Fuel Rules Raising Costs in Detroit

January 30, 2014

Federal fuel-efficiency regulations are having a major impact on automobile production, says the Wall Street Journal.

Environmental Protection Agency (EPA) regulations require that automakers' cars average 54.5 miles per gallon (mpg) by 2025, and federal carbon limits continue to hurt manufacturers. The impact of these policies on costs is on full display at the Detroit Auto Show:

  • The new Ford F150 pickup truck is the first large vehicle made entirely of aluminum (in an effort to reduce fuel consumption by making it lighter). Full-sized trucks, under EPA rules, are required to get 20 mpg, and in 10 years that number will be up to 30 mpg. Switching to aluminum requires a huge capital investment, retooling of factories and more. The cost of the investment for Ford alone is somewhere in the billions. Moreover, aluminum costs more to repair as well as to insure. Ford won't disclose how much the changeover will erode its profit margins.
  • Ford's new Mustang has a turbocharged four-cylinder engine for the first time, again in an effort to meet federal regulations. As Mustang Engineer Dave Pericak explained, "The new government regulations -- whether it be fuel economy, safety or whatever -- are very difficult and pose a significant challenge to the development of any new vehicle."
  • GM is developing an entirely new midsize truck to meet new regulations, while Chrysler is investing in diesel engines and nine-speed transmissions.

Electric vehicles, on the other hand (Barack Obama predicted there would be 1 million of these on the road in 2015) are expensive and not a mainstream pick. Hybrids and electric vehicles have only a 3 percent market share. Cadillac and Tesla's new vehicles start at $70,000, and BMW's new electric car series ranges from $40,000 to $105,000. And on top of that cost, taxpayers are funding each purchase in the form of a tax credit at the tune of $7,500 per purchase.

Source: Henry Payne, "Fuel-Efficiency Rules Are Already Raising Costs in Detroit," Wall Street Journal, January 22, 2014.

 

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