President Obama’s Plan to Increase Fuel Efficiency Standards

May 19, 2009

In proposing higher fuel efficiency standards for new cars, President Obama has intervened in the private sector. Cliff Winston explains how consumer demand alone for fuel efficient cars was clearly not strong enough to drive the market in that direction. But, he warns of such unintended consequences as cars being less safe and driven more.


“Well, it’s not quite timely to start putting additional changes on an industry which is in very serious trouble and it’s not at all clear to me that either Chrysler or GM will really come out of this or that there is much point in putting them through all of this. And, then to add to that constraints where now they are now going to have to change the vehicle fleet doesn’t seem to me the right timing to be pursing this kind of policy. Yet, at the same time from a political point of view this may be exactly the time to do it because this is the time where they are not going to offering much resistance and the public seems to want to go in this direction. At this point they have not made any objections.”

“… Well, certainly technology exists to enable cars to get greater fuel economy and it can’t happen over night but it certainly can be done in a matter of years. My view as to why it hasn’t been done before simply this has not been a market outcome. I really believe that if consumers wanted cars with fuel economy levels at the type that are being proposed the automakers would provide them. Indeed we do see a range of vehicles that have fuel economy standards at the level that are being proposed, and if people wanted to buy a hybrid and that’s all they wanted that’s what would sell. Or, if they wanted other cars that have got similar high fuel economy, that’s what would sell. There is a range of vehicles out there and people have the choice to get ones that are clearly within the standards we have today. So, my guess would be if there really was strong demand for those types of cars we’d have more of them selling. The fact that automakers are being forced to do this raises, to me, very serious red flags as to whether this is something consistent with the market outcome, which I strongly doubt it is.”

“…There is evidence suggests that there is a lot of offsetting effects or maybe unintended consequences of the CAFE standards. First of all, if the fuel economy improves operating costs go down, it’s sort of cheaper to run your car. It makes sense that your going to drive it more often. This is what the call a rebound effect. It’s a controversial issue, but certainly the logic is quite clear that if people can get greater fuel economy they will travel more often. So, that will offset what the Corporate Average Fuel Economy Standards are trying to do. Another unintended consequence could be safety in that these are lighter cars. And, obviously, we know that weight, or relative weight, matters in accidents.”

“…Their cars have gotten better. There is no question about that. People will see Consumer Reports saying that these cars are better and Detroit is making progress. That’s true. The problem is that the competitors are getting even better faster, so they are in a continual catch up game, and they are not just catching up. This is led to sort of questions, what is exactly the problem. A lot of people will often blame the Government then for the automakers problem. I don’t do that. I think the problem is internal. This has been going on for a number of decades. They continue to loose market share decade after decade. And, I think there is something internal in these organizations that we just don’t understand, because they just have not been able to bridge the gap fast enough. There still is a differential in the price and quality of the cars as perceived by the consumers. And, now they are in some serious trouble. They are obviously in need of government assistance. I don’t blame the government for this, but I certainly blame them for keeping the misery from going on.”