President Obama today announced a deal with 13 automakers to boost new-car fuel economy standards from 35.5 mpg in 2016 to 54.5 mpg in 2025. Obama claimed the new standards will save Americans $1.7 trillion over the lifetime of vehicles and $8,000 per vehicle by 2025.
But you’ve got to wonder, if the fuel-saving technologies requisite to meet the new standards are such a great bargain, why do we need a law forcing automakers to adopt them? After all, auto companies are in business to make money, they compete for customers, and there’s not a consumer alive who enjoys pain at the pump.
What we can likely expect from the new fuel economy standards is more costly vehicles that impose net losses on consumers, lighter vehicles that provide less protection in collisions, and a less competitive auto industry.
The U.S. government’s 40-year-old corporate average fuel economy (CAFE) program is a case study in unintended consequences. During its first 25 years, CAFE boosted domestic sales of Japanese and European imports, which typically had a 50% higher mpg rating than American automobiles in 1975. Partly as a consequence of CAFE, the U.S. market share of foreign-designed vehicles increased from 18% in 1975 to 29% in 1980 and 41% in 2000 (National Research Council, p.15). Few members of Congress anticipated or desired such disastrous results when they created the CAFE program in 1975.
There are two main ways to increase a car’s fuel economy: (1) downsize the vehicle and (2) add new technology. Adding new technology raises new car prices, “forcing some consumers, especially those with low incomes, to hold on longer to their old cars,” observes my colleague Sam Kazman. In general, oldcars are more polluting than comparable newer vehicles. In any event, lawmakers did not think they were voting to keep clunkers on the road when they created CAFE.