Fuel Economy Regulations Risk Huge Job Losses, While Increasing Environmental Damage, CAR Study Predicts


Vehicle price change and automotive manufacturing employment in 2025 have perverse effects - the higher the cost, the worse it is for the economy and the environment. (CAFE mpg/gas $ gallon)

Government fuel economy regulations under development at the National Highway Traffic Safety Administration, the Environmental Protection Agency and the California Air Resources Board could severely hurt the U.S. economy by causing the loss of another 1.3 million manufacturing jobs, as well as hurt the environment.

As a result, the auto market may never recover its production and employment levels that helped create the now shrinking middle class.

Those are the grim conclusions presented today by the respected Center for Automotive Research during a seminar in Michigan as the U.S. national unemployment rate hovers at an official 9.8%, which is an understated number since it doesn’t include under-employed, forced retirees or beaten down job seekers.

“The higher the fuel economy mandate, the lower the employment in auto manufacturing,” said Dr. Sean McAlinden, Executive Vice President of Research and Chief Economist, Center for Automotive Research.

The controversial greenhouse gas regulations being proposed by the Democrats may require a fuel economy average as high as 62 mpg by 2025 for new vehicles since GHG emissions directly correlate with fuel economy.

Combined with the impending safety regulations already in place and anticipated new ones as regulatory reach expands, consumers are looking at potential price increases of roughly $6,000 to $8,000 per vehicle, after fuel cost savings are accounted for.

The National Automobile Dealers Association pegs the 2009 average price of a vehicle at $29,000. Adjusted for 2025 dollars, the actual price in the CAR model could be close to $50,000, thereby causing total industry sales to be about 13 million units, roughly 4 million lower than they could be.

The current corporate average fuel economy standards of 27.5 mpg for passenger cars and 23.5 mpg for pickup trucks and sport utility vehicles increases to 35.5 mpg for cars and trucks on a combined EPA average by 2016.

Automakers agreed to this when the Democrats swept the Republicans out of power in the presidency and both houses of Congress during the last presidential election, after decades of successfully lobbying against increases.

The balance of power has now shifted back to the Republicans because of the midterm elections, as voters detected none of the “change you can believe in,” that President Obama promised, and the economy foundered, setting up yet another confrontation between the bickering politicians currently on display as the lame ducks posture along the banks of the Potomac river.

Cuban Auto Syndrome Coming Here?

From an ecological point of view, the price increases actually have the perverse effect of hurting the environment, as consumers will be forced to hold onto cars longer and the car market stagnates, according to the CAR analysis.

This argument, if it is even remotely snd  (and it appears to be on my first analysis since all the assumptions are clearly defined and data based, with historical consumer trends included, unlike the NHTSA and EPA estimates about  the cost of fuel economy  now under consideraton) is a powerful counter to the “eco-babble” about creating green jobs so beloved by mostly Democrats, including the outgoing Governor of Michigan, Jennifer Granholm.

Granholm this January aftereight years leaves a bankrupt state government to incoming Republicans, who carried the election in all three branches of the ruling apparatus of what was once the heart of the auto industry.

The incoming Republican Governor, Rick Snyder, was long on platitudes about job creation during the campaign, but short on actual policy recommendations as to how to create jobs, critics contend, while also noting,with apparent accuracy,  that this is case at the national level.

Everywhere you look, the overriding voter concern appears to be job creation, and disgust with pork barrel politics as usual, a trend that, arguably, bodes ill for both parties.

Three corporate average fuel economy increases were modeled by CAR:

1. 41.7 mpg – This is an admittedly low CAFE target that was looked at if consumers and the industry negatively respond to the 2012‐2016 standards.

2. 49.8 mpg – This represents approximately a 4.6% annual CAFE increase, which is roughly equivalent to a continuation of the 2012‐2016 regulation now in place. It also is between the 3% and 5% annual decreases in green house gas (GHG) emissions scenarios proposed by EPA/NHTSA.

3. 60.1 mpg. – This high mileage scenario comes from political representatives in California and other state as well as some environmental pressure groups. It is close to the ‐6% a year decrease in annual GHG emissions scenario proposed by EPA/NHTSA.

While making no policy recommendations, McAlinden did suggest that more attention needs to be paid to the underlying economics by politicians and regulators.

“We do recommend more serious consideration of future costs,” McAlinden said.

About Ken Zino

Ken Zino is an auto industry veteran with global experience in print, broadcast and electronic media. He has auto testing, marketing, public relations and communications expertise garnered while working in Asia, Europe and the U.S.
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