Nobody likes to witness a family argument—much less get pulled into it. But the schism between auto industry lobbyists and auto company executives is hard to ignore, and the consequences are too important. The disagreement is about the need and wisdom of producing more fuel-efficient cars. And with this week’s national average price for a gallon of gasoline at $3.88 causing financial hardship, it’s heating up.
Lobbyists in a State of Denial?
The Alliance of Automobile Manufacturers—the industry’s largest lobbying organization—in a recent Wall Street Journal article claims that $4 gas is still not high enough for consumers to make any real changes in their car buying decisions and that new pollution and fuel efficiency standards should fluctuate with gas prices.
The AAM’s most vociferous and long-held arguments are that it’s just too expensive to make high-mpg vehicles, consumers don't want them, and that it will cost American jobs. The group points to industry research showing that fuel-mileage and emissions proposals could raise the cost of a vehicle by as much as $6,400 by 2025, and that consumer will never pay more for efficiency. Therefore, light-vehicles sales would drop by 25 percent, killing about 220,000 jobs. As I’ve explained in a previous blog, the cost claim is based on a fundamentally flawed study which has been thoroughly refuted, and with it, the job killing claim.
The auto lobbyists appear to be in particular state of denial when it comes to consumer demand for fuel efficiency. Gloria Bergquist, vice president of communications and public affairs for the industry group, claims that Europe’s $8 a gallon price is the level at which consumers move to fuel-efficient vehicles in large numbers.
But the actual sales numbers show that at less than $4 gallon last month, sales of hybrids shot up 46 percent compared to the previous March, three times faster than the market average. At seven percent market share, hybrids and other fuel-efficient cars now comprise the same market share as traditional, truck-based SUVs.
The AAM appear to be proposing an unworkable and counterproductive system that would have fuel efficiency and pollution standards rise and fall with gas prices. Ms. Bergquist's argument is that when gas hit $4 in 2008, small cars got big, but claims it was only temporary until the price at the pump dropped back down again.
Under the AAM plan, regulators would need to periodically monitor gas prices, and scale back on fuel efficiency and pollution standards whenever the price at the pump drops. But as the past two decade shows, the auto industry needs three or four years planning lead time and cannot base its product plans on short-term, volatile conditions in the oil market.
The View from the Corner Office
So it’s no surprise that the lobbyist arguments aren’t even winning over executives at the very companies they represent.
As reported in Bloomberg, New York Times, and the Wall Street Journal, Ford announced this week reported its largest first-quarter profits since 1998—despite surging gas prices. How did that happen? Alan Mullaly, Ford’s chief executive, told Bloomberg that his company is better able to cope with rising fuel prices now than in 2008, when it was too heavy on trucks and large SUVs. Ford suffered more than $30 billion in losses from 2006 to 2008.
But by focusing its lineup on fuel economy, he turned the ship around. The Euro-influenced, fashion forward Fiesta gets 40 mpg on the highway, and the new Explorer boosted its fuel efficiency by 30 percent compared to the last version. The company believes that as much as 25 percent of its total sales will be either hybrid or electric by 2020. “With the fuel prices moving up, we now have the vehicles that people want,” said Mulally.
In the same Bloomberg story, Gary Bradshaw, a fund manager at Hodges Capital Management, added, “These higher prices for oil may be here forever and we’re just going to have to deal with it.”
Alan Mulally is not the only who didn’t get the memo from auto lobbyists. The 2011 New York International Auto Show, which opened last week, is a parade of fuel-efficient models.
General Motors unveiled the 2013 Chevrolet Malibu. The first version it produces for the U.S. market next year will be an "eco" version that gets 38 mpg on the highway. "The customer base finds cars like this very attractive because they pay for themselves,” GM North American President Mark Reuss told the Detroit Press. “It only gets better as gas prices change."
Honda, Subaru, Nissan, Kia and Hyundai all introduced more fuel-efficient compact and subcompact models. Several of the new models are 20 or 30 percent more fuel efficient than previous versions. Honda’s new Civic Hybrid gets 44 mpg in the city and highway. Even Porsche is getting in the game, introducing its most fuel-efficient vehicle ever, the Panamera S Hybrid.
60 MPG by 2025 is the Sensible Solution
There is a sensible solution to settle this squabble that everyone can rally around: setting long-term, stable standards that deliver 60 MPG by 2025.
60 MPG by 2025 delivers the long-term predictability and certainty that automaker executives need to plan new models and invest in new drivetrains. And it will deliver the fuel-efficient cars that our country needs to cut our dangerous dependence on oil, reduce dangerous pollution and protect consumer pocketbooks.
In the case of 60 MPG, what’s good for the country is good for the auto industry.