Saturday, September 20, 2008

Fuel Economy Standards

As almost everyone knows, the high cost of gas and diesel fuel for our vehicles, and our depressed economy and much tighter household budgets, are inducing the majority of owners to think more about the cars they buy and be more selective in their driving habits. Furthermore, political developments around the world, including especially the terrorist activities of Islamic radicals, have made most of us supportive of the U. S. moving forward toward much greater energy independence, particularly when it comes to the Middle East as a supplier. Energy independence is, in fact, an increasing national security issue.

To help deal with these issues, President Bush's Administration and the Congress has approved tougher fuel economy standards, despite resistance from the domestic auto industry and its suppliers. In an energy bill passed last year, auto manufacturers for vehicles (cars and light trucks) sold in the U. S. must comply with a fleet-wide average standard of 31.6 miles per gallon by 2015 and 35 miles per gallon by 2020. The standards are managed by the Department of Transportation and the Environmental Protection Agency (EPA) administers the testing program that generates the fuel economy data.

The EPA has recently reported that the average performance of new 2008 model cars and light trucks for vehicles sold was 20.8 miles per gallon, obviously a great deal lower than the 2015 and 2020 standards. Not surprisingly, the Japanese manufacturers had the best performance, with an average of 23.6 mpg for Honda, 23.4 for Toyota, and 21.2 for Nissan. General Motors had an average of only 19.6 mpg, Ford 19 and Chrysler had 18.9.

One can argue whether there should be any mandated standards. The domestic auto industry, libertarians and many other conservative voters would probably prefer to leave fuel efficiency standards to be entirely voluntary, up to the market, to buyers and sellers, without government interference. There is something to be said for this view. However, these are not "normal" times. As a pragmatic moderate, in view of the importance of moving toward energy independence, I think mandated fuel efficiency standards are appropriate, and probably are not aggressive enough.

It's my understanding that there are currently more than 100 different models offered for sale which can get 30 mpg or better for highway driving, somewhat less for in town driving. A few months ago my wife and I rented a new Chevy Cobalt in Minneapolis, drove about 4,000 miles, mostly on highways, but got an impressive 36 mpg. on average with good comfort and without any special effort.

It is widely recognized that General Motors, once one of the largest and most successful manufacturers in the world, has been performing very poorly for many years in terms of sales and financial results. GM reported a $15.5 billion net loss for its second quarter, continuing a string of losses. They are in very serious financial straits. They just announced that they intend to draw down the remaining $3.5 billion of an existing $4.5 billion secured revolving credit facility to boost liquidity and help them pay payroll and other bills.

With the above background, it was therefore very striking and telling that I read in the L. A. Times last Friday that GM was promoting their new 2009 Cadillac CTS-V, a car priced at an estimated $65,000, with 556 horsepower, and EPA measured fuel economy of 14 mpg in the city and 18 on the highway! One of its big features is that it can go from 0 to 60 mph in 4 seconds. I suppose there is a small market for a car like this and perhaps the profit margins are better than on many of their other models. However, I don't see how this car is what GM needs to recover financially and help them achieve the mandated fuel economy standards. Why don't they promote a car like the Chevy Cobalt?

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