The $114 Billion Bargain

The automakers and the National Highway Traffic Safety Administration (NHTSA) testified about CAFE this week to the House Energy and Commerce Committee. No surprises in their statements.

The surprise came in reactions to a leaked NHTSA analysis of what it would cost to increase CAFE 4% per year between 2010 and 2017. Analysis is probably giving the report more credence than it warrants. NHTSA cost estimates come directly from the automakers, literally. The agency has neither the capacity nor the resources to analyze or question the automakers figures.

So the automakers claim it would cost them $114 billion to meet the higher CAFE proposed for 2017. Detroit News estimates the Big Three’s share would be $85 billion. I guess that ends the debate. Not hardly.

No one is claiming that increasing the CAFE standard is a zero-cost policy. But the automakers seem to be claiming that increasing the CAFE standard is a zero-benefit policy, and that keeping the status quo is a zero-cost policy.

The right way to look at the alleged $114 billion cost is as an investment. Without knowing the monetary value of the benefits the investment would create it is impossible to decide whether $114 billion is too high, too low, or just right.

And it is simply not acceptable to focus on just the costs for just one alternative. All choices—including the choice to do nothing—have costs and benefits that must be estimated and evaluated in a comprehensive analysis.

Doing nothing about fuel economy policy would be to choose the status quo. Without quantifying the externality costs of choosing the status quo (e.g., global warming, climate change, national security, economic vulnerability to fuel spikes), it is impossible to decide between the status quo and raising CAFE (or investment credits, or any of the other policy choices available).

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  • Alex

    I still do not understand. Where didthis $114 billion come from? What are the details? this number is far too vague. There are very cheap ways to increase gas milage. First aerodynamics, a plainer looking car may be worth it than the sacrifice of $114,000,000,000. Second, cylinder deactivation, more heavily controlled systems that can shut-off specific cylinders can greatly increase milage by making it easier for the engine to breathe, and this is just a computer reprogramming, free. Third, driving behavior, the new EPA test has its major milage drop purely because of driving behavior. If you want 60mpg you have to fight a little for it. Finally, more advanced internal combustion engines, the star of this the photo-detonation quasiturbine engine with an efficiency of %50 compared to the average cylinder engine of %20 efficiency. It is also eight times more powerful and can reach revolution speed from 150rpm to 15,000 rpm. Even jet engines are left in the dust. We are more capable than anyone knows, but we limit ourselves by petty fear and desires. Open the mind to its infinite edges.

  • Michael

    Maybe eliminate excessive V-8s and high horsepower engines out of cars? If only the public was smart enough to understand that you don’t need 300HP and 0-60 acceleration in 3 seconds just to go pick up a gallon of milk at the grocery store.

  • TheGiant

    Look what happened a few months ago when gasoline spiked at over $3.00/gallon. Suddenly America “discovered” that refilling their vehicles hurt. Alot! Increase the cost of fuel (being sensitive to those in the lower income strata), and people will clamor to buy vehicles that sip fuel.

  • Armand

    So it cost $114B…mmmmmmmmm…let’s see..that’s 3 times LESS than what it’s already cost this freaking country to go to war for 4 years…$300B+….so which would have been cheaper?

    And we’d have had over $200B left over to do what? Well…let’s see…improve schools, improve healthcare, secure SS, improve roads, increase police/fire/ambulance services…oh..I don’t know…improve the lives of people?

    Frak it…let’s go to war and kill over 1/2 MILLION people instead.

  • Alex

    The power belongs to people. Forget the government, Capitalism is far more powerful than any politician or lobbyist. Let us vote with our dollars. That is the loudest way to speak. Show the copanies that we want more aerodynamic cars with more advanced engines. Email them at least and I mean email them alot. We made these corporations who they are today with our money. Lets show them who the real bosses are.

  • Markus

    If they would spend 114B on electric battery technology and stop whining they might have a chance of surviving in todays marketplace.

  • hound-dog

    Why not just reintroduce the EV-1 (or EV-2)? The plans are evidently already in existence, the factory may not be completely disassembled. Just modernize the batteries to the current standard and properly market the car this time. Why wait an indefinite time for the Volt when the EV1 or EV2 would serve? It almost seems as if GM wants to go out of business rather than being America’s automobile manufacturer.

  • Serious Thinking

    Improving the efficiency of anything, not just cars, is the way to go forward and to survive. Plan for the long term, if the Big Three want to exist in the far future. “Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals (Principle# 1)”.
    Enough said.

    You can’t just be happy with the current MPG and go to war to get more oil from somewhere else in the world.