New Study Predicts No Savings, Job Losses with 62 MPG CAFE

According to a new study by the Center for Automotive Research, raising the federal fuel standard to as high as 56 mpg for model-year 2025 would result in fuel savings that would more than offset the projected higher price of new cars and light trucks over a five-year period.

Raising the average corporate fuel economy to 62 mpg, however, would push new vehicle prices to a level that would not be offset by fuel savings over five years.

The Obama administration has proposed raising CAFE standards to 47 mpg for model year 2017 and raising it to 62 mpg for model year 2025 vehicles.

Center for Automotive Research president Jay Baron said, “Assuming consumers behave rationally, there is lots of opportunity for the Obama administration to achieve its fuel economy goals.”

Automakers are calling for more research but some environmental groups are pushing for the president’s goal of 62 mpg.  Current regulations mandate a 35.5 CAFE for model year 2016 vehicles.

The most recent report by the nonprofit Center for Automotive Research includes revisions to a report released last March which drew criticism from the International Council on Clean Transportation. In its criticism of the initial report, the Council stated, “Our review uncovered so many fundamental technical and scientific errors as to make it clear that (the Center for Automotive Research’s) analysis cannot, without significant correction and improvement, serve as a basis for serious policy discussions.”

The Center’s initial report asserted that new vehicle prices for model year 2025 would exceed fuel savings over a five year period under all fuel efficiency targets considered. The Alliance of Automobile Manufacturers cited the Center’s initial report in a letter to the Obama administration last December. In its letter, the Alliance claimed that the administration was over-estimating the benefits of its proposed CAFE standards.

The new report found that new vehicle prices will increase between $3,810 and $11,390 by 2025 depending on specific CAFE targets. Fuel savings, based on those same CAFE targets will range from $5,917 to $8,339. Comparing new vehicle price projections with 47 mpg, 51 mpg and 56 mpg CAFE targets, the purchase price would exceed the fuel savings over the initial five years of ownership. If the proposed 62 mpg CAFE standard is adopted, fuel savings over the first five years would exceed the purchase price of the average vehicle by about $1,450.

Center for Automotive Research chief economist Sean McAlinden argues that new vehicle prices under the 62 mpg fuel economy target would cause many consumers to hold onto their older, less fuel-efficient vehicles longer.

The latest study also finds that higher fuel efficiency standards will also have an effect of U.S. jobs. Assuming fuel prices of $6 per gallon, the report asserts that as many as 26,000 new jobs would be created under the 47 mpg standard. At the 62 mpg target, however, the report claims that as many as 166,000 U.S. jobs could be lost. The Obama administration asserts that there would be a net savings for consumers, even at the 62 mpg target. The administration projects increases in new vehicle prices ranging from $770 to $3,500 and fuel savings in the first five years of ownership of between $,900 and $7,400. The administration’s formal CAFE proposal will be submitted in September and a final decision is set to be made by July 2012.

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