Fuel economy

Published on March 20th, 2017 | by Steve Hanley

6

CAFE Review May Destabilize US Auto Industry

March 20th, 2017 by  
 

Be careful what you wish for, you just might get it, the old expression goes. After dropping their drawers and bending way over in supplication to the new president and his designated EPA wrecker Scott Pruitt, US automakers cheered when the putative president announced last week in Michigan that he is ordering a CAFE review for the standards due to take effect in 2025 — the same standards the Obama administration did its best to set in stone just before leaving office.

Image via PenroseonPolitics Blogtoons

But there may be a problem. Business leaders want nothing more than predictability. Chaos costs money and chaos is what all the whining and puling by Detroit executives has gotten them. The Donald says the review will take a year. So what do the car companies do now? Plan for a revocation of the rules so they can crank up production of the Hummer II and the Ford Excursion? What about all the money they have already spent to cut the weight of their pickup trucks, develop 10 speed transmissions, and create downsized, turbocharged engines? Is the mighty iron block American V-8 about to make a comeback?

There are other questions. Where should they build? Will Trump jam the Border Adjustment Tax down their throats? He already wants to eliminate the Advanced Technology Vehicles Manufacturing loan program that all the companies welcomed. Most of them are still paying back loans arranged during the Obama administration, which pretty much proves conclusively what a bunch of two-faced, double-dealing, whiny losers the heads of America’s auto industry are.

Amory Lovins is the chief scientist at the Rocky Mountain Institute and a prolific author. He has written an excellent op-ed for Forbes in which he details in exquisite detail precisely why the US car companies have shot themselves in both feet with a double barrel shotgun by demanding a CAFE review redo.

Competitive Disadvantage

Lovins’ first point is that regulators in other countries care not one whit what US regulators do. The European Union and China are pushing forward with tougher standards than anything the EPA has ever proposed. The US companies risk falling far behind their competitors abroad if they abandon their quest for higher average fuel economy. Lovins says foreign automakers will “happily take market share if we weaken ours.”

Second, he argues that the car companies have already invested billions to improve fuel economy and risk squandering that investment. Despite all the weeping and wailing about government regulations strangling the demand for American manufacturing jobs, the buying public still puts a premium on good gas mileage. You would be hard pressed to find a buyer who doesn’t at least glance at the fuel economy numbers listed on the window sticker of that shiny new Belchfire 5000 in the showroom.

How Many Dead Soldiers Does It Take To Justify Corporate Profits?

Lovins third point is his most powerful. His words say it better than anyone else could — how much loss of life and squandering of national treasure are we Americans prepared to accept to stay wedded to our beloved fossil fuels? He writes:

“Auto efficiency rollbacks would threaten our national security and prosperity. As Rocky Mountain Institute’s Pentagon-cosponsored Winning the Oil Endgame showed in 2004, America’s $2-billion-a-day oil purchases incurred hidden costs—paid not at the pump but through our taxes or incomes—totaling at least $4 billion a day or $1.5 trillion a year, in three roughly equal parts: oil price volatility, OPEC’s monopoly pricing (supported by U.S. oil dependence), and the readiness costs of U.S. forces earmarked for Persian Gulf interventions.

“That last half trillion dollar a year chunk was about ten times what America was then paying for oil from the Gulf; it rivaled total U.S. defense spending at the height of the Cold War. The cost in blood was even more important: our sons and daugh­ters have twice gone to the Gulf in 0.56-mile-per-gallon tanks and 17-feet-per-gallon-equivalent aircraft carriers because we didn’t put them in 29-mpg autos.

“The Gulf War’s $7 billion net fiscal cost to the U.S. (after other countries’ $54 billion contributions) was equivalent to just one year of a $1/bbl price increase. Yet spending less than $7 billion to buy oil efficiency instead could have eliminated all Gulf oil imports and saved many lives — assuming, as seems plausible, that the United States wouldn’t have sent a half million troops to liberate Kuwait in 1991 if Kuwait just grew broccoli.

“Mideast oil is also fear­fully vulnerable to physical or cyberattack (directly or via its brittle infra­struc­ture) on key facilities and chokepoints. This makes the whole world economy hostage to hostile neighbors or small groups of skilled fanatics.

“A prudent America would not continue to hold itself and its allies at risk of supply interrupt­ions and price shocks by prolonging its dwindling dependence on imported oil. That is exactly what a CAFE rollback would do, undercutting the Pentagon’s mission.

“To reduce and ultimately eliminate oil’s hidden costs, the biggest lever, now as then, is auto efficiency. The auto industry measures its value in the narrowest possible way—dollars saved at the pump. Those depend on oil price, a 158-year random variable, and are also woefully incomplete.

“A more weighty and durable measure of value is national security. The Pentagon is wisely preparing to need no oil, because it is finite, its supply and use harm public health, it is at the root of Mideast instability and the climatic threat multiplier, and it funds not just American oilfield workers but also the foreign enemies with which the Administration is most concerned.”

Gee, that sort of makes US automakers seem like a bunch of clueless clods interested in nothing other than their own selfish interests, doesn’t it?

Efficiency Gains Will Cost Less In The Future, Not More

Finally, Lovins argues that the progress toward making efficient automobiles to date makes future efficiency gains less expensive rather than more so. “In all, the industry’s remarkable engineering skills could make autos 4 to 8 times more efficient, far simpler, more desirable — and also appealing not because they’re efficient but because they’re better.”

Turn The Engineers Loose

He concludes with this bit of insight: “So if I were leading a US automaker, and my competitors — aiming to return to the illusory comfort of weak rules, slow competitors, and undiscriminating customers — told me they’ll throw their lawyers at today’s CAFE standards, I would reply: Good luck with that, but my strategy differs. I’ll throw my engineers at those standards, and my engineers will beat your lawyers.”

The US carmakers have bought themselves a period of chaos during which rational planning for the future will be impossible. That unpredictability can do nothing but damage their bottom line and reduce their competitiveness. But they have done the same thing many times before. Some people never learn from their past mistakes.

Source: Forbes





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About the Author

I have been a car nut since the days when Rob Walker and Henry N. Manney, III graced the pages of Road & Track. Today, I use my trusty Miata for TSD rallies and occasional track days at Lime Rock and Watkins Glen. If it moves on wheels, I'm interested in it. Please follow me on Google + and Twitter.



  • Jim Smith

    all of this is based on huge assumptions. CAFE should die. Just because CAFE dies, it does not mean all automakers will only make gas guzzling vehicles. Car companies must respect consumer demand. Build all the 4 MPG monster trucks you want, if no one is buying them, you won’t be in business long.

    Oil is why the USA and all countries of the world are not 3rd world crap holes. We will never run out of oil, it will simply get too expensive to extract. EV’s are here to stay. The cat is already out of the bag. Cars will get more efficient regardless of CAFE.

    If Honda could develop an Accord with equal or better performance, comfort, fuel economy, and pricing they would as they would sell a ton of them. Simple markets drive the whole thing.

  • Ed

    1. Lovin’s comments deserve to be screamed to the world. Excellent and spot on…although “4t o 8 times more efficient” seems like an unnecessary comment – one open to lengthy technical debate – that hurts credibility.
    2. I add more specifically that an estimated one third of the massive US Defense budget can be shown as defending access of fossil fuels. That is about $200 billion per year.
    3. And correctly, the writer makes the point that increased uncertainty is the worst planning element for any industry, and perhaps especially the auto industry, where lead-times are long. Decide the rules NOW….and get the industry back to work.
    4. CAFE is an historic problem…but it was our chosen means to restrain imported oil use. It would be very disruptive to try to abandoned CAFE; far better, perhaps, to “tune” CAFE to meet today’s goals.
    5. Detroit insists that it just wants to build cars consumers want to buy. To get the consumer behavior that we know is best for the nation and the planet, the solution is higher fuel costs….via a fuel tax. Call it a Carbon Tax is you wish.
    6. I insist that Detroit is doing what Detroit has historically done:

    https://uploads.disquscdn.com/images/ac9180bdfc8a150134b5d7d1ffe6db1b309bca08da40a67c240c8e36a6628a79.jpg

    • Steve Hanley

      When will they ever learn? When will they ever learn???

      I find it reprehensible that the military costs expended over the decades to guarantee America’s (and our friends’) access to oil is never ever mentioned. When the car company heads start blathering about how CAFE hurts the economy, they never ever factor in the cost in human life associated with being able to sell all those gas guzzlers they are so worried about.

      The more I cover this topic, the more I think the industry heads are despicable, amoral people.

      • Ed

        I would not accuse Detroit’s leaders of being amoral, but for sure, they are going beyond the rules when they lobby selfishly for rules that make it easier to make a profit with their current cost structure, claim to be giving the public what it wants, but ignoring the environmental impact – the externalities – of their work.

        The reality of business is that society, through its elected officials, establishes the rules by which business will be regulated. We should expect that a business will then push to the limits – finance, technology, environmental, labor, etc, – in order to outdo competition. But as the world changes – 1 billion vehicles on the road today vs. perhaps just 100 million in the late 1940s – society needs to change the rules. Flawed though it may be, and uncoordinated with the rest of the world, CAFE is what we Americans agreed to do. Of course, Detroit has been “gaming” CAFE ever since, with the full culpability of Congress.

        So….that brings us to the current discussion of altering the CAFE for a few short years. Realizing that the outgoing administration set up the current administration to take a hit on this matter, I am not as anxious about the change….as long as the 2025 requirement stays in place, as THAT is the standard to which Detroit – bailed out by the taxpayer, don’t forget – has been driving. KEEP THAT STANDARD!

        And….let’s “help” the consumer by instituting a graduating fuel tax NOW. That will help everything come together by 2025.

        Lastly, you and your fellow writers need to develop a visualization tool to show what our world would look like if CO2 exhausted our vehicles as solid pellets instead of gas. Driving a Chevy Impala for 200 miles would leave 340 pounds of pellets on the highway!

      • Ed

        And, “yes”, I was a PP&M fan

      • Deplorable Day

        Whoa, you might want to drink a bit less kool-aid there, friend. Even if your false statement that American soldiers are fighting for oil were true, far more Americans would die from the lack of oil than die from wars. You might refer back to the current Tesla/autonomous argument. All choices have consequences. Sometimes even the best choices still have a toll on human life.

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