Wednesday, April 11, 2007

Politicians and consumers may be passing the buck on fuel economy

Alex Taylor III, Fortune magazine

NEW YORK (Fortune) -- President Bush thinks we should use less gasoline to reduce our dependency on imported oil and limit the emissions of greenhouse gasses. That's a worthy idea, and one that is endorsed by most politicians and a majority of Americans.

But rather than change their behavior or make any sacrifices to actually accomplish this, Americans would rather shift the responsibility onto somebody else. In this case, it's the auto companies - and it's a mistake.

Bush is right about one thing: Since Americans aren't willing to conserve gasoline on their own, the government should step in. Consumers talk a good game about fuel economy before they arrive at the showroom. But they get dazzled by glitzier features when they walk into a dealership.

"Customers will trade five miles per gallon to get fancy cupholders," says Mike Jackson, head of AutoNation, the country's largest auto retailer.

Want proof? Back in 2000, when gasoline was the cheapest liquid around, fuel economy ranked as the 29th most important attribute in buying a car. Today, when gas costs as much as $3.25 a gallon, good mileage still ranks only 22nd. Sound systems and convenience features rank higher as purchase considerations.

But rather than giving consumers an incentive to change their buying habits, Bush wants to force automakers to build more fuel efficient cars by raising the corporate average fuel economy (CAFE) standards for passenger cars and light trucks.

By so doing, though, Bush is reviving an urban legend that the technology is cheaply available if only the lazy old automakers would bother to use it.

We should be so lucky. Making people save gas by buying thriftier cars, as General Motors executive Bob Lutz has said, is like telling people to lose weight by wearing smaller clothes. Yes, the technology is available - but at a cost.

For small cars, it might be enough to add aluminum body parts or a more efficient CVT transmission to boost fuel economy. Larger vehicles might require reengineering from the tires up at a cost of $5,000 to $6,000 a car, according to GM (Charts). And given consumers' consistent pattern of behavior, they are still likely to buy the biggest, most powerful cars they can afford.

Another solution proposed by Bush is to increase the use of gasoline blended from ethanol. True, less gasoline would be consumed, but so much energy is required to make ethanol in the first place that there would be no appreciable net savings. Besides, ethanol is a much less efficient store of energy than gasoline, so the miles traveled per gallon of fuel consumed drops by 30 percent.

If Bush wanted some guidance on how to quickly and efficiently meet his goals, he need only look to Europe and Japan, where the motor vehicle fleets get dramatically better mileage than they do in the United States. Cars average 36 mpg in Europe and 31 mpg in Japan vs. only 21 mpg in the United States.

The reason is simple: Higher taxes force drivers to pay more for gas. Taxes add $4 to the price of a gallon of gas in Europe and $3.25 in Japan, but only 40 cents or so in the United States.

Raising taxes in the United States, say, ten cents a year until they reach $2, would stop people from driving their Hummers to get a quart of milk. For those who would be economically impacted, the extra money they pay in gas taxes could be returned to them as a tax rebate.

But any system so simple and so fair hasn't got a prayer of becoming law in the current political climate, where politicians quake at the thought of asking voters to make sacrifices. And without incentives, consumers will continue to choose cupholders over good citizenship.

In the meantime, other interested parties are filling the breach. Last week, AutoNation became the first retailer to identify the vehicles that lead their classes in fuel efficiency. It will attach a green, leaf-shaped logo to all cars and trucks that produce at least 28 mpg or beat the average mileage in their class by 10 percent.

At least ignorance of mileage will no longer be an excuse for wasting gas.

[I believe that the auto manufacturers should be required to improve mileage and tailpipe emissions. They should also drop their lawsuits against states, like California, that are imposing stricter than national standards. Additionally, we need to improve public transport and city design.

The author does raise a very good point, that at the end of the day, consumers will have to change their preferences. It's not just a matter of driving less, because in this country, a car is a necessity if you're not living in a major city. If you live in a suburb, there's no way you can get everything you need with just a bicycle.

We consumers will need to accept higher taxes, demand more public transport, demand more opportunities to telecommute. But we will also need to be willing to make major changes in the way we live. It's a big ask, but we can't afford to pass the buck. Now, I'm not saying that auto manufacturers and politicians can just pass the buck to the consumer. But, it this is a very complex problem.]

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