Though the EPA won’t actually announce its 2025 CAFE standard until September, the California Air Resources Board’ insistence on a 62 MPG standard for ’25 has the industry’s analysts and talking heads in something of a frenzy. Smelling the smoke on the breeze, Automotive News [via AutoWeek] trots out a range of interpretations of the proposed 62 MPG standard, from the frightening to the apocalyptic. Cost increases per vehicle for a 62 MPG by 2025 standard are estimated by government agencies at $3,500 “at most,” while Alliance of Automotive Manufacturers reckons they’ll run “as much as $6,400.” Sean McAlinden of the notoriously industry-friendly Center for Automotive Research figures the market will have to shift to 64% plug-in hybrids, at a price increase of $9,970 per vehicle, while the AAM adds that 62 by 20205 “could cut car sales by 25 percent, costing the industry 220,000 jobs.” And the EPA seems to be listening to the rising chorus of grumbles, as the agency’s Margo Oge soothed the locals on a recent visit to Detroit with the words
We will be very mindful — and I underline ‘mindful’ — of the consumer throughout this process. Unless people buy these new clean cars and trucks, and buy them in large numbers, everyone loses.
But if CARB wants 62 MPG by 2025, it will get it from the EPA. Which means the real question is simply how much will the standard actually add to per-vehicle costs? Is the industry inflating its numbers in hope of a teaspoon of federal sugar to help the medicine go down? Is the 62 MPG standard really an industry killer?
The answer, it turns out, is a big, fat “depends on who you ask.” But one thing is certain: the automakers are going to use everything they have to fight the standard, a fact evidenced by the absence of clarification anywhere in the media that the scary-sounding 62 MPG standard does not mean vehicles will need achieve window stickers with ratings anywhere near that high. As Hyundai has pointed out already, CAFE is measured using the old “unadjusted” mileage test, while modern EPA window sticker ratings use the tougher “adjusted” test. As a result, there’s a huge discrepancy from the ratings consumers use in their day-to-day lives, and the staggering CAFE numbers that are being thrown around.
As you can see, 63.7 MPG CAFE is roughly equivalent to 44 MPG EPA. Not so bad after all. And yet the industry continues to use the scary-sounding CAFE numbers without any kind of qualification. Well, except for Hyundai, which points out that its 40 MPG EPA highway Elantra will achieve around 50 MPG CAFE combined by the next generation… which will debut around the same time the 39 MPG CAFE combined car standard comes out in 2016. Clearly the fear that the industry won’t build anything besides cartoonish “Pelosimobiles” when CAFE increases are overblown.
On the other hand, as a limited-line manufacturer, Hyundai has a much easier time with CAFE than the Detroit firms which have built huge portions of their businesses around large body-on-frame trucks. And even though CAFE standards are notoriously riddled with loopholes allowing vehicles like the Chevy HHR count towards the truck-side efficiency number, this is where the real challenge comes into play. GM reportedly has to cut 500 lbs from each truck by 2016, and as much as 1,000 lbs per truck by 2025, a task that has both GM and Ford looking at exotic frame materials like aluminum and magnesium.
There’s no doubt that creating direct descendants of today’s Silverados and F-150s, to be sold at the same volumes they sell at today, would be a huge struggle under a 62 MPG CAFE standard. But forcasting isn’t that simple: even five years away from the 2016 30 MPG CAFE truck standard, with gas averaging around $4 per gallon, WardsAuto reports that the US pickup market has hit its lowest level in 30 years.
Against a backdrop of sluggish housing starts, high unemployment and skyrocketing pump prices – key historical barometers for the segment – fullsize and small pickups accounted for 11.8% of total light-vehicle deliveries in the month
It is the segment’s lowest market share in the Ward’s database, which dates back to 1980. At their peak in July 2005, pickups accounted for 22.9% of U.S. LV sales.
The share shortfall occurs as sales climb. Through the first four months of 2011, pickup deliveries were tracking 17.9% ahead of like-2010. However, total U.S. light-vehicle sales were pacing 19.4% ahead of prior-year, according to Ward’s.
By 2005, the two segments were running bumper-to-bumper, with pickups controlling 18.77% of the market compared with the Middle Car segment’s 18.79%.
Through April, pickups accounted for 12.6% of U.S. light-vehicle sales, while the Middle Car segment made up a whopping 20.8%.
If pickup sales are already declining steadily as a product of higher gas prices, it’s fairly safe to say that, barring any major reductions in the price of oil, the pickup market could well be dramatically smaller come 2016. In fact, having lost about seven points of market share since 2005, it’s conceivable that the pickup segment will be closer to eight percent of the market come 2030. Yes, pickups have made a comeback as gas prices bottomed out over the last two years, but in the sweep of history it’s fairly safe to say that Detroit’s truck dependence isn’t a viable strategy for the future. The good news: Ford and GM are finally making money on smaller cars, and, as the market for pickups retracts, pickups’ impact on CAFE numbers will go down as well, as CAFE is sales-weighted.
Will the cost of developing large pickups go up as the US approaches a 62 MPG standard? Sure. But if pickups aren’t selling in huge volumes, those costs will simply be passed along to the remaining buyers who absolutely need a full-sized truck’s capability, without affecting CAFE overall. The insanely high costs and and 62-percent plug-in hybrid penetration foreseen by Sean McAlinden must surely assume that truck volume will not change dramatically between now and 2025, a foolishly dangerous assumption that, if taken seriously, would likely sink Detroit whether CAFE increases or not. With gas prices rising steadily and inexorably, the market is likely to change before CAFE even makes much of an impact. Whether the standard for 15 years from now is set at 50 MPG or 62 MPG CAFE really shouldn’t make much of a difference.
Look at the SUV market: after the crash of 2008, which was instigated by a sharp spike in gas prices, SUVs came back strong and have been growing faster than pickups and vans ever since. But there was a key difference: as the chart below proves, “SUVs” were increasingly car-based CUVs before the crash even started. When “SUVs” came back post-crash, they were largely replaced by vehicles that served the same function with slightly higher costs and greater efficiency. And not because pre-crash SUV buyers weren’t convinced that they “needed” the allegedly unique capabilities of their body-on-frame utes. Who’s to say the same dynamic won’t happen with trucks?