Everybody Wins?

President Obama announced new mileage requirements for auto manufacturers. The New York Time proclaimed that "everybody wins."

The new automobile fuel economy standards formally adopted by the Obama administration on Thursday will yield a trifecta of benefits: reduced dependence on foreign oil, fewer greenhouse gas emissions, and consumer savings at the pump.

Wow, no downsides at all! Except...

The new cars will cost more - around $1000 by 2016. That's because nothing is free. If more efficient cars could be built for the same price they would already be on the market. The extra up-front cost is expected to be more than recovered over the life of the car but there are other trade-offs. Hybrid cars are likely to be more expensive to maintain in the long-run. There are persistent rumors that the Prius's batteries die after 80,000 miles. Toyota will not comment either way but with worn-out batteries, you lose all of the advantages of a hybrid and replacing a set of batteries will cost far more than the car saves in gas. Since cars these days regularly last upwards of 100,000 miles, anything that reduces car life will eventually offset the mileage gains.

There are two ways of increasing mileage with current technology. Hybrid drive trains is the first and most expensive but the easy way is to reduce the car's size, weight, and horsepower. This is elementary physics - less weight means less energy expended to accelerate. Small economical cars have been available for decades. The problem is that people don't want them. Profit margins are small and the cars are not suitable for families with older children. That's why SUVs were so popular in the last couple of decades and mini-vans before that. People need more room than small, economical cars provide but that adds weight.

The car companies are the big losers here. SUVs and pickups are what kept the big three going. At best they broke even selling small cars and they only carried those in order to meet the previous fleet mileage. In order to meet these requirements, the car makers are going to have to convince buyers that they want to pay more for cars that they didn't want in the first place. This may be enough to push one or more manufacturer past the brink.

There may be benefits to the new mileage standards but don't fool yourself into thinking that there are no downsides.