Fuel Economy Debate: Will CAFE Standards be Upheld - or Changed?

Published: Apr 30, 2017
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The Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA) are in the midst of a year-long review to determine whether or not changes should be made to the Corporate Average Fuel Economy (CAFE) standards. These standards require auto manufacturers to improve the fuel efficiency of cars and light trucks produced for sale in the United States.

The CAFE standards will significantly reduce U.S. oil consumption and greenhouse gas emissions when fully implemented, according to the EPA and NHTSA. But there’s a cost involved in achieving the standards that some in the industry believe should be weighed against their environmental benefits.

Striving for 54.5 mpg

Strict CAFE standards enacted by the EPA and NHTSA in 2012 require the U.S. auto fleet to average 54.5 miles per gallon by 2025. This would double the fuel efficiency of vehicles manufactured for sale in the United States compared to 2008. As of year-end 2014 (the most current data available), the average fuel efficiency for new light-duty vehicles was 36.4 mpg.

In a technical assessment issued last summer, the EPA and NHTSA said they believed little in the standards needs to be changed. “Automakers are outperforming these standards while hitting new sales records,” said an EPA spokesperson at the recently held Center for Automotive Research Management Briefing Seminar. “So we think the industry is very well-positioned to meet customer expectations while reaching significant new levels of environmental performance.”

But some industry leaders disagree. And given the stance on environmental regulations taken by President Trump, his administration could have an impact on the future of CAFE standards.

At the seminar, spokespersons for groups representing manufacturers and dealerships held that the CAFE standards are too aggressive. They said the new standards will lead to higher vehicle costs that will make buying a new car even more unaffordable for most consumers than it already is.

According to a study conducted by Bankrate.com, a consumer finance website, a median-income household today can’t afford the average price of a new car, which is more than $34,000. Automakers have estimated that developing and implementing the technology necessary to meet the CAFE standards could raise the price of a new car by up to $5,000. This equates to an increased payment of about $100 per month for a car financed over 60 months.

When average consumers can’t afford to buy a new car, they usually end up either driving their current vehicle longer or buying a used car. Industry leaders are concerned that, if the CAFE standards are upheld and these trends materialize, new car sales could be negatively impacted.

If you build them...

According to a survey by the Alliance of Automobile Manufacturers, only 7% of consumers would be willing to spend $5,000 more for a car due to the CAFE standards. “Real-life fuel economy improvements can’t be achieved until consumers actually buy those new vehicles,” a National Automobile Dealers Association spokesperson said at the seminar.

For their part, the EPA and NHTSA say there’s evidence that automakers are capable of meeting the higher CAFE standards. According to an EPA spokesperson at the seminar, the automobile industry has made more progress than expected toward the standards over the past four years. This proves the industry is capable of even greater improvements between now and 2025, he said.

It’s worth noting that the technical assessment report concluded that automakers likely will achieve an average of only between 50 mpg and 52.6 mpg by 2025, not the 54.5 mpg target established by the CAFE standards.

Final decision pending

A final decision by the EPA and NHTSA about the standards, which is expected sometime this spring, could have a significant impact on the industry’s future.

If the standards are upheld, automakers will likely concentrate on increasing fuel efficiency when designing new cars and building new electric and hybrid vehicles with longer range. Meanwhile, if the standards are rolled back — possible during the Trump administration — automakers might focus more on building the kinds of vehicles that generate the most profits, such as trucks and SUVs, for example, regardless of their fuel efficiency.

Keep a close eye in the coming months for the latest developments on the CAFE standards.

Sidebar: How might the new administration impact CAFE standards?

The election of Donald Trump as president could have a significant impact on the debate over whether or not aggressive Corporate Average Fuel Economy (CAFE) standards enacted in 2012 should be changed.

During the presidential campaign, Trump expressed skepticism about climate change. In addition, he has announced plans for a comprehensive review of all federal regulations. As a result, many in the automotive industry wonder if the Trump administration will take steps to lower, or even eliminate, the CAFE standards.

Thus far, the administration has only committed to “a review of the fuel economy and emissions standards to make sure they are not harming consumers or American workers,” a Trump senior policy advisor told The Wall Street Journal shortly after the election. “Mr. Trump will be focused on bringing jobs, including auto manufacturing, back to the U.S.”

Dealer Insights - March/April 2017