Why higher gas mileage is a bad idea

As Congress prepares to mandate that cars and trucks get better gas mileage by 2020, perhaps to a corporate average of 35 mpg, it is worth asking whether raising fuel economy standards will accomplish anything at all.
 
Criticism of the higher standards has generally been focused on safety and the effects on the domestic auto industry. Because everyone acknowledges that meeting higher standards will require lighter cars, which means smaller cars, it’s inevitable that people will die needlessly. Smaller cars are not as safe as larger cars, even in single vehicle accidents. Congress can’t amend the laws of physics. Size matters. Then there’s the impact on the auto industry. A 35 mpg standard could be devastating, but the domestic auto industry has resisted safety and fuel economy mandates by claiming that the sky is falling so frequently that it has no credibility left. 
 
Both of these arguments ignore the real reason that these fuel economy mandates won’t do any good. The real reason they won’t do any good is that they won’t work, even if the 35 mpg figure is reached.
 
People will just drive more.
 
With just about everything, price affects how much of a product you’ll consume. Take, for example, beer. If the price of a six-pack is ten dollars, you’ll probably buy less beer than you would at five dollars. At two dollars, you’ll probably buy more – a lot more – than you would at five bucks.
 
It’s the same with fuel economy.
 
Functionally, fuel economy is the price of a mile.
 
If gasoline is $3.00 per gallon and your car gets 15 mpg, a mile costs you 20¢. If your car gets 35 mpg, a mile costs you only 8.5¢ per mile. Or, put another way, in the 35 mpg car, you can drive twenty miles further for the same price as you’d pay to drive fifteen miles in the 15 mpg car.
 
When you can get more of something for the same price, you’re going to buy more. It’s no different with miles than it is with anything else.
 
The unstated assumption upon which all arguments for mandating higher gas mileage rest is that the number of miles driven won’t change. But that assumption is nonsense. Think about it: as gasoline prices came close to $4.00 a gallon last year, did you start thinking ahead a bit, so that you could combine several errands in one trip rather than making separate trips? Did the cost of gasoline become more significant when you planned a week-end trip or vacation? Of course it did. You may have gone anyway, but there is a price point at which your behavior will change. That is true when the price goes up.
 
And it is true when the price goes down.
 
Regrettably, the only price that politicians ever think about is the price of a gallon of gasoline. That’s only one of two variables that determine how much you drive. The other variable is fuel economy. That’s because the price of gasoline is only one factor in the price of driving. It is the price of driving that ultimately influences what you do.
 
If you can drive more than twice as far for the same price, you’re going to drive more – and so is everybody else. There’s a reason that retailers have two-for-one sales. They sell more. When you get two miles for the price of one mile, you’ll drive more.
 
In thinking about this, bear in mind that the price of gasoline is also affected by demand. If mileage standards actually were to have the effect of reducing gasoline consumption, supply would increase as the demand dropped. The price of gasoline would then drop or, at least, rise less. But lowering the price of gasoline eventually will lead to using more gasoline, because lower prices encourage consumption. 
 
Left to its own devices, the market will enforce its own mileage standards. Everybody knows that pick-up truck and SUV sales have dropped dramatically as the price of gasoline has gone up. Manufacturers have responded by offering cash incentives and rebates, which is simply another way of saying they’ve cut the price. Simultaneously, the demand for more economical cars has blossomed and the Prius has become the tenth best selling car in America. Toyota has cancelled plans to build a heavy duty Tundra and is instead planning to expand the Prius into a separate line of hybrid cars.
 
All of that has happened in less than a year.
 
Government mandated fuel mileage standards just screw up the natural movement of the market to its equilibrium price for a mile of driving. If the market would naturally settle at an equilibrium price (equilibrium being the point at which supply and demand exactly match each other) for a mile of driving of 16¢, imposing a government mandated 35 mpg standard could have the effect of cutting the price of a mile of driving in half. Artificially decreasing the price of a mile of driving will encourage people to drive more than they would, had the government not tampered with that price.
 
It is a shame to take away your freedom to choose by enacting mandated mileage standards on the basis of false assumptions. Al Gore justifies using ten times the amount of energy in his mansion that an average American would use in his or her home by saying that he’s buying “carbon credits” to offset his increased pollution. Well, if it’s good for Al, why isn’t it good for the rest of us? Left alone, the market would give people the same basic thing, automatically. Your purchase of a 12 mpg Ferrari contributes to increased demand for gasoline. Since increased demand means higher prices, that encourages some one else to buy a 50 mpg Smart Fortwo. 
 
That, however, is logic. What will decide the issue of mandates is politics. Unfortunately.
 
And, no doubt, unwisely.

What do you think?
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2 comments:

  (9) posted on 09.10.2007

1+ on Tango,

Ralph, I enjoy most of your writings on the auto industry and admire your knowledge, but I disagree with some of your point of views so greatly that it eventually motivated me to sign up here.

There are other forces at work in the capitalist economy, like the endless squeeze for quarterly profit and growth. If totally left to the devices of two industries, one wants to sell you more gas, another wants more return on their investment (old technology), you will see resistance and misinformation on any improvement in this area. And that is what is happening here. Detroit’s campaigning of SUVs is not a protection of consumer choice, it’s depriving our choices for more efficient vehicles. As someone as knowledgeable as yourself and as concerned for safety, I’m sure you remember a time when Detroit lobbied against what is today’s basic safety device: seatbelt.

looking through the records of Detroit, it’s lobbyists and the politics at large, shameful is one of the first words that come up.

tango  (372) posted on 09.9.2007

You’ve missed the mark again, Ralph. You are looking at this a bit simplistically. You are assuming that people are locked in their houses, looking through their windows, teary eyed, at not being able to drive their Escalade or their F350 to the corner store for fear of sendng up the national debt. Not so. The fact is that even if people opt to drive more because of increased fuel efficiency at least driving more won’t be the same burden as it used to be. THAT is where the true freedom comes in. And more efficient doesn’t mean smaller cars. It simply means more efficient technology being utilised. Amazed that the 400hp Corvette gives almost the same mileage as the 175hp HHR? Better use of better technology. And I am sure you have heard of Mercedes’ DiesOtto project? 45mpg in an S-Class. On the point of smaller cars being less safe that is not exactly true. Current technology and methods mean that crumple zones in both large and small vehicles as well as drivetrain packaging result in a higher degree of survivability than was previously possible.
As far as heavy-duty trucks are concerned, people who buy them don’t usually buy them because they want 35mpg economy. They buy them to haul loads. And Toyota really doesn’t have the type of engines in its arsenal to compete with the requirements of these contractors and farmers. THAT’S why Toyota cancelled. Or should I say, postponed, because we all know why Toyota bought into Isuzu...for their heavy duty diesel engine capabilities of course. But even in these markets, the contractor that spends $1000 less per month per vehicle on fuel is saving money, thus making the cost of putting up that deck out back that much cheaper. There is no way that increased fuel economy can hurt any country. That’s pushing the anti-Democrat stance a bit far.

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