Will US Consumers Benefit From Strong MPG Regulations?

As the Trump administration threatens to soften strict mpg rules through to 2025, in question is whether consumers will be winners or losers in the process.

Clear in any case is money is on the line: big money. Carmakers have said federal rules intended to drive average window sticker values up from 25.1 mpg today to the high 30s in the next eight years will cost them over $200 billion, sap profits from high-tech cars they cannot sell, and drive up prices.

SEE ALSO: Trump Decision On Fuel Economy Rule Review Expected For Wednesday

That, plus the fact political winds have shifted in an opposite direction from the Obama administration’s stance, has led them to push hard saying their customers will also come out losers if rules are not relaxed.

But not so fast, say consumer watchdogs including the Consumer Federation of America, and Consumers Union. The latter says automaker and oil company lobbyists are sticking to the typical modus operandi of crying foul in the name of the public good. Per usual negotiation practice, it’s implied, big industry interests are actually just throwing what they can on the wall to see what sticks.

SEE ALSO: 5 Takeaway Points From the EPA’s TAR leading to CAFE Midterm Evaluation

As such, the advocates for those with the weakest voices and shallowest pockets in America – consumers, including those with low incomes – have beaten the band that consumers will come out winners if mpg rules for 2022-2025 are left in place.

This they are doing without even touching on whether greenhouse emissions cause global warming. Instead, parsing facts as they see them, consumer advocates say they are championing American consumer interests which automakers have asserted they also defend.

A Regulated Industry

It is true that automakers have to comply with a lot regulations. As those responsible for products that carry human beings around while emitting gases into the air everyone breathes, legislators have held them to very strict account.

The prospect therefore of a yet-higher bar for carmakers to jump over is really nothing new. To date, the U.S. EPA has said carmakers are making the grade with Corporate Average Fuel Economy (CAFE) rules – even staying ahead of the curve in most cases – while simultaneously reporting record sales and profits. For this reason, the Obama EPA said they can stay the course to further reduce pollution and petroleum use.

But with the Obama administration’s move to lock in 2022-2025 rules in January ahead of an April 2018 deadline, Trump and his new EPA administrator Scott Pruitt may lend an ear to carmakers’ arguments and reopen these to review. It’s believed they also may try to legally overturn California’s waiver to set its own strict rules which also make carmakers jump through hoops, and thus cost them money.

Consumer Interests

In a report by Synapse Energy Economics, Inc prepared for Consumers Union, further data was parsed to make the case that consumers stand to save significant money if carmakers continue with ever-tightening rules.

“The price of entry-level vehicles has remained approximately the same over the past 10 years,” says Consumers Union. “The most affordable vehicle among the top 30 sold in 2015 cost the same (in real terms) as the most affordable top 30 vehicle sold in 2005.”

Since 1997, the report found average new car and light truck sales prices have been relatively flat and used car prices have slightly fallen.

This plus unexpected declines in fuel prices have keep money in consumers’ pockets, say the authors of the report, Tyler Comings and Avi Allison.

“If fuel economy had not improved from 2005 through 2015 (i.e. if it had stayed at 20 mpg),” say the authors, “households would have spent 25 percent more on fuel in 2015 than they actually did. By 2015, the average household saved $523 in fuel annually, based on fleet-wide efficiency gains since 2005.”

This in turn, said Shannon Baker-Branstetter, policy counsel for Consumers Union, meant stimulation to the U.S. economy in direct contradiction to the Auto Alliance’s picture that jobs and economic gain will be forfeited.

“Multiplied by millions of new cars each year, that’s billions of dollars going back into our economy, and supporting thousands of jobs. Fuel economy standards are a win-win for everyone,” said Baker-Branstetter.

It’s been said there are three kinds of lies: lies, darned lies, and statistics. Who has the ultimate truth will surely be debated further, but for its part the Auto Alliance, representing 77 percent of U.S. car sellers, begs to differ.

“Over the past 23 years, automakers have added new emission control and fuel-efficient technologies, safety features, connectivity and infotainment technologies and other features drivers increasingly demand,” said the Auto Alliance in a report of its own that has since been removed from its place on its website. “These new features, combined with the growing demand for SUVs and light trucks, caused average new car prices to increase by more than 60 percent since the early 90s.”

At the same time, says the Auto Alliance, average new car prices have indeed gone up.

Source: Auto Alliance.

“In December 2015, the Kelly Blue Book reported the estimated average transaction price for light vehicles in the United States had reached an all-time high of $34,428,” said the Auto Alliance. “As noted in the figure above, as new car prices increased, interest rates dropped dramatically and remained low, making it possible for consumers to continue buying new light-duty vehicles. As a result, the increased vehicle cost was offset by the low cost of capital. In addition, average loan terms have lengthened significantly, approaching seven year terms. While this trend allows consumers to keep their monthly payments affordable, the risk is that the vehicle could depreciate below the remaining loan amount before it is paid off, leaving the consumer ‘under water.’”

It sounds dire, but citing average transactions prices in the abstract can be misleading. Today there are numerous new vehicles priced from the teens to lower 20s, and the aforementioned used car market – representing 70 percent as much more sales in the U.S. – has become even more affordable for those who cannot swing a new vehicle purchase.

What’s more, the Consumers Union report found the most affordable vehicles among the top 30 sold in 2015 cost the same (in real terms) as the most affordable top 30 vehicle sold in 2005. On the other hand, the most expensive of the top 30 vehicles increased in price by 40 percent over the same period. In short, transaction prices went up in part also because of consumer preferences including for luxury vehicles and higher priced trucks and SUVs, but vehicles well below the $34,428 average cited by the Auto Alliance have been available for over a decade.

And, despite average transaction prices increasing, the U.S. car and light truck market saw an all-time high 17.5 million sales in 2016, and auto executives were paid handsomely in six- and seven-figure salaries as they booked all-time-high profits.

But what the automakers are also decrying is the need to splice in hybrids, plug-in hybrids, battery electric and fuel cell vehicles to their product assortment. These, it’s asserted, will be needed to meet CAFE, even though the Obama administration said only 1-3 percent of new cars by 2025 need be plug-in. That is, the existing CAFE rules were written with enough wiggle room to let automakers make the grade with ever-improving non-electrified technologies.

Otherwise, the Obama administration was very much on board with the electrified agenda being mirrored in Europe, China, Japan, and, well, the world including California, USA.

These vehicles say the carmakers, are the most expensive, least profitable, they nonetheless will still have to build them, and so something has to give.

The Auto Alliance has otherwise opposed the attempt by Obama to lock in rules, as expressed in a letter sent to the new head of Trump’s EPA:

Excerpt from a letter by the Auto Alliance to Scott Pruitt, Trump’s new EPA administrator who has a history of opposing the EPA in his prior career.

Plug-in vehicle advocates have meanwhile presented plenty of evidence that carmakers are at the same time talking a limp-wristed approach to actually marketing and selling advanced-tech cars. This decade some have been sold in limited markets, and advertising has been limited or non-existent. Further, independently franchised dealers are not always compensated enough to incentivize them to get on board with plug-ins – which thanks to subsidies and low operation costs – can make a solid economic proposition for more than the 0.9 percent of consumers that now buy them.

Meanwhile the authors of Consumers Union’s latest study and others have noted none of this has stopped carmakers from lining their pockets as they have, and unsaid, but implied is greed and political opportunity are the real motivators.

A chart by Consumer Union.

Whatever is the case, the car industry, while patting itself on the back for safer and cleaner cars, does have a history of resisting change with the argument that it would be too expensive or stall sales. Other innovations that have been resisted over the years include seatbelt anchor points, 5 mph bumpers, catalytic converters, airbags, and more.

It is the nature of the game for them to attempt to reduce expenses, and maximize profits, but in question is whether consumers will lose, or if has been argued for the above mentioned innovations before, they will benefit.

Advocates saying yes observe that even base model cars benefit from trickle-down tech. Regulations pushing to raise standards at the upper level, it has been argued, have led to a windfall for those buying average conventional vehicles.

For their part, the authors of the study said staying the course for 2022-2025 will benefit consumers yet again.

“While the prices of new and used cars have remained flat or have fallen in real terms, low-income households are under increasing financial pressure from higher prices of other household goods and stagnant wages,” said the authors. “The Consumer Price Index, which tracks inflation of consumer goods, finds that the average prices of all goods have increased by about 50 percent over the last 20 years. Education and gasoline prices have risen even faster. Higher prices have been accompanied by stagnant wages for the two lowest quintiles, a combination that leaves low-income households behind in an otherwise growing economy.”

War of Words

Going forward, many more points and counter points are expected to be brought to the table in a battle for the true spin on what is best for all interests.

The carmakers are saying they do have consumers’ best interests at heart, and that it is in their best interest to continue innovation under natural free market principles.

SEE ALSO: CAFE’s Midterm Evaluation For 2022-2025 Could Electrify Automakers One Way Or The Other

Advocates say regulations further stimulate all automakers to try even harder, and as they have to date, they will continue to do so as carmakers will ultimately find a way to make it work for them.

Time will tell how this goes.


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