The trouble with gas sippers

North American car executives put on a happy face when they stood side-by-side with U.S. President Barack Obama and environmentalists to unveil new fuel efficiency rules this week. Under the new standards, the cars they build will have to get 35.5 miles per gallon (up from 25 mpg) by 2016—a much shorter timeline than any had expected. Speaking to reporters after the announcement, the executives applauded the ambitious move, which will force them to make cars over 40 per cent more efficient. But what they didn’t say publicly, in front of their new boss, is that this will be a severely onerous task for an already very fragile industry.

Meeting the new rules will cost the auto companies billions of dollars as they speed up the necessary engineering work to design and build more fuel efficient cars and retool plants. And this comes at a time when car makers like G.M., Ford and even Toyota have no money to spare. “This is the equivalent to be being very sick in the hospital and then coming down with pneumonia,” says Rebecca Lindland, an auto analysts at IHS Global Insight. Just hours before the deal was announced, Ford informed the White House it might not survive under the new rules and threatened to pull its support, reported the Los Angeles Times. It was eventually convinced to play along.

There is bad news here for consumers too. Fuel-efficient cars are expensive given the new technology they require, from hybrid engines to lighter materials. The standards will add about US$1,300 to the price of a new car, according to White House estimates. This points to an even more fundamental problem now facing the automakers. They are being ordered to make more of the kinds of expensive cars that very few North Americans are interested in buying. For all the talk about the advantages of small cars that are good on gas, sales figures show that Americans and Canadians have little appetite for them. “If people wanted those vehicles, we would have continued to see high levels of demand for hybrid vehicles” after last summer’s gas price spike, says Lindland. We’d also see growth in compact car sales. That hasn’t happened, she adds.

What kinds of cars do Americans like? Take the Camaro, for one. It’s one of the hits in G.M.’s current lineup. It’s a sleek, retro-looking muscle car that gets less than 20 mpg in city driving—truly awful mileage next to the 2016 standards. That just goes to show the scope of the challenge in satisfying both the new efficiency standards and consumer appetite. Car makers must turn the Camaro into a gas sipper, without stripping all the fun out of it.

Even the environmental benefits may not be as great as they’re made out to be. In announcing the new standards, Obama said that the changes would save 1.8 billion barrels of oil over the lifetime of cars sold in the next five years—the same as taking 58 million cars off the road for a year.  But economists caution that improvements in fuel efficiency have, historically, had a nasty side effect: they actually cause people to consume more energy. Cars become more appealing, and therefore get used more, not less.

Many would like to see the new standards result in a simple transition towards a North America that looks a lot more like Europe, where small cars rule. But that’s not a realistic comparison, notes Lindland. Europeans have had decades worth of incentives and penalties that steered them towards cars with small engines. In North America, beyond temporary spikes in gas prices, those financial pressures on consumers simply don’t exist. The new standards may be a step in the right direction, but they’re far from the answer to the auto industry’s woes.