Does Economic Instability Threaten to Undermine Green Cars?

As markets around the world react to the downgrade of the United States’s credit rating, fuel-efficient vehicle sales face the prospect of another decline similar to the one they experienced in 2008, when gas prices plummeted and overall vehicle demand fell in response to low consumer confidence and high unemployment. The world’s leading crude oil futures all fell by at least 5 percent Monday to settle at their lowest levels of the year, and though petroleum still trades well above 12-month lows, gasoline prices at the pump are likely to decline further from the all-important $4 per gallon mark they had eclipsed earlier this year. Gas currently averages $3.67 per gallon in the United States—still more than enough to put a major dent in the wallets of those driving gas-guzzlers.

But as recent history has shown, consumers prioritize fuel efficiency much more when it pays immediate and noticeable returns to their transportation budgets. The lower gas prices fall, the less drivers will look to high-MPG stars like the Toyota Prius or Honda Civic Hybrid to help them stem the tide at the pump. Small, cheap, fuel efficient gas cars like Chevy Cruze or Ford Focus could continue to see relatively strong sales, but the real-world efficiency of these cars still lags well below that of hybrid and electric vehicles, and a failure of consumers to embrace models with superior gas mileage could threaten automakers’ ability to meet rising CAFE standards.

By 2016, the fleet average for each carmaker is set to hit 35.5 mpg, and the Obama administration recently announced plans to raise that number to 54.5 mpg by 2025. But built into the most recent CAFE proposal is a clause that will allow for a review of the mandate before the 2022 model year, and Republicans have recently ratcheted up their rhetoric against CAFE, saying that the program’s ambitious new standards threaten to slow economic growth by adding cost to vehicles reducing consumer choice.

Those arguments (regardless of their validity,) could build steam if the economy enters a much-talked-about “double-dip recession,” which would likely cause recently recovering vehicle sales to again sag, and carmakers to pare back expansion plans. Many of those expansion plans are built around green cars, as the Department of Energy continues to dole out federal loan money to help manufacturers develop and produce tomorrow’s fuel-efficient vehicle technologies.

Republican presidential candidate Michelle Bachmann—who currently leads the GOP field in the important early caucus state of Iowa—recently pledged to “have doors locked and lights turned off” at the EPA, and though such radical talk is rarely followed with action in Washington, there is a growing chance that the next administration will not be as proactive about promoting fuel-efficiency as the current one.

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  • James Davis

    It sounds like the republicans are still trying everything in their power to make sure America remains a prisoner to fossil fuel. Good going republicans, you certainly will not get my vote in any election.

  • David Smith

    I do believe you hit the nail on the head. Thanks for that 😀

  • AP

    The economy will only threaten those “green cars” that cannot stand on their own in the marketplace. Smaller vehicles with turbo-4’s and manual transmissions will do fine. Hybrids and electrics, not so much. The US will not afford subsidies for much longer.

  • Yegor

    Actually the new Democrat’s CAFE standard is a disaster – it is actually worse than the original 1975 CAFE and worse what we we have right now – The largest trucks carry almost no burden for the 2017-2021 timeframe, and are granted numerous ways to mathematically meet targets in the outlying years without significant real-world gains. The proposal encourages manufacturers and customers to shift toward larger, less efficient vehicles, defeating the goal of reduced oil dependence and greenhouse gas emissions.

    See the table of CAFE requirements for yourself:

    So no regulations would be better that this kind of disastrous CAFE!

  • Austintatious

    Actually, it’s “political” instability that threatens to undermine green cars, and just about everything else petaining to the concepts of “green’ R&D, investment and financial planning longer than a week. And the culprits are the politicians of BOTH political parties. Think the crazy Republicans are the sole culprits? Then look at Yegor’s comment, just above. Yes, the Republicans are corrupt and crazy, and they’re clearly the biggest obstacle to the development and use of “green cars”. But the Democrats are corrupt, inept and cowardly. Meanwhile, the kinds of policies we so desperately need for a secure and prosperous 21st century America are not forthcoming.

  • tapra1

    Monday to settle at their lowest levels of the year, and though petroleum still trades well above 12-month lows, gasoline prices at the pump are likely to decline further from the all-important $4 per gallon mark they had eclipsed earlier Network Blog