Business
12:59 pm
Thu September 6, 2012

New Standards May Change How Cars Are Made

Originally published on Mon September 10, 2012 7:56 am

Transcript

NEAL CONAN, HOST:

This is TALK OF THE NATION. I'm Neal Conan in Washington. Last week, the Obama administration just about doubled fuel efficiency standards. By 2025, cars and light trucks will have to average better than 54 miles a gallon. That's a goal that pleases environmental groups and carmakers.

That's a marked change from the days when Detroit loudly opposed regulation from Washington. Still, auto manufacturers acknowledge that these new standards will be difficult and costly to meet, and they wonder if car buyers are going to be willing to pay the additional cost for more efficient cars.

The government pegs the increase at $1,800 per vehicle. If you're in the market for a new car, what's important to you? Give us a call, 800-989-8255. Email us, talk@npr.org. You can also join the conversation on our website. That's at npr.org. Click on TALK OF THE NATION.

Later in the program, Kathleen Turner as Molly Ivins. But first, fuel economy standards. Joseph White is a senior editor for the Wall Street Journal, where he covers the auto industry and writes the Eyes on the Road column. He joins us now from member station WDET in Detroit. And nice to have you on TALK OF THE NATION today.

JOSEPH WHITE: Good to be with you.

CONAN: And these new CAFE standards to improve vehicle mileage by almost 50 percent, that's a huge increase.

WHITE: Yeah, that's a big increase, but it is over a long time, and the car business has kind of done this before. They did it between roughly 1975 and roughly 2000, or actually even earlier, in the 1990s. They pretty much doubled fuel economy after the Arab oil shocks of the 1970s, prodded by the federal government.

So it's not completely unprecedented, but it certainly is ambitious.

CONAN: Yeah, that 54 miles a gallon, that's almost a fantasy number.

WHITE: Well, no, it's not, if - not to be too argumentative...

CONAN: No, that's all right.

WHITE: If you lived in Europe, it wouldn't be a fantasy, it would be your reality. I mean, essentially one way to look at this is that the federal - our government, the United States government, is essentially asking the car business to field a fleet of vehicles that's roughly similar to the fleet that they field in Europe, where gas prices are roughly double what we pay.

CONAN: And why are these standards being greeted with cheers in Detroit?

WHITE: Well, cheers with a great big asterisk. The auto industry - this is very complicated, but some simple points. The automakers face a dilemma here, which is that just say no, the just say no approach they took to fuel economy regulations in the 1980s and 1990s clearly had run its course, and that was even before the bailout.

And one reason why that was true is that California, which has the power to essentially impose its own fuel economy regulations, had sent the message that they intended to do just that. And the car business was looking at what they considered to be a very bad scenario of having two, possibly three different fuel economy regimes across the nation.

That's bad. They want to have just one so they can field one fleet of cars to this very large market that's much more efficient that way. So to make a long story short, the car business, it was caught in a political squeeze play, and they played it for the best that they could. They agreed with the Obama administration, let's have a national standard.

During the time of the bailout, the administration had a lot of leverage to say we want that standard to be very ambitious. The car companies essentially had to say can we do it, yes, but you've got to give us some wiggle room. You've got to give us some off ramps if things don't work out. And they got those.

And so they're about as happy as they can be with that, despite the fact that if you ask them off the record do they think that the 2025 54-and-a-half mile a gallon standard is something that's attainable, they would say yeah, but, and the but is a pretty big one.

CONAN: And the but, they do have an opt-out point, maybe, in 2017. There's going to be a review at that point to say - is this reasonable.

WHITE: That's right, that's right. And, you know, consumers are going to be the ultimate arbiters of this, which I guess is a good thing. Consumers are going to either buy cars that comply with this standard and crossover utility vehicles and pickup trucks that comply with these standards, or they're not. And if they don't, then I think that you're going to see the auto industry gather itself up and go to Washington and say we need to - we need relief from this.

Of course, they'll be asking a different administration in 2017, but they will do it if they don't think they can sell the products that they're being asked to build.

CONAN: And it's important to remember, this is going to be different for cars and light trucks, the pickup trucks that are so popular. They have to average - the fleet has to average, by any manufacturer, 54-and-a-half miles a gallon.

WHITE: Not - well, it's not quite. I mean, this is - you know, I think it's important for listeners to know that this is 1,230 pages of regulations. It's got math problems that make your head hurt just to look at them.

(LAUGHTER)

WHITE: This is - I won't say - I think it's probably wrong to say this is as complicated as Dodd-Frank or the health care law, but it's not simple either. And so one of the things that's important to the car business is that the old system that this replaced did force them to average across their fleet. With this new system, they have a bit of an easier way to go. They have to get cars that are of a given size, or footprint is the technical term that they use.

Essentially think of it as the shadow that the vehicle casts on the ground if you're parked. They have to get vehicles of a given size to hit a given standard. The smaller the vehicle, the tougher the standard. A compact car like - or a sub-compact like a Honda Fit has to meet something like, I think it's a 60-mile-a-gallon standard under the kind of weird math that they use.

A pickup truck would maybe be closer to the high 20s or low 30s by sometime in the next decade. It's a much easier standard for them to make, and that's assuming that they bother to make it at all.

CONAN: We want to hear from our callers, 800-989-8255. Email is talk@npr.org. If you're in the market for a new car, what kind of features are important to you? How do you prioritize? We'll start with DJ, and DJ's on the line with us from Weirs in New Hampshire.

DJ: Yes, hi there.

CONAN: Go ahead, please.

DJ: Thanks so much for taking the call. For me, gas mileage - utmost priority. I drive over 150 miles a day roundtrip to go to work. And I have a comment and a question. I own a 2001 Toyota that already gets, in its conventional gas engine, 42 miles to the gallon. So my question, I guess, of the auto manufacturers, is if it costs me $11,000 to buy that - this car back in 2001, what's the big deal about increasing the gas mileage on a car like this that already gets it, a high gas rating?

Well, how much more expensive, really, could it be and why? And I'll take the answer off the air.

CONAN: And I guess it to some degree depends on the price of fuel, but let's get an engineer to help us out with this. Daniel Sperling, a professor of civil engineering at the University of California Davis, where he directs the Institute of Transportation; he's also the co-author of "Two Billion Cars: Driving Towards Sustainability," and joins us now from a studio at the U.C. Davis campus. Nice to have you with us today.

DANIEL SPERLING: It's a pleasure to join you.

CONAN: Can you help us out with that question?

SPERLING: Yes, I can. Part of this discussion about why did the automakers embrace these new standards is that the technology is advancing very rapidly. Lightweight materials, high-strength steel, composite materials, making vehicles more efficient, making engines more efficient, the hybridization of the power plants of the engines, the better transmissions.

So there's a lot of technology that is becoming available that's making it easier to reduce the cost, reduce - to improve the efficiency at relatively small cost. And that kind of reflects a little back on that comment about Europe. The truth is, in Europe they're using smaller cars that have less power, and what we're going to see in the U.S. with these new standards is that the vehicles are still going to be just as powerful and very likely almost as large.

And the improvement is going to be gained mostly by better technology.

CONAN: And just getting back to the caller's question, though, if this costs - car cost $11,000 back in 2001, that's some time ago, it would cost a lot more now, but for a relatively modest increase in fuel efficiency, how come it's going to cost $1,800? Is it going to be worth it?

SPERLING: Well, it's going to be very much worth it. The estimate is for - in 2025, the extra cost would be about 15 to 18 hunderd dollars per vehicle. But for that vehicle you will save - over the life of that vehicle you will save about $8,000 in fuel savings. So in many ways this is the smartest, best regulation that we've adopted in a very long time. It's great not only for the environment, less carbon, less oil imports, but the owners themselves, the drivers themselves save large amounts of money.

CONAN: Joe White, do the car manufacturers come up with that same kind of mathematics?

WHITE: If you administer truth serum to them, no.

(LAUGHTER)

WHITE: It depends. I mean it depends, and I don't - I don't really - I agree wholeheartedly with Dan Sperling's main point, which is that the technology in this arena is advancing rapidly, and technology that was kind of sitting on the shelf when there was no regulatory push is now getting into the market, and I think those are all good things.

I think the question is - I think the auto industry is going to have to innovate here a little bit. They have, I think, a large incentive to prove the government wrong on the cost estimate but prove them wrong on the positive side, in other words to do this more cheaply than 1,800 bucks a car. I think they'd rather put that 1,800 bucks in their own pockets.

But there are ways to achieve high mileage that are still very expensive, and we can, you know, maybe launch into a discussion of hybrids here, because without a pretty substantial breakthrough in battery technology between now and 2025, the idea that we're going to have a substantial number of hybrids or all-electric vehicles to hit these targets may be difficult.

CONAN: Daniel Sperling?

SPERLING: Yeah, clearly we're going to be using more batteries in the vehicles, and electric motors. But the analyses that have been done suggest that even by 2025, even to get this 54-mile-per-gallon goal, this standard, will not require very many, if any, battery-electric vehicles or fuel-cell vehicles, that it is possible, given these advances in the technology, in the lightweight materials and engines and so on, to achieve that 54-mile-per-gallon, at a number something like that $1,800.

Clearly, electric - if we go to electric vehicles, it's going to cost more. But I think that it's going to come down. Every company is going to make its own decision. This is a very competitive industry now, and so even to say what is the position of the industry is probably a little misleading. When 2018 comes, there are going - there undoubtedly, there are definitely going to be some companies that are beating the standards.

And so there's not going to be the this uniform position at any time into the future, and include with electric vehicles. As you see, Nissan has gone ahead with the Nissan Leaf, the electric, pure electric; GM with the Volt. Toyota has a plug-in Prius, and Ford is bringing in theirs as well.

So what we're seeing really is a real revolution in technology, and it's really - it's very uncertain how this is going to play out. But we're seeing advances that were inconceivable five or six years ago. This is really a dramatic sea change in the industry, in the commercialization of technology, and in the changing consumer purchases.

CONAN: We're talking about the future of the car business, a future likely to get more fuel efficient based on new regulations. Up next, we'll talk with a longtime car dealer about how this is going to affect his business.

If you're in the market for a new car, what's important to you? 800-989-8255. Email us, talk@npr.org. Stay with us. I'm Neal Conan. It's the TALK OF THE NATION from NPR News.

(SOUNDBITE OF MUSIC)

CONAN: This is TALK OF THE NATION. I'm Neal Conan. We're talking about the new fuel economy standards, what they mean for carmakers, buyers and sellers. Congress passed the first CAFE standards, short for Corporate Average Fuel Economy, in 1975, during the energy crisis. The law required car and light truck makers to nearly double the average fuel economy of their fleets over the next 10 years.

And for the most part, they did. After the initial jump, though, mileage stalled during the late '80s and '90s, even fell a bit as people bought more SUVs and trucks. The CAFE standards were boosted by President George W. Bush in 2007, again by President Obama in 2009, one more time this past week, now requiring carmakers to average just over 54 miles per gallon by 2025, though with all the caveats to that we've been hearing from our guests.

If you're in the market for a new car, what's important to you? 800-989-8255. Email us, talk@npr.org. You can also join the conversation in our website. That's at npr.org. Just click on TALK OF THE NATION.

Our guests are Joseph White, who covers the auto industry and writes the Eyes on the Road column for the Wall Street Journal; and Daniel Sperling, who directs the Institute of Transportation Studies at the University of California Davis, co-author of "Two Billion Cars: Driving Toward Sustainability." And of course we think of the car industry and Detroit, but it's also thousands of car dealers around the country.

Dave Westcott is one of them, with more than 30 years in the business. He sells Buicks, GMCs and Suzukis, and joins us now from his dealership in Burlington, North Carolina. Nice to have you with us today.

DAVE WESTCOTT: Glad to be here.

CONAN: And I wonder how these new fuel standards and the new cars they will create are going to affect your business.

WESTCOTT: Well, probably a mixed approach. I mean, I'm sure every car dealer in the country is pleased that the fuel economy keeps increasing because that's what our customers want. I think on the other side, we're concerned. I think we would prefer maybe a more market-driven approach or a bottom-up rather than just - we would prefer to have the consumer tell us what they need rather than the top-down approach.

CONAN: And I looked at some of the sales figures for August, which were generally pretty good, but generally pretty good for pickup trucks.

WESTCOTT: Yeah, I think I read that the first two or three on that list were pickup trucks last month. So that market has come back and is remaining strong.

CONAN: Now, are people interested in mileage as their first priority?

WESTCOTT: No, I don't think so. I think if you had to list several items, it's probably - on a list, it's probably fifth or sixth. Is it a concern? Do they want to know? Certainly. But in today's world, they really want to find a vehicle that's going to fit their lifestyle, and more importantly, because of all the financial challenges we've had through the banks and so forth and financing, will find one that they can afford also.

CONAN: So that extra price tag for this new technology, that's going to concern people, you think?

WESTCOTT: Yes, it is. I mean even the EPA's comments during this timeframe, that the price would go up maybe $3,000, and our concern is that when that price goes up, that's going to take out seven, eight million people out of the market, that they simply can't afford it any longer.

CONAN: I think that was actually the Car Dealers Association's figure. The EPA's number was 1,800. But I can understand why you would disagree with it. In any case, as you look at the future, hybrids, we were talking about the various brands out there. From your experience, are they selling well?

WESTCOTT: Well, you know, the hybrid market has remained somewhat constant - one, two percent of the total market. There's various parts of the country that it's much higher, just based on the demographics in that area. And if you've read recently, I think the Volt has halted production. The - I think a couple of the GM products and the larger SUVs and their pickup trucks have - they're going to discontinue those because they don't sell.

And even you mentioned the Leaf a little earlier. I think they're not going to hit their sales projections. And it's a lifestyle. They have to pay quite a bit more money for those products, and if people want to do that, fine; it's just - it doesn't fit everybody's lifestyle and the needs that they have.

CONAN: And the tradeoff is the same. Yes, they cost more, but you're going to save a bundle on gas.

WESTCOTT: Sure, sure.

CONAN: So as far as car dealers, more market-driven approach, come 2017, do you think your voices are going to be heard in this discussion?

WESTCOTT: Well, we certainly hope so. I mean we sort of are the - the car dealer is really the grassroots of the industry from the standpoint that we talk to the consumers every day. We know what they want. You know, certainly, as you say, fuel economy is important, but the quality, the reputation of the brand, of the dealer, are very important features.

And what - you know, it still is going to be very difficult when you get that consumer that's used to a larger car having to go to a smaller car, either for price or whatever. You know, they've got four kids and the dog, and they want to take a trip - still difficult. That's why the CUV or the midsize CUV is still very popular, probably the most popular segment in the market at this point.

CONAN: Well, Dave Wescott, thanks very much for your time, appreciate it.

WESTCOTT: Sure.

CONAN: Dave Wescott, car dealer. He sells Buicks, GMCs and Suzukis in Burlington, North Carolina, joined us from his dealership there. We're continuing with Joseph White, who covers the auto industry and writes the Eyes on the Road column for the Wall Street Journal; and Daniel Sperling, who directs the Institute of Transportation Studies at the University of California at Davis. 800-989-8255. Email is talk@npr.org.

And Joe White, that car dealer's point of view, we talk to the consumers, we certainly rather wish this was more market-driven. Again if you gave the carmakers truth serum, they would feel the same way?

WHITE: Yeah, I think they would. Most of them would feel that way. I mean, look, the unspoken thing here is that, you know, we have a 1,230 page regulation that aims for, you know, a positive public policy goal. The five-page way to get to the same place would be to raise gas taxes, you know, somewhere in the neighborhood of 50 cents or maybe a dollar or more to get to something approaching European prices.

And European gas prices - and depending on where you're at - you know, six, seven, eight bucks a gallon equivalent. Those prices have driven a whole bunch of technology and innovation there and a fleet that gets the mileage close, pretty close to the mileage that we're shooting for.

And I probably don't have to elaborate too much on the idea - you know, that the idea of raising gas taxes as much as that is heresy in Washington, and very few members of Congress are suicidal enough or politically suicidal enough to do it. But that's kind of what the dealers and the carmakers mean when they say market-driven.

CONAN: And the other part of this, though, the market is more and more overseas. Of course we all read that GM was selling more cars in China than it did in North America. As that becomes more and more important, these kinds of cars are going to become more important, no?

WHITE: Oh, absolutely. I mean, you know, I've been sort of holding forth a little bit in the negative here. Now here's a positive point. To the extent that the carmakers can field, in America, a fleet that is similar in technology and design to the ones that they have to sell in Europe because that's what the customers want and what the regulators demand, and China, which has pretty ambitious fuel economy standards of its own, that's a good thing because they can spread those costs over a much larger fleet, and economies of scale still matter.

CONAN: Let's get another caller in. Let's go to Barry, Barry with us from Paragould in Arkansas.

BARRY: Hi.

CONAN: Hi, you're on the air, go ahead, please.

BARRY: Well, no, I was telling the screener earlier - I was asking the screener, (technical difficulties) bothers me a little bit. I will probably buy something in the next year, and part of my - part of what I want is better mileage. I'm more interested in comfort, reliability and cost, but better mileage - but your guest said average savings of 8,000 over the life of the car, and in my mind I was trying to do that calculation.

And even if you doubled the mileage, if you drove something now for 16 to 18 miles a gallon, and you went to 36 miles a gallon, I mean I just can't in my mind figure out how much you have to drive in a day to save $8,000 over the life of a car.

CONAN: Daniel Sperling, that was your calculation.

SPERLING: Yeah, well, that's the EPA and the California calculations, you know, based on a lot of studies. So, you know, it's based upon the idea that the - you know, that fuel prices will be somewhere around $4 a gallon. They're not assuming very high gasoline prices, which could be even higher, which would make this even more cost-effective if that happened.

But it's just based upon the life of the vehicle. Vehicles last a long time, and they consume a lot of fuel. When you do the economic analysis from a consumer perspective, you get a return - you get your money back in about four or five years or so. And then after that it's, you know, it's all gravy.

The problem we have, the reason we need these regulations is consumers don't act in an economically rational way. As you hear, even though they're going to make a lot of money, they don't - you know, they tend to behave in a way where they want the money back in two or three years.

And so we need policy to intervene in some way, which is, as I said, not only good for the environment and the country and the - but also for the consumer themselves. But as...

BARRY: I would - I'm sorry.

CONAN: Go ahead, Barry.

BARRY: I would argue that - I would argue when it comes to fuel prices and fuel savings, consumers are completely irrational. I mean, I know people that will drive miles to save five cents a gallon for their fuel.

(LAUGHTER)

CONAN: There's also weird triggers, Joe White. You know, 3.80 a gallon is one thing; four, horrors.

WHITE: Yeah. Well, although I have to say, I mean, it's interesting it's sort of the boiled frog syndrome that's going on with gas prices. I mean, if it's $4 dollars a gallon in my neighborhood right now in suburban - or in Detroit, in the suburban areas. And I don't hear anybody screaming and hollering. And, you know, just a few years ago, the world ended when it was $4, so people have been - become inured, I think, to $4 a gallon gas. But if you talk about the $4.25 or 4.50, I think, people would be complaining.

You know, the whole sort of fuel economy payback thing, it's interesting. I mean, people tell pollsters, almost unanimously, absolutely, we want the highest possible fuel economy standards. But when they go into the showrooms, the things are a little different. They - I think the caller suggested, they weigh fuel economy as one of a basket of attributes that are important and comfort and the sound system are sometimes almost as important as max fuel economy. So it's very difficult to thread for the car marketers, as you can imagine.

CONAN: Matt in Alaska emails: Things important for me in a new vehicle, one, four-wheel drive for the snow; two, it has to be a truck SUV, also for the snow, and you don't want to get hit in a small car during the winter; three, high safety rating; and four, high MPG. I am willing to spend more for a car that has better miles per gallon and would love to see it doubled. Also, I would like to see hybrid small trucks, like Ford Rangers, on the market. I would buy one. And, Dan Sperling, let me turn to you about that third factor he mentioned - high safety rating. Will these new lighter materials mean cars that are inherently less safe?

SPERLING: No. In fact, just the opposite. The engineers are getting so good at designing these vehicles in a structural way to make them safer. You know, you look at today's vehicle and compare it to 10 years ago, 20 years ago, 30 years ago, they are so much safer in any kind of collision, even apart from airbags, just in terms of how they're structurally designed. You can design a vehicle to be very, very lightweight but also very, very safe. You know, think of the Formula 1 racecars and the Indy racecars, I mean, you know, their drivers survive 200-mile-per-hour collisions.

So there's - safety, I don't think is an issue here. What is kind of interesting is the market really is changing and shifting. Many - the baby-boomers, you know, my generation, we no longer have the kids around the house. We don't need the big SUVs, and we're finding it that it's much more comfortable, much more convenient and less expensive to have a sedan-type vehicle. We don't need, you know, that big vehicle. And so we're seeing a shift away from the urban cowboy pickup phenomenon from the big SUVs.

And that's all contributing, and I think the auto companies - I know the auto companies understood that, and they saw it that way. And so this is - there's a whole number of factors why the automakers embrace this, and there's - and that, you know, the changing market was just another one of those.

CONAN: This is an email that bolsters your point from Laurie in California. At age 62, I just purchased the first new vehicle in my life, a Prius. I routinely average 50 miles a gallon. Growing up as a child in Southern California in the '50s, it was common for my family to take a drive as entertainment. With the gas mileage for my beautiful, spunky Prius, the joy of just heading of into the car to take a drive with the sunroof open and the music playing has returned to my life.

There's nothing more fun in driving than bypassing the service station for days at a time. So a little commercial for the Prius there. We're talking about new fuel economy standards with Daniel Sperling of the Institute for Transportation Studies at the University of California, Davis, and Joe White, who's the senior editor at The Wall Street Journal and writes the "Eyes on the Road" column. You're listening to TALK OF THE NATION from NPR News. Let's go Debbie. Debbie with us from Buford in South Carolina.

DEBBIE: Yes. Hi, Neal.

CONAN: Hi.

DEBBIE: I mentioned to the screener that I am in the market for a new car. I've been looking for a while now, and I'm really interested in the Chevy Volt. I like what it offers because I commute 100 miles a day. So the Leaf, of which I currently have a lease on, wouldn't work for me because I'd run out of fuel, basically, before I could get home. The price is just so cost inhibitive. It's not even feasible for me to do that. And then in addition to that, I indicated to him, the screener, that I previously had owned, in the '80s, a Chevy Sprint, and I liked it so much I owned two different ones.

I bought a new one after I started out with a used one. I used to average 60 miles per gallon in the city. It was a three-cylinder motorcycle engine. What I don't understand is why they eliminated all that technology from back then and didn't continue it on, because we'd have a wonderful car to turn to right now if we needed it.

CONAN: Daniel Sperling?

SPERLING: Well, you know, the challenge for the automakers are that they're trying to build a vehicle that customers want, and the truth is new car buyers tend to be rather affluent. Only about 30 percent of the population is really buying new cars. And that's a reality of the market. And that actually is in favor of bringing in the advanced technology. So, you know, the caller before talked about the Volt sales being, you know, so low, but that's not true in the last few months.

The Volt sales have gone up considerably. The Prius is one of the top 10 selling cars - vehicles - top 10 selling vehicles in the country. The percentage is much more like three percent of the overall market, and it's about five or six percent for cars, are these hybrids. So I think, you know, as this caller just said, yes, the Leaf or pure electric vehicles have limited range, and they probably always will, with the exceptions of a car like a Tesla that spends a lot of money for a big battery. But they're always going to have limited range.

And so it is a limited market, but it's an attractive market to some people, an urban car. The Volt and the plug-in hybrids, like the plug-in Prius, are very attractive to a lot of people because they do. They're important not only in terms of saving money, in terms of fuel. It's the symbolism. You know, you're not going to the gas station. You're not supporting the terrorists from the Middle East. You know, you're supporting America. So there's a lot of symbolism here that plays a very important role in people's purchase decision.

CONAN: Debbie, thanks for the call.

DEBBIE: Okay. Thank you.

CONAN: And just very briefly, Joe White, there's the other 95 percent of the industry too.

WHITE: Right. Well, go ahead.

CONAN: Well, I was just going to say, it's fine and dandy to see those fuel efficiency in a very small segment of the market. But they're going to have to do this to all the cars, right?

WHITE: That's where the big action is. You know, just a quick example. A mid-sized car is not generally - three, four years ago, max fuel economy on the highway - maximum fuel economy is something in the low 30s. Now it's something in the low 40s to be competitive. That's a big deal. That's where really the action is in this whole thing. It's in the mainstream.

CONAN: Joseph White, Daniel Sperling, thank you both very much for your time today. When we come back, we'll be talking with Kathleen Turner about her new role as Molly Ivins. Stay with us. TALK OF THE NATION from NPR News. Transcript provided by NPR, Copyright NPR.