Affordable and Efficient Cars, Not Federal Mandates

A large SUV that can fit the whole family? A fuel-efficient subcompact? How about muscle car? Americans enjoy a range of options when it comes to buying vehicles and a recent rulemaking by the Trump administration promotes greater choice and affordability for car buying.

President Trump recently published the Safer Affordable Fuel Efficient (SAFE) Vehicles rule which makes changes to the Environmental Protection Agency’s Corporate Average Fuel Economy (CAFE) standards. CAFE standards set the average mile per gallon that an automobile manufacturer’s fleet of vehicles must achieve. The proposed rule from the Trump Administration would keep in place the existing fuel-economy standard which is rising to 37 miles per gallon through 2020 and keep it at that level through 2026. The Obama administration had previously proposed increasing the fleet wide fuel-economy standard to 54.5 miles per gallon by 2025. The Trump administration won’t reduce fuel economy but will simply keep it from rising to an extreme level.

The rulemaking follows an announcement earlier this year that the Environmental Protection Administration would revise the standards. The Trump administration estimated that the SAFE vehicle rule would lead to a $2,340 reduction in overall average vehicle ownership costs for new vehicles as compared to the Obama administration’s previous rule.

The Energy, Environment and Agriculture Task Force adopted a new resolution at ALEC’s Annual Meeting supporting the Trump Administrations review of fuel economy standards and giving Americans a greater choice of the type of cars they drive. The resolution also opposes the Federal government continuing to grant California an outsized role in determining vehicle fuel economy standards for America’s  49 other states.

To achieve greater fuel efficiency, automakers generally have two options: implement new technologies that make cars use fuel more efficiently or make smaller vehicles that achieve greater fuel efficiency by weighing less. Pursuing new technologies, unfortunately, can mean that a vehicle becomes more expensive just as buying the latest phone will cost you more than an older model. Selling a greater number of compact vehicles and sedans goes against consumer’s preference for large vehicles like pick-up trucks and SUVs. CNBC recently ran an article titled The steadily disappearing American car highlighting this trend.

While greater fuel economy can lead to savings in operating costs, that’s only if one can afford to buy a new car and vehicle prices are at historic highs. According to Kelley Blue Book, the average price of a new light-duty vehicle in July was $35,359, up 2.9% from July of last year. Auto loans followed the high prices reaching a 9 year high for interest rates and terms approaching 70 months.

CAFE standards may be contributing to some buyers being priced out of the new car market. A study by Resources for the Future Found that a 0.1% increase in fuel economy standards reduced new vehicle sales by .02% or 4,000 vehicles. The author of the study also noted that low-income households are more impacted in the decision to delay or not buy a new car than those with higher incomes.

While everyone wants greater fuel efficiency, mandating too strict a standard raises the purchase price of a car which results in either keeping buyers out of the new car market or forcing them to take out a loan which can evaporate savings from greater fuel economy. By setting CAFE standards at 37 miles per gallon, auto manufacturers have greater flexibility to sell vehicles that Americans want to drive, not the ones bureaucrats in D.C. mandate.

In Depth: Energy

It is difficult – and perhaps even impossible – to overstate the relationship between readily available access to safe, affordable and reliable energy and individual prosperity and economic wellbeing. This is because energy is an input to virtually everything we produce, consume and enjoy in society. Think for a minute…

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