraction of a penny.
The best energy policy would need to be some sort of an "all of the above" approach, including up front, registration and usage incentives. However, CAFE has been successful given its limited financial impact on the consumer.
Glenn 10:12AM (5/26/2009)
Could not agree more. A $2 gas tax is about the only thing that will get us outta the trucks/SUVs. People only respond to one thing - a hit in their wallet. A gas tax will dis-incentivize gas comsumption (decreasing reliance on third world petro dictators) and increase revenue to 1) maintain existing roads and 2) invest in public tranportation infrastructure.
Obama could have done much, much better than support the nonsensical CAFE.
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augustus 1:35PM (5/26/2009)
I agree. The problem with CAFE is that it allows auto companies to continue to make fuel inefficient vehicles so long as they meet the fleet goals. No concern is given to who drives what vehicle how far. A gas tax is what is needed but it can't be a blatant revenue grab on the part of government. I'd recommend that people read up on the net zero gas tax which would reward people for driving more economical cars:
http://www.weeklystandard.com/Content/Public/Articles/000/000/015/949rsrgi.asp
Knuckles 10:15AM (5/26/2009)
@ #2 "We can't even export the cars we do make to China because we can't comply with their environmental standards."
What might your source for this information be? How about backing this statement up with factual sources. I don't believe it. I think the opposite is true - Chinese manufacturers have not been able to meet environmental and safety standards in the developed countries.
The problem behind CAFE is, and always has been, the government is trying to force manufacturers to build cars that the majority of consumers don't want. Like Bob Lutz once said, CAFE is like trying to get the population to lose weight by restricting the sale of pants with a waist greater than 38.
Building a bunch of inespensive econo cars that sit on a lot unsold helps no one. High fuel prices (via tax or market forces) will incentivise the consumer to buy smaller cars and it is the only logical alternative.
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UH2L 11:58AM (5/26/2009)
Politicians doing what's best for themselves or their party in order to get re-elected instead of doing what's best for the country is a fundamental weakness in democracy. I believe in democracy, but CAFE versus slowly increasing gas taxes is a prime example of this. Deficit spending is another. Given that CAFE has weaknesses and limitations, it's really the only way to make our vehicles more efficient. I wish the standards would have been ramped up more slowly but the auto lobby and congress fought against this. As we've seen, the only thing that makes people care about fuel efficiency is when their wallets are severly affected. Contrary to what you might thing, most people don't care about the environment. If they did, they would buy more four cylinder engines or hybrid powertrains and less leather upholstery and sunroofs. The same is true of safety features. People say they want safety, but they would rather pay for luxury features over safety features. I saw such data first-hand when I worked at Saturn marketing.
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stas peterson 9:30PM (5/27/2009)
Randy c,
I have seldom seen such a mish mash of past, conventional wisdom, but no longer relevant, or true, self-loathing anti-American rubbish.
Can't meet Chinas' emissions laws? What Laws?? Where did you dig that up. Their emissions laws would allow non catalytic cars from the early 1970s to pass. They have BARELY begun to implement emission regulations. They are 40 years behind in emissions rules. The US has the toughest regs in the World by a wide margin. Europe is ten or more years behind, and Japan 15. in LA, its better to breath the air out of the tailpipe, than the air going into a modern car's engine.
Next thing you'll say is that Beijing has clean air, since you went on pilgrimage to the Olympics, and to worship at Mao Tsetung's tomb. China had to close all the factories in Beijing province for three months to clear the air enough, to bring and to keep the tourists, and hold the Olympics!
US domestic manufacturer fuel economy is over 31 mpg CAFÉ now, and rising steadily at 5.3 % a year as it has done for 40 years. There simply are not that many gas guzzlers to be had. Most of the remaining ones are imported European guzzling pigs, like the Mercedes, Rolls, Bentleys, BMW 5s & 7s, and the Italian Exotica.
Please wake up, its 2009 not 1980.
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Snowdog 6:38PM (5/26/2009)
Well it seems like rising oil prices will likely make CAFE moot. Even though we are in the midst of a deep recession, every single bit o half decent news and Oil shoots up.
Gas prices are going up big time when we exit the recession. This will do more to getting us more efficient cars than than CAFE would.
Gas taxes are the real answer, but the idiocracy are against gas taxes so it is not politically possible.
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jharlan 9:20PM (5/26/2009)
I am against raising any kind of tax. The governments should learn to live within their incomes like the rest of us. Using taxes to drive public behavior always has adverse unintended consequences. Taxes are more than high enough. Raising taxes always has a detrimental effect on the economy. Politicians in general let taxes creep up and up because it consolidates their power over the people, and they use the spending policies to ensure reelection. That's why term limits are of such critical importance.
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lne937s 10:40AM (5/27/2009)
Term limits are counter-productive. While many people think that anybody off the street can be an effective leader of the largest, most powerful and most complicated organization in the world (US Federal Government), it simply is not the case. It takes extensive legal and policy knowledge and experience to effectively write laws and impliment policies. What term limits do is remove the elected people who have the knowledge and experience to run the government, creating a vacuum. That vacuum is filled by other individuals that have the knowledge and experience, but are paid by special interests and corporations: lobbyists. Elected officials lose much of their power and laws end up being written by the interests/corporations with the deepest pockets that can hire the best lobbyists. Political campaigns are more easily bought due to lack of grass-roots organization and fundraising for the politicians, meaning more of their campaign is funded by special interests... The power just shifts from the decision of the voters to the interests with the most money to spend.
While all taxes effect the economy, the question is which is the least economically impactful disincentive. Payroll taxes are a disincentives to work or hire people. Progressive income taxes are disincentives to make a lot of money. Value Added/"Fair"/Sales taxes are disincentives to buy things. Gas taxes are disincentives to consume finite natural resources that create pollution and send money to regimes that don't like us.
Gas taxes currently do not cover infrastructure spending, much less related subsidies, environmental and millitary spending... they should at least be raised enough to do that.
harlanx6 11:29AM (5/27/2009)
We will have to just be in friendly disagreement on this issue. I have been paying taxes for over 50 years, and It's apparent that the people have to stand up to the politicians on this issue daily or the US will cease to be competitive in the global economy (GM and Chrysler for example). I also advocate taxing individuals, but not businesses (although government regulation of business is critical). I advocate a flat tax. I advocate all tax increases be approved by the people. I also advocate gentle wealth reallocation even though it's tantamount to confiscation of private property. Gas is heavily taxed now, and all revenues from this source should all be used for infrastructure issues. We agree on the critical need to have a real energy program, (which we have never had), that requires we produce all our own energy.
I oppose raising gas taxes because the major impact is on the working poor, and would have a very detrimental impact on small businesses.
I suspect you approve of the European model where everyone gets 2 months vacation per year, and true tax rates are at about 85% of income. With the load of unemployable people the tax payers have to carry in this country I would hate to contemplate the consequences.
Though I disagree, I value the dialog, understand where you are coming from, I suspect we have the same goals, and offer the opportunity for you to defend your position. I am a work in progress and can change my mind.
Julius 1:05PM (5/27/2009)
I'd argue that as an overall balance, we are taxed less than other countries. And whether or not that's a good thing, it's the one effective tool government has that can alter behavior to the better. Otherwise, what mechanism do you propose to get people to change?
If gas remains at $1/gal, what's the incentive to stop driving that big SUV? Do we leave the public at the mercy of wild fuel price swings or try to encourage ways to reduce consumption of oil? As it stands, the "free market approach" to reducing oil consumption won't work until we've seen a significant decline in oil stocks (e.g. past-peak). At that point, it'd arguably be "too late" for America to pay for the changes needed to survive "after oil".
harlanx6 5:26PM (5/27/2009)
We are an increasingly energy hungry society and it is not just vehicle fuel. We need a real energy crash program to gain energy independence (something we have needed for at least 30 years, but the malfeasance of our elected officials has kept the status quo)..
We need to be challenged on every way we use energy. Incentives are far more effective and less damaging than raising taxes. All new power plants should be nuclear, solar, wind, hydro, tidal, every source that doesn't add CO2 to the atmosphere. We need to develop carbon capture and recycling for existing fossil fuel power plants. As we clean up our energy production, the revolution to EVs will mean something. As it stands it doesn't make much sense to power EVs with electricity produced by coal burning power plants.
Greg 11:19AM (5/27/2009)
I have to say that CAFE hasn't done anything except give politicians and the auto industry something to argue about. Every time the deadline comes for the auto industry to have to meet the standards, they relax them and set another standard to meet at some point in the future. Yes, fuel mileage has risen - it's what consumers want. It's simple supply and demand. This was evident when our fuel prices spiked last year. Truck sales tanked, more diesels were imported, electric cars got media attention, every auto maker was touting their fuel efficient vehicles, etc.
When the fuel costs more, we budget around it or replace our inefficient vehicles. I'm not for taxing more, but raise the fuel tax incrementally over the course of the year. (can't take credit for this idea, someone - name escapes me - from Car & Driver wrote something similar years ago - and it made perfect sense to me)Take every single penny and put it right back into the transportation infrastructure, not line some industry or governments pockets. Better roads, better mass transit systems, better efficiency for traffic, fund the incentives toward more fuel efficient vehicles, etc. Improving these would improve our overall fuel economy.
I'd rather not pay more for my registration for my "guzzler" JEEP CJ (11mpg with a tail wind) that someone pays for their Insight/Prius. I don't drive it many miles per year, so my impact is low. (thank you Prius owners who offset my footprint) Give an incentive to the consumer - tax credit, cash back, better interest rates, etc. and let them decide with their wallet. That will drive automakers to produce the cars people want. It's already starting. GM makes large trucks that get 20mpg - they wouldn't if there wasn't a demand. BMW trumpets there efficient dynamics - having the best economy of all European luxury brands. Again demand. Every automaker is looking at, or developing, other technologies to find the next best thing for the future - to sell more cars.
I'm no expert on anything, but fundamental rules apply here I think.
I'll pay more for my gallon of gas if I know my ride home would be with light with traffic and pothole free.
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