Wednesday, August 29, 2012

Auto Mileage

Question - if you want to buy a car that gets good gas mileage, do you think that:

A) You should buy the highest mileage car that you can find (or afford).

B) The government should force all cars to have higher mileage (regardless of cost).

This is not a trick question. It is the future of government policy. The Obama administration announced that it has set 54.5 MPG (Miles Per Gallon) as the fleet standard for 2025. Currently the standard is 21 MPG but it rises to 35.5 by 2016. This requirement has the twin goals of reducing carbon dioxide emissions and foreign oil imports.

This sounds great assuming that the auto industry has a magic MPG wand that it can wave. The reality is that 54.5 MPG is a tough standard. For that matter, so is 35.5.

To put things in perspective, the tiny Smart Car gets 38 MPG on the highway. The tiny Fiat 500 gets the same mileage (and has a little more room). There is a model of the Chevy Cruze that also gets 38 MPG highway and a hybrid version that gets 42. Chevy also has the Sonic which gets 40 MPG highway and compares in size to the Fiat. Even the Volt only gets 40 MPG once the batteries run down (around 30 miles).

The Toyota Camry gets 39 MPG highway. The Prius gets better city mileage than highway mileage and is rated at 50 combined (51/48). The Yaris, another tiny car, gets 38 MPG.

Honda has a Civic hybrid that gets 44 MPG while other models are in the high 30s. Ford has a few hybrid models that near or break 40 MPG but most of their vehicles are below 30.

There are only a few ways to increase mileage. The easiest is to cut weight, either by reducing the amount of metal in the car (and making it less safe) or by switching to more exotic/expensive materials. The other way is to change the drive train by adding a turbocharger or making the car a hybrid. All of these choices are expensive. Some, like the technology that goes into the Volt, can more than double the cost of the car.

So, some cars can reach the 35.5 goal but not most. Since this is a fleet measure, high-mileage and low-mileage cars are averaged together so big pick-ups will not be totally outlawed. The problem is that a company like Ford makes more money selling big, heavy pickups than tiny, light cars and a lot of customers prefer more space. Many of the smaller cars are totally unsuitable for families.

GM got into trouble a few years ago because of the current standard. Customers did not want to buy the smaller, more efficient cars so they essentially sold them at cost just to get their fleet averages up. When gas prices rose, people stopped buying the more profitable SUVs and trucks and GM went bankrupt.

In order to meet the new goals, the car companies will have to make more expensive cars. The government estimates that this cost will be recovered by lower fuel costs but, if they really do reduce demand then the demand for oil will drop, lowering the cost.

The 35.5 goal is achievable but will be difficult. 54.5 seems unlikely. No car currently in production gets that mileage without cheating (supplementing gas power with plug-in batteries). This is important for a number of reasons. It either assumes that the automotive industry can increase mileage over 12 years (the 2025 models will be out in 2024) enough that the average for all cars will be higher than the current top-end for any car or it assumes that most cars will be plug-in hybrids within 12 years.

Legislation based on future advances in science seldom work. We are supposed to be producing millions of gallons of celluloid alcohol by now but the technology still does not exist. We are similarly unlikely to see a 100+% increase in the efficiency of internal combustion engines.

That leaves plug-in hybrid. I called this "cheating" because it does not account for the cost of generating the electricity. Generating, transmitting, and storing electricity it not particularly efficient. This will also place a huge strain on the nation's power grid which will show up as higher prices for electricity.

This is a microcosm of the current election. One one hand we have freedom of choice which includes the choice of a cheaper or larger vehicle that does not get high mileage. On the other hand we have the government deciding priorities and making the choice for everyone. This is the world that President Obama is creating, one in which the government sets the priorities and makes the "right" choices for you. 


Update - my wife pointed out that this is the same thing that happened with light bulbs. The government is making a product much more expensive with the promise that you will save in the long run.

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