By on May 17, 2011

Why do consumers like CAFE? Well, the short answer is that a gas tax (which is infinitely superior from a pure policy perspective) hits them directly in the pocketbook, while CAFE forces automakers to absorb the cost increases before passing them along to consumers in the form of higher MSRPs. But underlying this fact is a larger issue that’s driving support of increased emissions regulation: gas is getting more expensive. As I pointed out in my recent editorial on the subject, for all the automakers’ whining about CAFE increases, it seems that energy prices are moving the market in the same direction anyway (the average family will spend $3,100 on gasoline this year).

According to a Consumer Federation of America study [PDF], the steadily-rising price of energy has consumer’s even more concerned about gas prices and dependence on the volatile Middle East than they were during the height of the last fuel price shock in the Summer of 2008. As a result, support for a 60 MPG fuel economy standard doesn’t go below 49% (among Independents) even assuming a ten-year payback period, and earns the support of 63% of Democrats. And before you dismiss this support as hysteria, consider the underlying economics for a moment…

The CFA lays out a fairly compelling case that argues for weighing the industry’s additional per-vehicle costs against the reduction in fuel expenditures on the consumer end. Now, estimates of per-vehicle cost increases for any given standard vary wildly depending on who you talk to, but based on this rough analysis, it seems fairly clear that the fuel cost savings almost always outweigh per-vehicle cost increases, meaning the industry should have no problem passing along the higher construction costs of CAFE compliance along to the consumer.

Moreover,

The study concludes:

Our analysis of the auto market shows that that there are numerous factors on both the supply-side and the demand-side of the auto market that cause it to produce less fuel economy that it should.19  Standards are an excellent way to address many of the market imperfections that hinder the development of fuel economy. We believe that the standards played a large part in pointing the industry in this direction and without standards, the market will not go far enough fast enough…

Over the past decade, whenever gasoline prices spiked, loud calls for short-term measures to reduce the pain at the pump are heard.  Quick fixes, like gasoline tax holidays or releases from the strategic petroleum reserve may provide some short-term relief, but treating the symptom, rather than the cause is not going to solve the underlying problem.  And, after a difficult decade there can be no doubt that there is a serious long-term problem.   Our research shows that, while the public is certainly justified in demanding immediate relief, it also understands what the long term solution is.  Over the course of the decade federal and state policymakers have cobbled together the building blocks with which to provide a meaningful long term solution.
The most effective response to the long-term problem of rising gasoline prices is to dramatically lower the consumption of gasoline. California and the Clean Cars states started in that direction first.  They should continue to drive these consumer-friendly policies forward by working for an emissions standard that reinforces federal fuel economy standards and puts the U.S. on the path to doubling fuel economy by 2025.  It would be extremely harmful to consumers, the economy, the environment and national security if policymakers squander this opportunity.

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46 Comments on “Why Consumers Like CAFE...”


  • avatar
    Jerome10

    They like it because they never think beyond the end of their nose.

    I can only imagine how it goes.

    “Would you like for automakers to build cars that get 60mpg?”

    “Oh, well of course! They should!”

    But they never go any further than that. Never any “…if it added $5000 to the cost of a car” or “….if it meant you could no longer purchase a pickup/fullsize SUV, etc”

    I find it ridiculous that because at the pump you can see the dollars being sucked right out of your wallet, people can’t take it, but nobody seems to care that their wages are stagnant, unemployment is high, the government is broke, inflation is eating away their savings, the roads are crumbling, increased fees and other round-about taxes (such as CAFE), their houses have eaten how much of their money they will never see again, nobody cares, because they can’t see it on a digital display showing exactly how much is coming out of their pockets.

    I really wish we would act based on what makes the most sense, instead of what makes the most political sense. We all pay for this stupidity, but we like being fooled/blinded into not realizing how much waste is occurring.

    • 0 avatar
      Neb

      This is true. It’s even more of a downer if you think that the founding fathers assumed irrational people were going to be a tiny minority of the overall electorate, and thus their votes would have a minimal influence on decision making. We have about 100 years of history at this point to show people are not in fact the fundamentally rational creatures it was assumed they were, but our democratic and economic systems are based on this flawed premise.

    • 0 avatar

      Preach on, bro. It’s the same reasoning why some suggest outlawing payroll taxes, which are basically income taxes, only businesses are made to pay them, and so the same 49% who are daft enough to support CAFE never realize how much they actually give to Fed.

    • 0 avatar
      charly

      People don’t buy cars for what the can do but for the status they provide(*. People buy $40k cars because it screams “he, i can afford a $40k car” and not its other utility. If you mandate a item in the car it won’t lead to people being forced to buy a $40k car + $price_item but to people buying a $40k (car + item). So if people would really think beyond the end of their nose they would be in favor of a tougher CAFE

      (* not completely true, there is that rare Ferari buying plumber who does everything for his love, his Ferari, or Warren Buffett and his Lincoln but on the whole they are rare.

      • 0 avatar
        DearS

        I said it before and I’ll say it again, people buy $40k plus cars etc, because of self-esteem issues. 95% of our problems come from low self esteem. From suicide bombers and oil (wanting acceptance in heaven), to the rich getting richer (entitled elites) and the poor getting poor (looking up at the rich and famous). Addressing anything else is dealing with symptoms.

  • avatar
    Motorhead10

    I always wonder why we Americans are not more concerned with our neighbors to the North. All the fear we have of what goes on in the Middle East seems somewhat disproportionate to our exposure to those countries. What am I missing?
    http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/company_level_imports/current/import.html

    • 0 avatar
      Bytor

      Because the Canadian supply is taken for granted. Possibly correctly so. Can you imagine a scenario, where Canada imposes a US Oil embargo? It will never happen. Or the government of Canada shooting protesters in the street and civil war shutting down Canadian Oil?

      Canadian Oil is the next best thing to a domestic US supply. There is simply very little to be concerned about.

      • 0 avatar
        psarhjinian

        Canadian Oil is the next best thing to a domestic US supply

        Considering that Canadians are willing to do things (like exploit the tar sands) that probably wouldn’t go over well in the US, it’s probably better than a domestic supply.

      • 0 avatar
        charly

        It is even better than American oil

        Eastern Canadians drive on American or imported oil and most of Alberta’s oil is exported to America.

        Alaskan oil is exported to Japan and not used in America

    • 0 avatar
      George B

      Buying some oil from Canada is even better than 100% domestic US supply. It’s sane world supply diversity outside of US government control.

  • avatar
    djoelt1

    “weighing the industry’s additional per-vehicle costs against the reduction in fuel expenditures”

    Think about it this way: if car companies hire more engineers to do research and development and do more material processing using blue collar workers in the US, and as a result less oil is consumed, meaning fewer $ are sent to the ME, isn’t that a good thing? Even if the $ are sent to Canada, isn’t spending more on things that could have other future payoffs (better technology that can be applied to other and even new industries, and more skilled workers earning higher wages) better than throwing it into a hole in the ground? There is no multiplicative effect from scraping earth away from tar sands and heating it up. There is multiplication from cheap carbon fiber; advanced motor technology; aerodynamics; etc.

  • avatar
    wsn

    I have to say this is garbage. Over the entire range, the concern for gas price dropped 3%, the concern for mid-east dropped by 8%, when the gas price went up 100%.

    At this rate, people have nothing to worry about when gas hits $20.

  • avatar
    jj99

    60 MPG scares Detroit. Detroiters know they can’t afford to pay the UAW, and staff an engineering effort to obtain 60 MPG. Either the UAW goes, or the 60 MPG goes.

    The foreign automakers have no UAW problem, so they will be able to meet the 60 MPG requirement. The Prius has already hit 50 MPG, and it can be had for 21K ( after the earthquake effects end ). Toyota will be able to get the extra 10.

    Stay tuned. Detroit and the UAW will fight 60 MPG while Toyota and Honda give us 60 MPG at an affordable price.

  • avatar

    My auto bumper invention will allow cars to be much lighter and safer at the same time. A lighter car gets better fuel economy.
    http://www.safersmallcars.com

  • avatar
    aspade

    So 50-60% of those polled say they want a 60 mpg CAFE standard.

    Yet when it comes time to put their money where their mouth is, about 3% of new car buyers actually buy the small hybrids that meet that 60 mpg CAFE standard.

    And the other 97% buy something else.

    • 0 avatar
      SVX pearlie

      I don’t want the option to buy a 60-mpg car.

      OTOH, I do want everybody else to be forced into buying them.

      /Democrat

    • 0 avatar
      doctor olds

      aspade- You are right about the limited demand for high efficiency, and NO vehicle for sale today comea anywhere close to meeting a 60MPG standard.

      • 0 avatar
        tekdemon

        No vehicle? The cafe standards are based on the old test cycle so the prius easily exceeds it already. With plugin hybrids we’d be able to meet it even on larger vehicles. I’m not saying I neccessarily think 60 is the right number but it’s already done and certainly possible if not cheap. The question is whether we can save enough fuel for it to be worthwhile. Having just driven a truck to my first ever two swipe fill up to the tune of $140 I’m guessing it may very well make economic sense.

  • avatar
    Lorenzo

    Maybe it’s just me, but I place the Consumer Federation of America among the groups, both private and goverment, that have the ulterior motive of drastically reducing the number of cars on the road, and expecting a large percentage of the public to use public transit instead.

    Each component of their plan can stand alone as a reasonable goal, but the combination of ever-tighter pollution requirements, crash safety mandates, and fuel economy standards, will eventually cause car prices to exceed the ability of most Americans to pay.

    Many of these people are likely chagrined that pollution requirements didn’t kill the ICE outright by killing power and reducing gas mileage (the early ’70s to mid ’80s looked so promising!). The crash standards are probably another revelation, resulting in the safest cars ever on the road, but with a weight penalty.

    Now the strategy is to use the hammer of high fuel mileage against the anvil of CO2 standards (global warming) and the problem of reducing weight without giving up crash/roof standards and sound deadening. No, it’s not a “conspiracy”, just a commonality of interests with similar goals. TTAC should take a closer look at CFA and its hidden agenda.

  • avatar
    DC Bruce

    The last refuge of regulatory scoundrels is to claim the need to fix “market imperfections.” Of course, “regulatory imperfections” (like SUVs, mini-vans, and small 4-passenger cars that weigh nearly 2 tons) don’t exist.
    Or at least no one wants to talk about them.

    When people say they “want” a 60 mpg car, what they mean is that they want the option to buy one, not have it shoved down their throats.

    The best that one can say in CAFE’s defense is that it forces manufacturers to have fuel-thrifty cars available in the event that a spike in gasoline prices causes a short-term spike in consumer demand for them.

  • avatar
    Mullholland

    Why do consumers like CAFE?
    Because they absolutely dig massive government bureaucracies?
    I predict that there will be a day of reckoning when the CAFE bureaucracy’s quest for 150 MPG collides with the NHTSA bureaucracy’s quest for Zero traffic fatalities and the Congress requires that every American commute to work via shetland pony.

  • avatar
    Steven02

    I read this with a grain of salt. They are assuming that $X of extra cost on the vehicle = $Y amount of savings over time. If X and Y are wrong, it is all bunk. A few years ago, a Civic hybrid would take you 220k miles to make up the difference. Now, it will be a lot less than that, but still probably close to 100k. I don’t know how they are expecting to get the numbers that are proposed.

  • avatar
    SunnyvaleCA

    When I see charts showing a 2 to 4 year payoff for a vehicle that gets better mileage and many thousands of dollars savings over the lifetime of a car, I think that these people should put their own money on the line. Someone should dream up a plan where investors cover the up-front additional cost of the vehicle but then get the payoff of the fuel savings over the duration. Something makes me think that the reason this hasn’t happened is that the savings are too slim (or non existent) even in the long run.

  • avatar
    Robert Schwartz

    The problem is that increases in mpg become less valuable as they increase.

    If the average driver travels about 1000 mi/mo. and has a 25 mpg vehicle, he will buy 40 gal. @4$ ea.= $160. go to 50 mpg, and you save $80/mo. Go to 100 mpg, your savings are an additional $40. Yo can’t save more than $160 mo. by economizing.

    But, the cost of automobile technology goes up without a ceiling. At some point there is a hard trade-off, and we are all screwed.

  • avatar
    DenverMike

    You can’t legally force people to eat less and exercise more but I guess you could ban or limit the sale of clothes over a certain size. That may be perfectly legal even if it doesn’t do the manufacturers or the economy any favors *however* the fact remains, most fat people will remain fat except they’ll be fat AND Naked!

    What I mean is, ban sales of new V8 muscle cars and light trucks and we’ll be forced to drive these old “gas guzzlers” until they’re dripping oil all over and belching blue, eye watering smoke. Believe me they will never die and will be hoarded and not released to Mexico, South America and Africa so easily.

    Keep these “behemoths” rolling down assembly lines and they will keep improving over time, along with small cars. Your choice.

  • avatar
    doctor olds

    IF consumers appear to like CAFE, it is only because they do not understand that it really just limits their choice. Everyone says they want better mileage, but new vehicle purchase choices betray the truth. Buyers care about fuel economy ONLY after they get the size, capability, performance, and style thay want. This is proven by the small fraction of vehicles that are extremely efficient and by new model sales mix, Trucks and SUV’s still accounted for 50% of sales for the first quarter of ’11. The $4+ gas today has pushed cars to a whopping 51.9% in April. Even expensive gas has not influenced buying choices very much. There is not a car available anywhere that meets proposed 62MPG standard. The fleet we will have when existing standards are rolled out will be much different that what has sold in the past. Only time will tell if consumers accept the cost/benefit of the limited choices that will result.

    • 0 avatar
      jpcavanaugh

      +1, Dr Olds. It is all about consumer choice. The only time CAFE is popular is when it accidentally pairs up with high gas prices. When gas prices come back down (and they will) those who want a roomy, safe and reasonably powerful vehicle for the family will be out of luck (or at least priced out of the market). Remember the late 80s? You could not buy a decently powered large car, so everyone went to Suburbans that got even worse mileage.

      Those who support CAFE usually do so as a way to “manage” us into driving what they think we should. They desire a world of low gas prices yet constrained choices in vehicles. Either fuel is scarce or it is not. If scarce, then the price of fuel is high and everyone will rush to buy Fits Versas and Fiestas and everyone is happy. If it is not scarce, then this is reflected in a lower price, which leads to purchase of larger vehicles for those who desire them.

      I disagree with Philosophil (below). He says that I should not be able to buy all the fuel I want in order to drive what I want. Why not also enact governmental limits on the per-person square footage of our homes? Because nobody would stand for it. As much as I think nobody needs a house of over 2500 square feet, many do not agree with me and its ok, because they have the right to buy as big a house as they can afford.

      People need to understand that CAFE is destroying our auto industry. Germany somehow gets by even though its citizens (and those elsewhere) have choices from small diesels to Audi A8s and big BMWs and Benzs. Remove the CAFE restrictions and let the industry rise and fall on how well it serves its customers.

      • 0 avatar
        jj99

        Choice? How about I choose a car where my hard earned money goes toward extra engineering to achieve higher MPGs instead of going toward the UAW golden benefit plan. That is choice. And, that is what CAFE forces. I like CAFE. The UAW does not. I have noticed the UAW pushes this consumer choice argument hard, and they lobby hard against CAFE.

      • 0 avatar
        psarhjinian

        How about I choose a car where my hard earned money goes toward extra engineering to achieve higher MPGs instead of going toward the UAW golden benefit plan.

        You know that your hard earned money, if you buy Japanese or German, goes to JAWA or IG Metall’s member’s benefits program, right? What makes the UAW different?

        The UAW lobbies against CAFE because the companies they represent have an interest against it. IG Metall would do the same for import quotas (or CAFE, if VW could actually figure out how to sell more than a token few cars in North America)

  • avatar
    Philosophil

    Even if consumers are not entirely clear about CAFE regulations, this doesn’t of itself entail that CAFE is not justified. After all, one may well argue that government is justified in regulating emissions from various kinds of industries (for a multitude of reasons, e.g., issues relating to quality of life, health, long term sustainability, harms to other species, harms to the environment, and so on), so why wouldn’t government be equally justified in regulating emissions from automobiles for comparable reasons, not to mention the issues relating to dependence on fossil fuels in general?

    There are a multitude of issues that come into play relating to CAFE besides consumer choice, and to try to reduce issues relating to automobile emissions to a person’s willingness to pay for gas seems both narrow and short sighted.

    • 0 avatar
      SP

      CAFE is just weird.

      What if your grocery store was legally required to sell a certain proportion of whole grain breads?

      What if Coke was reuired to sell a certain proportion of Diet Coke?

      What if Men’s Wearhouse was required to sell a certain proportion of size 32 suits?

      What if your barber was required to shave a certain proportion of the heads that came in?

      These things are very unsettling to people raised in a society where freedom is valued.

      • 0 avatar
        geozinger

        @SP: You’ve come to the same conclusion I have about CAFE regulations. I like your choice of allegorical references. Besides, I’m a 48 large, there’s no way in h*ll I would fit in a 32 again…

        @Philosophil: CAFE really isn’t about emissions. The EPA mandates that. Emissions plays into fuel economy at a certain level to be sure, and plenty of countries limit emissions. No other countries (that I’m aware of) have a mandate for both mileage (across the product line) and emissions (per type of product).

      • 0 avatar

        You need to go to analogy school.

        Calories have gotten both cheaper and more abundant over time (Whole Grains, Diet Coke), Cloth has gotten cheaper and more abundant over time. Hairstyles, really? Has energy gotten cheaper over time? More abundant? More readily available, yes, but not cheaper.

        Whether you want to believe it or not, your energy use effects others, your diet (for the most part) does not. I know your libertarian thinking says that you should be free to use as much as you can, and I for the most part do not have a problem with that because I can compete with you for those resources. The problem here is that only people living today can compete with you for the limited resources you are trying to squander. Our great grandchildren cannot. Do they get screwed because you think the use of a globally restricted resource is the same level of choice as white vs wheat?

      • 0 avatar
        geeber

        Energy had been getting cheaper relative to income until recently, and even then the price spikes have had little, if anything, to do with restricted supply.

        Marcus: The problem here is that only people living today can compete with you for the limited resources you are trying to squander. Our great grandchildren cannot.

        The problem with your example is that it is built on a whole lot of faulty assumptions, starting with the fact that we will be running out of energy sources in the future, or that we will use energy in the same way 20 years from now.

        We’ve been “running out of oil” since the 1920s. Henry Ford I experimented with soy beans because he believed that the world would run out of oil by the early 1950s. It helps to have some knowledge of history here.

        Marcus: Do they get screwed because you think the use of a globally restricted resource is the same level of choice as white vs wheat?

        Please show were oil is “globally restricted.” Until you can show a better sense of history regarding energy supply, prices and technology, you would be wise to refrain from telling others how to use the petroleum-based products that they have purchased.

      • 0 avatar

        @Geeber
        You said:
        “The problem with your example is that it is built on a whole lot of faulty assumptions, starting with the fact that we will be running out of energy sources in the future, or that we will use energy in the same way 20 years from now.”

        My only assumptions:

        1. Our great grand children cannot compete with us for resources.
        2. Our great grand children cannot use non renewable/recyclable resources we have already used.

        Which of these is faulty?

        You said:

        “Please show were oil is “globally restricted.”

        If the entire planet were made of energy, it is of finite size. That is a restriction, global in scope.

        You said:

        “Until you can show a better sense of history regarding energy supply, prices and technology,

        Regarding prices and supply, I admit I do not know everything, if you have some source that shows or compares the price of food over time compared to the price of energy over time, I would love to see it.

        Regarding technology, isn’t that what CAFE is pushing for and you appear to be arguing against? Or are you just arguing against the specific points in my post?

        You said:
        “you would be wise to refrain from telling others how to use the petroleum-based products that they have purchased.”

        You would be wise not to put words in my mouth, I never told anyone how to use anything. I was responding to the silliness of comparing fuel consumption to white vs wheat.

      • 0 avatar
        Philosophil

        @ SP. I agree with Marcus: bad analogies.

        @ geozinger. I agree that emissions were not part of the original purpose of CAFE back in 1975, but the importance of emissions has since been recognized as an integral concern that CAFE can help to address. For a relatively detailed summary of this, see http://www.nap.edu/openbook.php?record_id=10172&page=R1

      • 0 avatar
        geozinger

        @Philosophil: Thanks for the reference, I see where CAFE has gotten into that arena. I personally thought it should have only been the province of the EPA, since they were the original bureaucracy to address pollutants. To me, CAFE addressing emissions would be the definition of mission creep.

      • 0 avatar
        SP

        @Marcus, @philosophil

        I think my analogies are just fine …

        The point has nothing to do with how scarce white bread and oil are.

        It has to do with government mechanisms for controlling citizens’ behavior.

        The basic mechanism of CAFE, when applied to other common decisions that free citizens face in their daily lives, sounds ridiculous. That was my point.

        By the way, I have never considered myself to be a “libertarian”.

  • avatar
    lakeuser2002

    Since 3/4ton trucks are exempt, I’ll be in a 3/4ton suburban giving me the room and safety that I desire.

    The law of unintended consequences at work.


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