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Hi All:

___Here is what the insiders are saying (or are told to say) about future CAFÉ standards in the upcoming energy bill(s).

Jason Vines – Chrysler Group Media – Oct. 16, 2007



There’s a lot brewin’ with the CAFE or Corporate Average Fuel Economy regulations. Trouble is, it’s more confusing than choosing between a Tall, Grande or Venti coffee at Starbucks – the kind of people you usually get stuck behind in line.

First things first - we’re good with the CAFE increase as outlined in the Hill-Terry bill in the House.

But many reports continue to miss or ignore the auto industry’s biggest beef with the CAFE provision percolating in the Senate Energy bill…the combination of cars and light trucks in calculating fleet average fuel economy.

By eliminating the distinction between cars and light trucks, the Senate Energy bill would greatly affect vehicle choices for millions of Americans who depend on trucks. In fact, a recent Lehman Brothers study found that the Senate Energy bill would cut the sale of large pickup trucks by 60 percent. It would also force vehicle prices to shoot up faster than the cost of a cup when Starbucks came to town – some say upwards of $7,000. So much for choice, utility, affordability and preserving jobs. That makes as much sense as a double espresso decaf.

Like a Starbucks, one size doesn’t fit all. People have different needs for different vehicles for different utilities. Try using a compact car to haul construction equipment, run a small business, tow a boat, or travel on a cross-country journey with a large family.

Hill-Terry keeps the fuel economy standards for cars and light trucks separate. That’s why Hill-Terry has the backing of the auto industry, including Toyota, not to mention a broad range of other groups from the recreation, agriculture, construction and other industries.

Hill-Terry requires automakers to raise their combined car/light truck average fuel economy by up to 40 percent, to between 32 and 35 miles per gallon by 2022. The Senate Energy Bill? It requires combined car/light truck average fuel economy to rise by at least 40 percent to 35 mpg by 2020.

Hill-Terry sets tough fuel economy targets – up to a 40 percent increase. That’s not some decaf solution. It's tough but feasible, and it’s a smart way to tackle our nation’s addiction to oil.

The upshot of all this? Trucks are different beats from cars and need to be distinguished in any new CAFE regulations.
___I have not phrased a response just yet but I am getting real tired of seeing this kind of BS diatribe inside of a media only outlet on an internal Auto manufacturer’s blog? WTF :angry:

___Good Luck

___Wayne

You're not going to like this one then Wayne.;)

Don't Raise CAFE Standards
by Jerry Taylor and Peter Van Doren

Jerry Taylor and Peter Van Doren are senior fellows at the Cato Institute. Van Doren is also editor of Regulation magazine.


Everybody in Washington wants to force the auto industry to make more fuel-efficient cars and trucks. President Bush wants to require new vehicles to meet federal standards (to be determined) based on how heavy they are. The Senate wants to mandate that every car, pick-up truck, and SUV sold in 2020 average a fuel efficiency of at least 35 miles per gallon — far more aggressive than the 27.5 mile per gallon standard now in place for passenger vehicles. The House could offer an amendment on fuel standards from the floor on Friday. Either way, we'll find out later this week what's in store.

Would the market produce "too little" conservation without corporate average fuel efficiency (CAFE) standards? At first glance, no. The "right" (that is, efficient) amount of gasoline consumption will occur naturally as long as fuel markets are free and gasoline prices reflect total costs. In fact, a review of market data by Clemson University economist Molly Espey and Santosh Nair found that consumers actually overvalue fuel efficiency. That is, they pay more up front in higher car prices than the present value of the fuel savings over the lifetimes of the cars.

But driving imposes costs on others that aren't reflected in fuel prices, like environmental degradation. Because gasoline prices do not reflect total costs, consumption is higher than it ought to be. Congress is therefore doing the economy a favor by mandating increased increments of energy conservation, right?

The argument is clever, but wrong.

Increasing CAFE standards will not decrease the amount of pollution coming from the U.S. auto fleet. That's because we regulate emissions per mile traveled, not per gallon of gasoline burned. Improvements in fuel efficiency reduce the cost of driving and thus increase vehicle miles traveled. Moreover, automakers have an incentive to offset the costs associated with improving fuel efficiency by spending less complying with federal pollution standards with which they currently over-comply.

Those two observations explain calculations from Pennsylvania State economist Andrew Kleit showing that a 50 percent increase in CAFE standards would increase total emissions of volatile organic compounds by 2.3 percent, nitrogen oxide emissions by 3.8 percent, and carbon-monoxide emissions by 5 percent.

Another rationale for CAFE standards is that gasoline purchases send money to foreign terrorists who kill and maim with our dollars. Energy conservation, according to many, is our "ace in the hole" against al Qaeda and its ilk.

If there were a relationship between our "energy addiction" and Islamic terrorism, one would expect to find a correlation between world crude oil prices and Islamic terror attacks or mortality from the same. But there is no statistical relationship between the two. Terrorism is a very low-cost endeavor and manpower, not money, is its necessary determinant. That explains why even the lowest inflation-adjusted oil prices in history proved no obstacle to the rise of Islamic terror organizations in the 1990s.

While it's true that nasty regimes like Iran are getting rich off our driving habits, the extent to which oil profits fuel its nastiness is unclear. After all, Pakistan is a poor country with no oil revenues, but it had no problem building a nuclear arsenal. The same goes for North Korea. Iran without oil revenues might look like Syria. Venezuela without oil revenues might look like Cuba. In short, while rich bad actors are probably more dangerous than poor ones, oil revenues don't seem to make much difference at the margin.

Finally, we're told that CAFE helps secure our energy independence. But the amount of oil we import is related to the difference between domestic and foreign crude oil prices. Reducing oil demand may reduce the total amount of oil we consume, but it will not reduce the degree to which we rely on foreign oil to meet our needs.

Regardless, tightening CAFE standards would have little impact on any of these alleged problems. If the Senate's proposed CAFE standard of 35 mpg by 2020 were to become law, it would reduce oil consumption by, at most, about 1.2 million barrels a day. Given that the Energy Information Administration thinks world crude oil production would be 103.8 million barrels a day by 2020, the reduction would be 1.2 percent of global demand and result in a 1.3 percent decline in price; nowhere near enough to defund terrorists, denude oil producers of wealth, or secure energy independence.

Congress has no business dictating automotive fuel efficiency. That's a job for consumers, not vote-hustling politicians. There are no problems for CAFE standards to solve. Hence, they shouldn't be tightened; they should be repealed.

This is why it takes sooo long to get things done in Congress.

Opponents treat this like its the automatic-weapons ban for trucks, like they'll become illegal or extinct. Its not as if government workers are going to go knocking on doors demanding everyone give up their trucks. GM has already shown initiative that they are capable of producing hybrid suvs. They just needed the kick in the pants to get them motivated.

Molly Espey and Santosh Nair found that consumers actually overvalue fuel efficiency. That is, they pay more up front in higher car prices than the present value of the fuel savings over the lifetimes of the cars
What?? I'll bite on the fact that hybrids have a higher initial cost. That part they actually got right. But its not as if once the loan is paid off that the car's value becomes $0. I imagine hybrids also carry a fair premium on resale, anyone confirm this? Of course they do! And how many hypermilers can account that it doesn't really take all that much time for the premium to pay for itself in savings.

As for the choice, utility, affordability and preserving jobs. Scare tactics. They want to win over as many people as they can by waiving an American flag and talking about patriotism. How patriotic is it for GM and the likes to produce FE cars for Europe and dinosaurs for the US? This is a wakeup call for all the car companies. Let the competition begin........... or resume?

This is sooo like many of the plots in the doctor shows from Dr Kildare to ER - patient told they need a lifestyle change and they scream and kick for a magic pill instead.

I smell a rat. Let me be specific.....

The CATO article said: "In fact, a review of market data by Clemson University economist Molly Espey and Santosh Nair found that consumers actually overvalue fuel efficiency. That is, they pay more up front in higher car prices than the present value of the fuel savings over the lifetimes of the cars."

When in fact the Espy and Nair's article abstract said:

"The marginal value of increased automobile fuel economy is estimated using a hedonic model of 2001 model year automobiles sold in the United States. This value is then compared to the average expected lifetime fuel savings attributable to increased fuel economy. Results indicate that automobile buyers fully internalize fuel cost savings attributable to improved fuel economy at low discount rates, and may partially internalize other perceived benefits of improved fuel economy such as reduction in global warming or fossil fuel dependence." MOLLY ESPEY, SANTOSH NAIR (2005) AUTOMOBILE FUEL ECONOMY: WHAT IS IT WORTH? Contemporary Economic Policy 23 (3), 317–323.

Decoding the abstract for people who didn't do graduate work in econ, this abstract says that after the authors crunched the numbers it looked like people paid extra to drive cars that didn't pollute so much in addition to the extra upfront amount that fuel economy paid them back at the pump.

(BTW: I have difficulties accepting the authors' conclusions at face value for technical reasons that include difficulties in predicting future resale values of cars and future prices of gas. For example, their conclusions might be changed by data that would reflect recent gas price increases. Maybe hybrid owners just expected higher future fuel costs?)

IMO Saying that hybrid drivers are willing to pay extra to be "green" seems to be very different from saying that they "overvalue" fuel efficiency.

The Cato authors appear to have misrepresented the original authors' conclusion--you should always check Cato's citations-- they too often take honest work out of context.

Of course if the gas tax were raised to cover gasoline's pollution and national security costs maybe the Cato authors' calculus about rational vehicle choice would be valid, but I don't think that was their point.

I smell a rat. Let me be specific.....

The CATO article said: "In fact, a review of market data by Clemson University economist Molly Espey and Santosh Nair found that consumers actually overvalue fuel efficiency. That is, they pay more up front in higher car prices than the present value of the fuel savings over the lifetimes of the cars."

When in fact the Espy and Nair's article abstract said:

"The marginal value of increased automobile fuel economy is estimated using a hedonic model of 2001 model year automobiles sold in the United States. This value is then compared to the average expected lifetime fuel savings attributable to increased fuel economy. Results indicate that automobile buyers fully internalize fuel cost savings attributable to improved fuel economy at low discount rates, and may partially internalize other perceived benefits of improved fuel economy such as reduction in global warming or fossil fuel dependence." MOLLY ESPEY, SANTOSH NAIR (2005) AUTOMOBILE FUEL ECONOMY: WHAT IS IT WORTH? Contemporary Economic Policy 23 (3), 317–323.

Decoding the abstract for people who didn't do graduate work in econ, this abstract says that after the authors crunched the numbers it looked like people paid extra to drive cars that didn't pollute so much in addition to the extra upfront amount that fuel economy paid them back at the pump.

Interesting, when I first read the Cato "overvalue" statement I figured it would trail back to some hybrid vs. non-hybrid reference of dubious worth. It appears from the abstract that people are willing to spend more for fuel economy, it's not clear (to me anyway) that they are getting their moneys worth, which is what Cato seems to be saying.

IMO if there was no such thing as a hybrid, fuel efficient cars would not be considered expensive as hybrids have been characterized. In general the more expensive vehicles are less fuel efficient. How is paying less for a more fuel efficient vehicle overvaluing fuel efficiency?

If I compare a I4 Tacoma to it's $1700 more expensive V6, the I4 costs less and saves fuel. I undervalue horsepower.

At the risk of beating a dead horse....

When I read the article abstract I thought that the discussion of green benefits from fuel efficiency made it clear that the original authors were deliberately avoiding the conclusion that the Cato authors seemed to attribute to them. I would describe the Cato statements as a case of putting words in someone else's mouth. It doesn't seem entirely honest to me.

The Cato authors' implication that the only value in greater fuel economy is the money saved at the pump allows me to draw additonal conclusions about their personal values.

I may get attacked for this, but I think that cars and trucks should be seperate, but not as they are today. I think SUVs should be included in the "cars" category. Actually it should be split more along the line of utility vehicle(trucks designed for use by contractors, delivery, landscaping, etc.) and transport(cars, SUVs, Vans, anything primarily used to carry people). Having said that I do not believe this split should be used to allow the utility vehicles to get away with being less efficient. I just think it would be easier to implement.

Plus than it would be a much easier argument to increase both levels higher. Hear me out. If they are combined we will see some hyper mileage vehicles at the top, a lot of middle of the road vehicles and then some gas guzzlers at the bottom. Simple statistics. So should the people who buy the hyper mileage vehicles subsidize the gas guzzlers?

So they split the vehicles more appropriately, give better definitions that can not be misinterpreted, and then raise both. Personally I think this would be a much more realistic solution and get much better results. But what do I know.

Aveo,

From the abstract it appears that people value the 'extra cost of FE' correctly. The authors only suggest that people have a low discount rate for the future savings. They ascribe a positive NPV to the FE.


Thanks for pointing out that CATO outright lied.

why not let people decide what they want. why not have a 500 hp gas motor and a hybrid that could putt around in the same vehicle??? whay do all hybrid engines have to be lame?
why not a high performance vehicle that uses a hydrogen internal combustion engine and hybrid? technically it would get zero mpg... i dont know , maybe the world is just too stupid for that type of vehicle.

why not let people decide what they want. why not have a 500 hp gas motor and a hybrid that could putt around in the same vehicle??? whay do all hybrid engines have to be lame?
why not a high performance vehicle that uses a hydrogen internal combustion engine and hybrid? technically it would get zero mpg... i dont know , maybe the world is just too stupid for that type of vehicle.Maybe a proper introduction would be a better start instead of jumping into an arguement....after seeing how many people have gotten themselves into sub-prime mortages, I have the same lack of confidence of them being fiscally responsible when choosing fuel efficient vehicles.

why not let people decide what they want. why not have a 500 hp gas motor and a hybrid that could putt around in the same vehicle??? whay do all hybrid engines have to be lame?
why not a high performance vehicle that uses a hydrogen internal combustion engine and hybrid? technically it would get zero mpg... i dont know , maybe the world is just too stupid for that type of vehicle.

Some people see things as they are and say why?, I dream of a "high performance vehicle that uses a hydrogen internal combustion engine and hybrid" that gets "zero mpg" that never was and say why not?