Will CAFE Cause A Small Car Glut?

Edward Niedermeyer
by Edward Niedermeyer

CSM Worldwide seems to think so, telling Automotive News [sub] that new compacts from Ford and Chevrolet are being pushed into the market to comply with increasing fuel-efficiency and CO2 emission standards. If gas prices stay steady, CSM’s VP for Forecasting, Michael Robinet says “extreme pressure to channel smaller vehicles in the market due to CAFE and emissions standards will raise incentives and lower profitability.” “It is very possible that U.S. automakers will not achieve their objectives of selling small cars at a profit,” adds CSM CEO Craig Cather. The crux of the argument is that CAFE ramp-ups to 35.5 MPG by 2016 create incentives for automakers to produce small cars without corresponding consumer demand. Luckily there’s a planned gas tax hike for that.

CSM admits that either an oil shock or a gas tax hike would increase demand for small cars, effectively nullifying their argument. And given the DOT’s rhetoric recently, that seems like a very plausible scenario… after all, even the most virulent anti-tax types would sign up for an indexed gas tax given that the alternative could be a pay-per-mile GPS tracking scheme.

But there’s more to CSM’s analysis than politics. AN [sub] explains:

Increasing competition in the subcompact and compact segments, which have long been dominated by Asian automakers, may also hamper Detroit automakers’ goal of making money on selling small cars, CSM said.

In short, CSM isn’t actually worried about a small car glut, it’s simply collecting excuses for the seemingly inevitable failure of Detroit’s compact offensive. After all, CAFE standards apply to the “Asian automakers” just as much as they apply to Ford and GM. The real problem is that the Detroit has a hard enough time getting consumers to consider its traditionally strong products like large cars and SUV/CUVs, and will be even harder pressed to drum up interest in its new compact offensive. The steady growth in the small-car segments that even CSM admits are occurring will simply go to the manufacturers who have maintained a stronger presence in those segments.

Will Detroit face an uphill battle selling the compact cars that are filling its future-product pipelines? You betcha. Is it CAFE’s fault? Of course not. CSM’s analysis is, at best an argument for a gas tax hike. Given the government’s 61 percent “exposure” to GM (and its heavy investment in small cars like Cruze, Volt, Spark, and Aveo), such a hike seems all the more likely.

Edward Niedermeyer
Edward Niedermeyer

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  • John Horner John Horner on Dec 11, 2009

    Increased fuel taxes are by far the smartest way to reduce oil consumption.

    • See 1 previous
    • Don1967 Don1967 on Dec 12, 2009

      I always cringe when somebody proposes using taxation to enforce their vision of what is best for society. Taxes are for providing essential public services and infrastructure, not for wielding ideological power.

  • Mark MacInnis Mark MacInnis on Dec 11, 2009

    Will we have cars like Havana? A series of large cars, trucks and SUVS that continuously gets rebuilt, recycled and modified because NO ONE will want to buy the new, small Pelosi-Reidmobiles the government wants us to own? CAFE is self-defeating. The people who voted for it are twits. Come to think of it, the people who VOTED for the people who voted for it are....well....you get the idea.

  • Ted Lulis Head gaskets and Toyota putting my kids through college👍️
  • Leonard Ostrander Plants don't unionize. People do, and yes, of course the workers should organize.
  • Jalop1991 Here's something EVangelists don't want to talk about, and why range is important: battery warranties, by industry standard, specify that nothing's wrong with the battery, and they won't replace it, as long as it is able to carry 70% or more of its specified capacity.So you need a lot of day 1 capacity so that down the road, when you're at 70% capacity with a "fully functioning, no problem" car, you're not stuck in used Nissan Leaf territory."Nothing to see here, move along."There's also the question of whether any factory battery warranty survives past the original new car owner. So it's prudent of any second owner to ask that question specifically, and absent any direct written warranty, assume that the second and subsequent owners own any battery problems that may arise.And given that the batteries are a HUGE expense, much more so than an ICE, such exposure is equally huge."Nothing to see here, move along."
  • Roger hopkins The car is in Poland??? It does look good tho...
  • Kwik_Shift_Pro4X The push for EV's is part of the increase in our premiums. Any damage near the battery pack and the car is a total loss.