The Longest Mile

Stephan Franklin Auto Show Global

Automakers are in the process of trying to coax the new head of the EPA to reduce the Corporate Average Fuel Economy (CAFE) standards for vehicles for 2025, that were put into place by former president Barack Obama. I’m not going to go into a long drawn out explanation of the rules and the history of CAFÉ standards and the struggle of the automakers. What may or may not happen possibly could create all stakeholders involved, particularly the consumer and the automakers.

New technology costs money which is gladly passed to the consumer. Convenience costs money, and consumers have proven that they are willing to pay for it. With the plethora of new SUVs and crossovers revealed over the last year by the automakers, it doesn’t appear that there is any Intention of meeting the 2025 CAFÉ deliverable. The major component in the face regulation average involves production. To meet the CAFE average, (X) number of total vehicles produced must meet the average the set by the government. For example, a company produces 100 hybrids that gets 100 mpg and 100 SUV’s that get 20mpg, the average is 60mpg.

Hello world, hybrids are not the cash cows. Cars aren’t selling at the rate everyone would like them to compare to SUV’s, and provide a lower profit margin than SUV’s and pick-up trucks. CAFÉ standards are still based on what’s produced, not sold. That like cooking dinner for 100 people when only 4 people live in the house, you are eating the cost as well as the food. Currently, most automakers are making good money, and are making what sells. This new target may ultimately threaten the bottom line for automakers, which will drive up vehicle cost to the consumer. No one is letting go of a tree, to stand on Capitol Hill and protest the regulations. I’m not sure how much lobbying is going to have to be done to move the needle, but the money talks and the automakers are going to pay one way or another, but who really pays for the longest mile.

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