President Obama addressed the importance of a cleaner energy supply during a speech in Newton, Iowa, on Earth Day, April 22.
(Gerald Herbert/AP)Photos (1 of 1)
What Obama’s clean-car plan will cost consumers and teetering US automakers
By 2016, a new car will pollute less and get more than 35 miles per gallon, but its sticker price will be at least $600 higher.
By Mark Trumbull | Staff writer/ May 19, 2009 edition
President Obama’s plan for tighter limits on vehicle emissions promises to be a boon for the environment and for the cause of US energy independence, but it comes at a cost for struggling automakers and consumers.
It could add $600 or more to the price of a new car at a time when recession-bound shoppers are already reluctant to buy.
It demands new investments from automotive manufacturers that are in or near bankruptcy.
The White House vigorously defends the plan’s virtues, but some auto industry analysts say the plan’s timing and economics are challenging. What Mr. Obama proposes is a historic boost in environmental standards – including the first-ever direct curbs on greenhouse-gas emissions for US cars – during a historically deep recession.
“It’s going to be very expensive for consumers and manufacturers,” says Rebecca Lindland, who tracks the industry for the consulting firm IHS Global Insight in Lexington, Mass. Although surveys show public support for curbing auto emissions, “consumers haven’t shown a willingness to pay for it,” she says.
Obama’s own task force cautious
This doesn’t mean the effort can’t work. It just has a hard hill to climb on alternative fuel.
Obama’s own automotive task force, set up to determine whether taxpayers should help Chrysler and General Motors survive, has hinted at the difficulties.
Where Obama has called on the US industry to take the lead in developing a new generation of clean cars, the task force threw cold water on one of GM’s biggest efforts to move in that direction. In assessing the viability of GM’s restructuring plan this spring, the panel said that although the electric-powered Chevrolet Volt “holds promise, it will likely be too expensive to be commercially successful in the short term.”
Why resistance is weaker
Several political forces have combined to build momentum for tighter control of emissions. These include Democratic control of the White House and Congress, the current dependence of GM and Chrysler on federal aid, and growing public support for action to combat the threat of climate change caused by greenhouse gases.
Those factors help explain why, despite the challenges involved, carmakers have lined up to support Obama’s new plan. The auto companies want to be willing participants in what they see as an inevitable transformation for the industry, and they see gains from having a single, clear standard for emissions.
Obama’s plan includes several elements:
•Each company would have to achieve the fleetwide Corporate Average Fuel Economy (CAFE) standard of 35.5 miles per gallon by 2016. That’s 0.5 m.p.g. higher and four years faster than the federal emissions rules currently call for.
•In addition to cutting ground-level pollutants, the goal for the first time is an explicit reduction in the carbon emissions linked to the threat of global warming.
•The system would cover the whole nation, offering manufacturers the benefit of a single standard. The state of California, which has long set up alternative standards that other states can choose to follow, is agreeing to stick with this new federal rule at least through 2016. California would save money by avoiding the need for its own compliance program for the similar greenhouse-gas limits it has been seeking to impose.
•The changes would take effect through a federal rulemaking process, which could be made easier by the up-front support of key stakeholders such as major carmakers, environmental groups, and California. The Environmental Protection Agency and the Department of Transportation, in an unusual move, collaborated to frame the plan.
Automakers prefer a nationwide standard
Although the auto industry has opposed the tighter standards at the state level, key players are backing the Obama plan.
“Energy security and climate change are national priorities that require federal leadership, and the president’s direction makes sense for the country and the industry,” GM chief executive Fritz Henderson said in a statement released Monday. “GM and the auto industry benefit by having more consistency and certainty to guide our product plans.”
Automakers also applauded the administration’s plan for setting targets for emissions by individual classes of vehicles, as well as the overall fleet goals. That step will help ensure that consumers can continue to choose among vehicles with a range of sizes and traits.
But how many will they buy, and when?
Vehicle sales volume has fallen by about 40 percent over the past year, with drivers opting to postpone purchases or buy used cars instead. Although virtually all carmakers have taken a big hit, foreign brands have gained market share relative to the Detroit Three.
Shoppers fickle about fuel economy
The big rise in gasoline prices early last year buoyed demand for fuel-efficient cars. But that trend didn’t persist when gas prices later fell. Analysts say that’s a sign that car shoppers care about much more than environmental performance, and that their concern with fuel economy depends on fuel prices.
In a briefing before the president’s Tuesday announcement, a senior administration official said the added cost per vehicle would be about $600 per car in 2016, on top of the estimated $700-per-car cost of the CAFE standard that carmakers were already trying to hit by that year.
Consumers would recoup much of the added cost through savings on fuel over time, the official said. Cars by 2016 would get 39 miles per gallon on average, up from about 27.5 under current standards. Light trucks would rise from about 23 to 30 m.p.g. over that time.
Obama is providing some economic cushion for carmakers by planning for the new rules to phase in at a slower pace than California had outlined, while ending up at the same target that the state has set.
That gives carmakers time to adjust their product plans. And it provides a window for economic recovery to begin before consumers feel the worst of the sticker shock.
It will be a lot easier for GM and its peers to survive, as well as fund the development of new cars, if total vehicle sales rebound strongly. Lately sales have been running at an annual pace of about 10 million units, whereas sales had gone above 16 million before the recession.
Many economists say that having the right incentives in place, not just rules, could be vital to making the program work.
Those could include carrots such as tax incentives for clean-vehicle purchases, or sticks such as higher gas taxes that set a floor for the price of carbon-based fuel.
Obama’s economic stimulus package, passed in February, includes tax breaks worth up to $7,500 for the purchase of plug-in hybrid cars – which still are not widely available in the marketplace. A smaller incentive in the stimulus measure allows taxpayers to deduct sales taxes on new cars purchased this year.
Congress is also considering a “cash for clunkers” program designed to encourage trade-ins of old gas-guzzling vehicles.
At the root of the emissions plan is Obama’s view that recovering from recession and meeting long-term national goals are complementary, not contradictory, goals.
“I don’t accept the conventional wisdom that suggests that the American people are unable or unwilling to participate in a national effort to transform the way we use energy,” he said in a recent speech.
Obama and the carmakers are now banking together on the idea that preserving US factory jobs will be best achieved through an aggressive transition toward a clean-car future.
Even before this week’s announcement, GM had fashioned a restructuring plan in sync with Obama’s vision. The company intends to have 26 hybrid models by 2014, up from eight at the beginning of this year.
US taxpayers stand to gain or lose depending on how the transition goes. New federal aid could make the government a majority owner of GM in the weeks ahead. Chrysler, also getting federal support, recently entered bankruptcy. The other Detroit-based carmaker, Ford, has been surviving without government assistance despite steep losses.
Comments
2. Bill Randall | 05.19.09
OK. $600 will buy how much gasoline? Increasing fuel efficiency by that much, the payback will be how long? A year, or less? C’mon, let’s think, here. This is a good thing. AND… as gasoline goes up in price, you’re better off than you would have been.
3. gjdagis | 05.19.09
I’d like to know what gives the federal government the right to initiate policies like this along with so many others. What allowance is made in the constitution for the government to have the power to dictate to the people things such as this? Beyond protection from foreign invaders and the regulation of interstate commerce; they shouldn’t be involved in much else. Things are totally out of hand and the people must take back the power from this out of control, authoritarian government.
4. Foxx1987 | 05.19.09
Maybe this actually a way for the U.S. automakers to get a jump on the foreign companies and increase their own market share abroad. That could be why they are pushing for it? Because we cannot impose any standards on foreign car makers, and if they don’t conform to our standards in time, their new cars won’t be able to sell in our market… period.
5. Billy D | 05.19.09
Going from 27 mpg to 35.5 will save 159 Gallons of gas for a car that drives 18,000 (or 106 gallons for 12,000 miles) times 2.50 a gallon of gas is $265 to $398 a year so the payback is 2 to 3 years ? the is better than 1/2 off a car loan. This is doable & fairly painless. so for $600, just delete your DVD player or that $900 to $2500 Nav system & get a Garmin for less than 200.I doin’t see a problem here. Heck car companies raise the price of a car 700 to 800 a year anyway & now that they will be more efficient in making them it is a win win situation for car buyers.
6. Curtis | 05.19.09
so much for consumer choice. Guess I better start limbering up to cram myself into a sub-sub-compact that does 0-60 in 15+ seconds. Actually I am seriously considering how to make my old truck last a little longer so I can still have my v8 power and my leg room. Maybe I’ll get a crate engine instead of getting a new vehicle, maybe a couple in case they get outlawed later.
7. mo | 05.19.09
There was no reason for these executives to change their direction, because
we continued to buy the dinosaurs they kept making.
They want these limits because it’s a reason to charge the public more.
1, They take our tax dollars
2, They take away jobs from thousands of American workers.
3, They take manufacturing plants to other countries.
4, They take more of our decreasing income.
Doesnt sound like a business I want to support.
8. Curious Orange | 05.19.09
My 1999 factory CNG Ford goes 185 miles on $8 with Clean burning domestically produced compressed natural gas.
9. The Optimistic | 05.19.09
Good news for America! Finally we’ll have a chance to shows how creative and innovative we are. Our automobile industry will move us forward to our former glory. We also will display to the world and ourselves our commitment to planet earth and how mature we became at these difficult times when moderation, sacrifice, understanding, and new energy realities become not only a priority, but a most important common model, even bigger than our individualistic preferences. Change is good.
10. Ted X | 05.19.09
What people dont get is… A car is a LUXURY! period. why do u think some have luxury tax just to buy one/????? SO. OUr world needs us to lead. And so we do. but whats with all these people crying about NO goverment can tell me what to buy. haahahahhaa. U FOOL the Car companies have been telling you for ever.
11. Concerned | 05.19.09
It sounds like just a few dollars to spend to make some serious inroads into the looming oil crisis. Things are going to change. We need to prepare, and start adjusting now. Break out of traditional thinking, and not be left behind by other more forward-looking countries.
12. Concerned | 05.19.09
some observations:
…where does this electricity come from?
…sounds like a gun was held to our head when you made your decision!
… looks like these “clean” cars are available now…how come all the other environmentally correct consumers haven’t got theirs?
just so you all know for future arguments…more carbon gas is produced from the electricity we all use than if you were to double the number of cars and drive twice the distance we do today
13. Glenn | 05.19.09
This is fine … as far as it goes. Why are we not including boats, trains, trucks and planes in this discussion also?
14. Wai Yip Tung | 05.19.09
Look at the math done by 5. Billy D. The $600 will be recoup in 2 and 3 years. After that it will save hundreds of dollar for consumers per year. Sounds like a no brainer to me.
15. Cathy | 05.19.09
Good point Glenn! So what about automobile caused deaths and such from unsafe cars?
16. JP-Atl | 05.19.09
We will get there, but the solution will be a little of everything:
* More Domestic oil and natural gas
* higher fuel economy standards
* Gas/electric hybrids
* Electric cars/scooters
* Natural gas vehicles
* Better community planning
Use a search engine to check out the “seat world fuel economy record” at 97.4 mpg on clean diesel. The Ford Fusion Hybrid is the best in class hybrid. Let buy American to rebuild the local industry!
17. richard potter | 05.19.09
The “cash for clunkers” program has proved itself in Europe with a five month backlog for new Ford cars. The government needs to get out of the car industry–but should set clear and obtainable standards on emmissions. Incentives for consumers (tax breaks) should be used rather than multi-billion dollar bail-outs that go directly to manufacturers.
18. JPA | 05.19.09
First, The world-wide man-made production of CO2 will grow by 20% in the next decade, regardless of any reductions in the USA.
Second, Man-made CO2 is irrelevent, as it does not cause global warming. The earth’s temperature has been dropping for the last 10 yeaars, an inconvenient fact totally not predicted by any AGW proponent. Climatologists who disagree with AGW far out number the ones who agree.
Third, the solution to reducing our dependence on imported oil, is to take advantage of the abundant oil, oil shale, gas, and coal in this country. It will produce jobs, provide cheap energy, and stoke an unprecedated economic recovery.
19. T, GA | 05.19.09
I think there is going to be a rise in diesel vehicles. They already make cars and trucks pretty much everywhere else that run on diesel, and are pretty close to those requirements. However, passenger cars and light trucks that run on diesel have to meet the same emissions standards as similar gasoline cars. That’s the main reason they aren’t here now. They should have slightly different standards for diesel motors, and, you’ve basically solved this problem. BMW makes a 5 series diesel hybrid that gets around 50 mpg. Nissan and Toyota and Mittsubishi all make mid-sized pickups that run on diesel and get about 30 mpg. Why isn’t that here?
20. Margaret Schaut | 05.19.09
Almost nobody I know wants or could use an electric car. If we all lived in Europe, perhaps, because few people NEED a car there anyway. Here, these little cars have to compete with larger vehicles and huge trucks for highway space, the batteries are unbelievably expensive, and any fuel savings is more than swallowed by the higher costs of making these vehicles, the costs and environmental problems of the batteries, and creating the electricity to power them. You cannot haul things in them, they seat only small people, and a family of 4 with a dog would be horribly uncomfortable. They take hours to recharge, meaning that one could not use them for long road trips, and the mileage is hardly better than the 34 mpg I currently get with my Saturn which company is being driven out of business. In the north where the snow is heavy even the Saturn is challenged- a smaller car with much less power would be useless for 6 months of the year. In my estimation the entire project is ill advised and designed by people who know nothing of the automobile industry or the realities of how the citizens actually live or what we genuinely need.
21. Dan | 05.19.09
I’m keeping my 2002 Maxima forever. It get’s 25-27 MPG and it has power. It makes no sense to drive a golf cart around. In 2016, all you will be able to buy is a golf cart.
22. rodney | 05.19.09
Another example of obama trying to destroy america get rid of this sleeper cell terrorist before its to late
23. Sean | 05.19.09
I work as a mechanic for a smog/emission shop in California and it cost some people over $600 to get their vehicle to pass emissions. If emissions made any sense the government would of made 50 state emissions a requirement years ago. It’s just a hassle for the states and counties who don’t have to deal with it. More money out of your pockets, more government in your life, you voted the democrats in, you asked for it.
24. ChrisMarks | 05.19.09
Americans when they have been given a choice between small efficient Japanese/European cars and American cars, have always chosen the former. Now we are being told by the government that American manufacturers can no longer concentrate on the kinds of vehicles they have been successful at manufacturing: light trucks, vans, and SUVs. There are positives that will come out of this such as energy issues but the future of the American automobile industry is not going to be a positive thing.
25. NB | 05.20.09
$600 is not a lot, but I doubt that that’s the real price. People are always complaining about hybrids and electric cars being way too expensive
26. shunha7878 | 05.20.09
The price of cars will not go up by $600 but will double. If a car cost $20000 now, it will cost $40000 after Obama. Want to see what we will be driving after Obama? Look to Cuba.
27. Cindy | 05.20.09
So…just curious. How much CO2 emissions are the Lear-jet Libs (like Obama) going to need to sacrifice here? It seems to me that it’s just us “little guys” who need to be in compliance with the government regulations. I don’t hear anyone screaming about what an absolute WASTE of resources that he and the rest of the jet-setters are creating by zooming their jets (and making fly-by’s in American taxpayer funded planes over NYC) around the planet. Can you say hypocrisy??????
28. NB | 05.20.09
Hardening fuel efficiency standards does nothing to encourage people to stop buying used SUVs or replace the existing ones sooner than this would have normally happened. It affects only a fraction of the market that accounts for buyers of new cars while risking to send car manufacturers back to bankruptcy for the lack of sufficient demand. Neither it creates any incentive for people to buy expensive cars that are ways above the mandatory efficiency standards. Finally, much of the effect of such a measure will be canceled off by the rebound effect as with driving becoming cheaper many people will simply start driving more. Fuel efficiency standards do nothing in the way of discouraging suburban sprawl and such stuff.
It sounds good only on paper. In reality the only most direct and effective way to do such a thing is a revenue neutral gas tax implemented through tax swap with other taxes. Such a tax would indeed create an incentive for all drivers to look for fuel efficiency. Without a proper tax all this populist measures are only likely to create more harm.
29. MD | 05.20.09
Good first step. Hey, even the Prius prices have come down by more than $1000 this year. Plugin hybrids with solar roof will keep my car cooler and without the need for gas as I drive less than 50 miles a day. As good as an electric car. Over a period of time we will see bigger (SUV, VAN etc) plugin hybrids too. Battery technology, solar power technology etc will improve reducing the cost of the vehicle over a period of time.
30. Chris Williams | 05.22.09
Good goal wrong method. The government shouldn’t try to set mileage standards, and expect people to buy effiecient cars because they said so. It is the job of car manufacturers to make vehicles that are demanded by consumers not the government.
Gradually increase the gas tax and thus the price of gas. The demand for effiecient vehicles will go up, and gas hogs down. Oil consumption and Green house emmisions will go down. It’s simple supply and demand.
31. SK | 05.28.09
The Commercial Trucks on the road give around 5 to 6 miles per gallon and consume a lot of fuel. They operate minimum of 10 hours per day (this is based on the the Hours of Service Rule) - which is around 650 miles per day).If these trucks are retrofitted with a Natural Gas it will reduce our national fuel consumption by atleast 60%.
The Govt has to focus on raising the Mileage standards for New Trucks. This will benefit the trucking industry and the environment.
32. Heather in Ohio | 07.09.09
So… I guess our large family will have to ditch our 15-seater van and drive around in four different cars together.
Will that be better for the environment?
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1. Fred Moolten | 05.19.09
The new mileage standards are a small step forward, albeit a necessary one, but by themselves will reduce CO2 emissions far less than needed for a comprehensive CO2-mitigation program. However, an encouraging additional development is the announcement of planned major upgrades in the nation’s electricity grid. Electricity is a far more efficient power source for automobiles than the internal combustion engine, and the combination of an improved grid with the substitution of wind and solar energy for coal in generating most future electricity will go further than mileage standards alone to control carbon emissions at a level that contains future climate change and its consequences within tolerable limits.
Regarding costs, these will increase little in the immediate future, and will rise toward the $1300 figure only at a time when we can reasonably expect to have emerged from recession. In addition, they will be offset, at least partially, by fuel savings.