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Current Fuel Economy Targets Could Be Scaled Back in Trump Administration

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author photo by Russ Heaps December 2016

Current 2025 targets for fuel economy have been meeting some resistance from carmakers like General Motors and Toyota. Who can blame them? Average gasoline prices are the lowest in a decade, meaning higher-profit trucks and SUVs are flying out of showrooms.

Despite a recent government report revealing the average automaker fleetwide fuel-economy (CAFE) number won't reach 53 miles per gallon in 2025, the Obama administration has not been supportive of carmaker pleas to reduce the 2025 fleetwide target from the current mandate of 54.5 mpg. Many government watchers expected Hillary Clinton to follow Obama's lead if she won the election.

With regulators already scheduled to conduct a final review of the 2025 mileage goal next year, the government report claiming the 54.5 mpg standard can't be met, and Donald Trump in the White House, carmakers just may get the relief for which they've been clamoring.

CAFE

Without wading into the political and economic weeds of what actually caused the fuel shortages of the 1973-74 Arab Oil Embargo -- and the resulting gas rationing and long lines at the pumps -- keep in mind one of the embargo's outcomes was the 1975 establishment of the Corporate Average Fuel Economy standards, or CAFE.

Engineered to limit the average mpg of every auto manufacturer's fleet of vehicles, CAFE would, according to its supporters, lower fuel consumption, weening Americans off imported oil. Not fully implemented until 1982, the first CAFE fleetwide target was 17.5 mpg. For 2016, the CAFE was 34.1 mpg. If it stands, the CAFE for 2025 will be 54.5 mpg.

What's the Issue?

The only path carmakers see to a 54.5 CAFE is developing and selling more hybrids and electric vehicles (EVs). Such technology is expensive to create and produce. The bottom line is, well, it reduces a carmaker's bottom line. There just isn't much profit.

For carmakers, pickup trucks and SUVs are easier to sell to typical U.S. consumers than hybrids and electric cars. American buyers simply prefer larger, less fuel-efficient vehicles. When gas is cheap, as it is now, the demand for trucks and SUVs far exceeds demand for any sort of electric technology. Moreover, bigger vehicles mean bigger profits.

With pump prices as low as they are, Hybrids and EVs are a tough sell. And as the U.S. transforms from a net importer to a net exporter of oil, long-term gasoline prices should increase slowly, if at all. This isn't favorable to ginning up demand for electric technology.

The Trump Factor

In the showdown over the 2025 CAFE target, as with many other issues, carmakers can't be sure exactly where president-elect Trump will land. But what we do know is he seems determined to coax vehicle manufacturing back to the U.S. With this country's higher labor costs, it will be much tougher to do so if carmakers are forced to concentrate on building lower-profit small cars and electric vehicles to meet strict CAFE standards, rather than building trucks and SUVs.

What it means to you: Originally established to reduce U.S. demand for foreign oil, CAFE appears a bit antiquated as U.S. oil production continues to ramp up. If relaxing the 2025 standards encourages automakers to move some manufacturing back to the U.S., doing so makes sense. Of course, none of this addresses the EPA's ever-more strict regulations for reducing emissions, which also require burning less gasoline. But that's another issue for another day.

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Current Fuel Economy Targets Could Be Scaled Back in Trump Administration - Autotrader