It is now official. Per our friends at the EPA, by the 2025 model year, a car manufacturer’s fleet (i.e., cars and light trucks) must average 54.5 miles per gallon. This is known as the CAFE standard…Corporate Average Fuel Economy. We’ll ignore for the moment that this standard is double our current standard, and focus on the facts.
Traditionally, the CAFE standard has been set by Congress. But, for President Obama’s EPA, this is not good enough. Because cars emit the dreaded carbon dioxide, which all plants need to live, the EPA has seized control. You may have heard that all manufacturers agreed to this 54.5 mpg standard earlier this year, but understand, they had little choice. States, particularly California, were set to impose their own rules, and rules from state to state would cripple the industry. So, when the feds said, agree to 54.5 and we’ll hold the states at bay, well, that was an offer they couldn’t refuse.
I’m going to use today’s numbers because, unlike the EPA, I cannot predict the future, nor, can I force the future to be what I demand. And, to simplify “the math”, I will assume that GM only makes the Chevy Volt and the Chevy Tahoe. The Chevy Volt is rated at 93 mpg which includes the first 35 or so miles that it runs on pure electricity. The Chevy Tahoe is rated at 17 mpg. If all Chevy did was manufacture 2 vehicles, one Volt and one Tahoe, they would be good to go as this results in a “fleet” average of 55 mpg.
But, what if 2 purchasers are “soccer Moms” and a Volt doesn’t get the job done? Simple…GM manufactures another Volt. Now, GM has 2 Volts that no one wants, but has sold 2 Tahoes. Of course, GM doesn’t manufacture cars that way. To meet the CAFE standard, GM needs to decide first, how many Volts it will manufacture, and how many Tahoes it will manufacture. But, that decision is no no longer based upon what consumers want, it’s based upon what the EPA dictates.
The only way Detroit can hit these averages will be by turning at least 25% of its fleet into hybrids. But hybrid sales peaked in the U.S. two years ago at 3% of the market and are declining. The EPA’s $157 billion price tag includes only the estimate of what manufacturers will have to invest in new technology, not the billions more that will hemorrhage when nobody buys their EPA-approved products.
Do I see another GM “bailout” in our future?