Fuel-efficient vehicles are the way to go

Lesson One: I want to stress the 900,000 figure because it points the way to the future. Most of those sales were outside the U.S.  In order for an automaker to be a world leader today, it must be able to sell vehicles around the globe and in order to do that, it must sell fuel efficient vehicles.

Lesson Two: Toyota stuck with the Prius.  When the Prius entered the market a decade ago, it was an expensive, statement car, but the goal was always to make it a product aimed at the core of the U.S. market.  Our consumer pocketbook analysis shows that today it is a very good consumer purchase within the family sedan category in which the Environmental Protection Agency places it.  While the Prius costs about $1,000 more than the other family cars that sold as many units as the Prius last year, the consumer saves more in gasoline than the increased cost within a year or two.  If the auto is purchased with a typical five year auto loan at 6 percent, the cost of owning and driving the Prius is lower than other cars in the first month.  By the time the loan is paid off, the consumer will have saved between $1,000 and $4,000.

Lesson Three: Ten years ago, when California was moving toward an aggressive program to institute standards for low emission and zero emission vehicles, which was certain to lead to electric vehicles sooner or latter, the automakers insisted that the standards were impossible to met and they would leave the state before they would comply.  California stuck with the Clean Cars program (with some modifications) and led the nation to both lower emissions of pollutants and higher fuel economy. The California standard played an important part in driving the national standard and helped to pave the way for electric vehicles.

{mosads}Lesson Four: Setting standards that solidify and cement industry changes plays a vital role in supporting the transition to a more fuel efficient vehicle fleet. Setting a high standard for the next fifteen years is intended to foster and support a long-term perspective for automakers and the public, by reducing the marketplace risk of investing in new technologies, giving the automakers time to re-orient their thinking, retool their plants and help re-educate the consumer.  The industry spends massive amounts on advertising and expends prodigious efforts to influence consumers when they walk into the show room. By adopting a high standard, they will have to expend those efforts toward explaining why higher fuel economy is in the consumer interests.  There are two keys to successful standards programs.  First, it has to be long term.  The automakers need time to change the industry and consumers need time to embrace those changes.  Second, it must accommodate consumer preferences, not try to negate them.  The new approach to standards is based on the footprint (size) of the vehicles and recognizes that SUVs cannot get the same mileage as compacts.  Standards for larger vehicles will be more lenient, but every vehicle class will be required to improve at a fast pace.  This levels the playing field between auto makers and removes any pressure to push consumers into smaller vehicles.

Lesson Five: The L.A. Auto Show, the Detroit Auto Show and the upcoming DC Auto Ahow make it clear that there are now or will soon be four different approaches to electric powered vehicles (hybrid, plug-in, hybrid plug-in, and extended range) offered across the full range of vehicles driven by American consumers (compact, mid-size family sedans, large cars, SUVs, Pickups). These vehicles are offered  by half a dozen mass market oriented automakers including Toyota, GM, Nissan, Ford, Honda, Mitsubishi, as well as  new entrants and niche market oriented producers like Tesla, Fisher, Coda, who are using several different development models including internal supply, licensing technologies, outsourcing components.   In a sense, the difference between the GM Volt, which has a range of 300 miles, and the Nissan Leaf, with a range less than 100, suggests that they are fundamentally different products, targeted at different market segments, and provides testimony to the innovation and experimentation going on in the sector.

Lesson Six: Analysis by the Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA) shows that over the next decade and a half the technologies to raise fuel economy to 60 miles per gallon can be deployed throughout the fleet. Our analysis of this target indicates that this standard would save consumers a lot of money by lowering the cost of driving.  When the cost of driving goes down, auto sales go up.  The analysis also shows that the fuel economy of petroleum-powered engines can be dramatically improved at consumer friendly costs.  Petroleum will continue to be the premier power source in the U.S. light duty fleet for decades, but, pressed by the electrics, these vehicles will have to dramatically increase their fuel economy to hold their market share.

Lesson Seven: This much activity is a sure sign that a great deal of progress has been made and, with competition breaking out in a new product space, the current crop of vehicles is only the beginning.  Consumers can expect lots of choices and declining prices as these technologies penetrate the market. If the companies with the muscle to serve the mass market get to scale, their costs will come down. The key, as the success of the Prius shows, is for both automakers and policy makers to stick with it, develop the technology and get to scale.

Last, but certainly not least, public opinion polls show that consumers support higher fuel economy standards because they think they are good for consumers, the nation and the automakers and they want to buy more fuel-efficient vehicles.  Consumer purchasing patterns indicate that consumers have begun to shift their demand. Americans love their SUVs today and they will love them even more when they get 45 miles per gallon. The automakers will also love them more when they get 45 miles per gallon because they will be able to sell them all over the world.  This is the path to the future for a successful American auto industry.

Mark Cooper is the Director of Research for the Consumer Federation of America, a non-profit association of over 280 consumer groups that was founded in 1968 to advance the consumer’s interest through advocacy, research, and education.