What If The Auto Industry Gets To 62 MPG?

Over the past few years, we’ve seen a variety of incentives aimed at pushing the production of electric cars. There’ve been tax incentives, buyer subsidies and low-cost loans for automakers.

            The biggest electric vehicle (EV) incentive, however, still looms on the horizon. If the government’s proposal for a Corporate Average Fuel Economy (CAFE) number of as much as 62 mpg by 2025 comes to pass, it would force the production of EVs in a way that none of the other incentives ever could.

            For those who don’t recall what CAFE is, though, let’s first review: CAFE is a government regulation describing the sales-weighted mean of an automaker’s miles-per-gallon numbers. In 2010, passenger cars averaged 27.5 mpg. By 2016, they’ll be required to bump that number for all vehicles up to 35.5 mpg.

            Automakers are already fretting about hitting 35.5, so imagine how they’d feel about 62 mpg by 2025.

            For the sake of argument, though, let’s assume the auto industry could get to 62 mpg. If so, they’d most likely do it by dramatically boosting production of plug-in hybrids and battery-electric vehicles, which today have miles-per-gallon-equivalent numbers in the 90-100 range. At the same time, they’d have to reduce the percentages of conventional hybrids and gasoline-burning cars, which have mpg numbers in the 25-50 range.

            Many lawmakers think that’s a great idea. The governors of eight states (New York, Maine, Massachusetts, New Mexico, Maryland, Pennsylvania, Oregon and Washington) are urging adoption of it. “We have seen the automakers meet goals time and time again,” they recently wrote, “and we are confident that the technological improvements, including the plug-in hybrids and pure electric vehicles that they are rolling out, will increase efficiency and affordability further and will make 60 miles per gallon commonplace.”

            Experts we’ve talked to, however, say that strategy won’t necessarily translate to savings for consumers. “Once you get past 35 or 40 mpg, the savings for the consumer are very small, and the costs to achieve those savings become very high,” notes David Cole, chairman emeritus at the Center for Automotive Research in Ann Arbor, MI and a former professor of automotive engineering at the University of Michigan. “If the costs get too high and the savings get too small, it could actually diminish sales.”

            Cole argues that if auto prices climb too high, consumers will start to defer the purchase of new vehicles, resulting in a negative impact on the U.S. economy. He calls it the “Cuban-ization” of the U.S. automotive market. His organization has done studies showing that it could cause the loss of 200,000 jobs because consumers would be buying used cars instead of new ones.

            The argument against that logic, of course, is that economies of scale will kick in, causing the cost of electric cars and EV batteries to drop sharply. Maybe so, but even with high production volumes, we’re still likely to pay a premium for electric cars and plug-in hybrids.

            And the truth is, most American consumers can’t afford to pony up $41,000 for a non-subsidized Chevy Volt. I know I can’t. And like most American consumers, I can’t afford to own a $30,000 second car with a 73-mile range, like the Nissan Leaf.

            So, yes, 62 mpg is not unrealistic. “It’s definitely doable,” Cole says. “But would the vehicles be saleable to consumers? That’s another question.”