Babbage

Science and technology

Fuel economy

Difference engine: Going along for the ride

Feb 3rd 2012, 16:45 by N.V. | LOS ANGELES

IMAGINE you are stopped in the street by a clipboard-toting pollster, who asks whether health insurance should automatically cover all necessary procedures and medication, with no restrictions or co-payments? Nine out of ten people (if not all) would instantly answer yes. But had the respondents been warned beforehand that they would have to stump up an extra $10,000 for such coverage, the answer could easily have been a resounding no.

Sad to report, this kind of selective polling—in which only the benefits are mentioned so as achieve a desired result—is cropping up increasingly in the support of various agendas. Substitute motor manufacturers for health insurers and fuel efficiency for medical treatment in the thought experiment above, and you have the kind of “grassroots justification” that the Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA) are using to push through a doubling in the Corporate Average Fuel Economy (CAFE) figure motor manufacturers must achieve or face stiff penalties. The new proposal requires the fleet-average for new vehicles sold in America to rise incrementally from today’s 27mpg (8.7 litres/100km) to 54.5 miles per gallon by 2025.

The most effective endorsement for the new CAFE proposal comes from a national survey carried out last October by Consumer Reports (a highly respected non-profit organisation based in New York) which claimed that 93% of the 1,008 people interviewed by telephone wanted higher fuel economy and would pay extra for it. The survey results were released the day before the government announced its new CAFE proposal. Ever since, the poll has been considered hard evidence that the new CAFE proposal is widely supported by the American people.

Like all polls, when people are asked personal questions, they do not necessarily tell the whole truth. Indeed, most respondents provide the kind of answers they consider socially acceptable. In some cases (how often do you brush your teeth?) the response is inflated; in others (how much do you drink?) it is deflated. It is a well-known phenomenon, called “social desirability response bias”, which has been studied by sociologists and market researchers for decades and requires questionnaires to be structured in highly specific ways to minimise inbuilt biases.

“So, when consumers say fuel economy is extremely important, they are not lying,” says Jeremy Anwyl, vice-chairman of Edmunds.com, the most popular source of independent car-buying advice used by American motorists. “The survey has just not allowed (or required) them to point out that other attributes are even more important.”

Deciding what new car to purchase is a complicated undertaking, requiring all sorts of rational and emotional compromises. There are emotional factors to take into account, such as brand image, luxury, sportiness and appearance. Then there are physical features like comfort, number of seats, cargo space, body type and towing capacity. For most people, price and fuel economy represent costs.

In testifying before Congress last year, Mr Anwyl explained that “consumers are happy to pay less, or save fuel, but not if it means giving up features they deem important.” A market simulation model that Edmunds has developed over the years indicates that fuel efficiency accounts on average for about 6% of the reason why consumers purchase a particular vehicle. Fuel efficiency only becomes important when petrol prices suddenly start climbing, but then declines in significance when pump prices stabilise or start to fall.

Here, then, is the conundrum: if the vast majority of motorists in America claim to want higher fuel economy and are prepared to pay for it, why are they not doing so? There is no shortage of cars already on the market capable of 40mpg or more. The Toyota Prius gets 50mpg on the EPA’s combined cycle, while electric vehicles like the Chevrolet Volt and the Nissan Leaf deliver the equivalent of 60mpg and 99mpg respectively.

Yet few people are buying them. Despite large tax incentives for buyers, Volt and Leaf sales have fallen well short of even their manufacturers’ modest expectations. Altogether, hybrid and electric vehicles account for only 2% of America’s new car market. The government may mandate manufacturers to produce fuel-efficient vehicles, but it cannot mandate motorists to buy them.

The problem is their higher purchase price. Take the Toyota Camry, which is available in directly comparable hybrid and conventional forms. The hybrid version costs typically $3,400 (or 15%) more than the standard car, but achieves 13mpg (or 46%) better fuel economy. Even so, there have been few takers for the petrol sipper. Last year, Toyota sold over 313,000 ordinary versions of the Camry compared with fewer than 15,000 hybrid versions, notes Mr Anwyl.

The official line is that owners recover the premium on a hybrid or electric vehicle through lower running costs—with payback times of anything from four to seven years, depending on fuel prices. Unfortunately, American motorists tend to trade their new vehicles in after three to four years, and so do not collect anything like the full payback. Besides, the Edmunds model of consumer-buying habits (with 18m visitors a month, the website collects more data on such transactions than even the manufacturers) shows that consumers demand a payback period of 12 months or less.

What, then, to make of the new CAFE proposal? Achieving a fleet-average of 54.5mpg is doable, say motor manufacturers, but it will not be cheap. The NHTSA puts the cost of the extra technology (eight-speed transmissions, direct-fuel injection, turbo-charging, hybrid drives, larger batteries, electric power steering, low-rolling-resistance tyres, better aerodynamics, heat-reflecting paint and solar panels) needed to achieve the target at a modest $2,000 per vehicle, with a lifetime saving on fuel costs of $6,600 (provided fuel prices do not decline).

At the other extreme, the National Automobile Dealers Association reckons all the additional technology needed to achieve the 2025 goal will add $5,000 to the price of a new vehicle. Take somewhere in between—say, the $3,400 premium that Camry hybrid owners pay—and any lifetime savings through lower running costs look even more difficult to recoup.

Much, of course, depends on what fuel prices do over the ensuing years. And that includes the price of coal and natural gas as well as oil. Remember, most of the new electric vehicles and plug-in hybrids that carmakers will have to build to meet the new CAFE requirements will be recharged overnight using electricity from power stations that mostly burn dirty coal or (if people are lucky) cleaner natural gas or uranium oxide.

The good news is that the bonanza in domestic discoveries of natural gas should help keep the lid on fossil-fuel prices for years to come. And if fuel prices come down in real terms, that will hurt sales of fuel-efficient vehicles.

Indeed, the way the NHTSA and the EPA have skewed the relief manufacturers get on vehicles of different sizes will pretty well ensure that American motorists will, once again, opt for trucks and SUVs rather than Prius-like vehicles. The deal done to buy off the industry’s opposition to the new CAFE requirements granted manufacturers special credits for certain fuel-saving technologies. Meanwhile, pick-up trucks and larger SUVs were given what effectively amounts to a free pass.

The degree to which a vehicle has to comply with the NHTSA's fuel-efficiency and the EPA's carbon-emission requirements depends on the vehicle’s “footprint” on the road. The larger the area (measured by multiplying the vehicle’s track by its wheel-base), the greater the relief.

This was the fix that got Detroit’s “big three”—which still rely on trucks and SUVs for the bulk of their profits—on board. No wonder Volkswagen and Mercedes-Benz have complained bitterly about the deal, while General Motors, Ford and Chrysler have now come out in support of the new CAFE proposal. An added sweetener for American manufacturers and trade unions was to exclude credits for the extremely frugal diesel engines that European carmakers have spent billions perfecting.

All told, then, will motorists across the country be getting 50mpg or more by 2025? Hardly. For a start, there is a world of difference between the testing methods used by the NHTSA for CAFE purposes and the EPA for determining a vehicle’s fuel-economy figures for the window sticker that new vehicles must display in dealers’ showrooms. Because of the difference, consumers will be paying for technology needed to achieve a CAFE average of 54.5mpg, but will be buying vehicles that achieve a real-world average of around 36mpg.

That assumes the CAFE target will still be in place by then. Because there is a limit to the number of years ahead for which the NHTSA can set fuel-economy standards, the new CAFE target will have to be reviewed by all parties in 2019. By then, much could have changed—in terms of energy price and availability, as well as engineering. Though a long shot, a breakthrough in storage technology would alter everything.

And by then there will, of course, be a new Administration in the White House with, quite possibly, an entirely different agenda concerning energy and the environment. As much as anything, insiders reckon the possibility of being let off the hook by a new Administration was the clincher that persuaded the motor industry to go along for the ride.

Readers' comments

The Economist welcomes your views. Please stay on topic and be respectful of other readers. Review our comments policy.

Sort:

Stavros Saripanidis

Zero emissions, cheap, available technologies

Dear Editors,

Cheap and available technologies that save money and can reduce carbon emissions to zero already exist.

Instead of using fossil fuels, we can convert vehicles to compressed air or even water electrolysis propulsion. [1][2]

Factories, buildings and houses can stop using fossil fuels for heating and electricity and convert to take advantage of U.S.A.’s huge geothermal potential. [3]

These technologies are safe, cost-effective and available for sale.

References

[1] Cars that can move cheaply on compressed air!

http://www.youtube.com/watch?v=f4w6aJMNXSk

http://www.youtube.com/watch?v=0RBl1LFUQ4c

http://www.youtube.com/watch?v=jgwfpIOOb-c

http://www.youtube.com/watch?v=N3QQEfVyb6w

http://www.youtube.com/watch?v=EjT6qqC4FIk

[2] Cars that can move cheaply on salt water!

http://www.youtube.com/watch?v=6Rb_rDkwGnU

http://www.youtube.com/watch?v=Jivb7lupDNU

http://www.youtube.com/watch?v=kV2M_1Ud188

http://www.youtube.com/watch?v=CrxfMz2eDME

http://www.youtube.com/watch?v=JiKa4nOkHLw

http://www.youtube.com/watch?v=POJQKg9CRJc

[3] Widespread geothermal potential!

http://www.youtube.com/watch?v=I9P2ER2qoZo

http://www.youtube.com/watch?v=O6r_3AgI49Y

http://www.youtube.com/watch?v=uVDBRQvBVso

Peterton

I think we have the technology to build a good and cheap electric car, but I really don't know what the big vehicle manufacturers are waiting for... An electric motor is cheaper to build and lasts a lot long than a gasoline engines.

In the meantime, I save lots of money using an Eco Friendly fuel treatment product that increases fuel economy and also Reduces Emissions. Check out the website below for more details on the fuel treatment product I use for my cars. http://universalfuelsaver.mysyntek.com

Homo_Economicus

"An added sweetener for American manufacturers and trade unions was to exclude credits for the extremely frugal diesel engines that European carmakers have spent billions perfecting."

Gm (through Opel), Chrysler (through Fiat) and Ford all have access to diesel technology, and could start selling diesels in the US if they wanted to. It's extremely shortsighted of them to lobby against credits for diesels.

Coffee Cup

I see things fairly simple: price them low and style them better and the hordes will come to snatch them.

Think about it: driving a Prius... is as sexy as wearing white socks.

There. I said it.

cyclingscholar

Increased efficiency, cheaper fossil fuel prices from fracking and new petroleum sources, stop/start technologies, regenerative braking: enviros oppose them all, since they are a finger in the eye of their electric car fantasy. Like Exxon pointed out a few days ago: one gallon of gas contains enough energy to charge your cell phone for the next 20 years.

RyanDonovan

"The official line is that owners recover the premium on a hybrid or electric vehicle through lower running costs—with payback times of anything from four to seven years, depending on fuel prices. Unfortunately, American motorists tend to trade their new vehicles in after three to four years, and so do not collect anything like the full payback."

This doesn't explain a rational motorist’s choice not to buy a hybrid or electric vehicle. If the motorist sells or trades in such a vehicle after 3-4 years, they should be able to obtain a higher price at that time reflecting the value of future fuel savings, and thus paying back the up-front investment. The choice must be something more like a choice not to buy a more expensive refrigerator (we tend to keep our refrigerators longer) that will eventually pay back its extra price with energy savings.

Does anyone know how EPA or other “official” sources deal with time-discounting future savings in calculating such payback periods?

RyanDonovan

"[The government] cannot mandate motorists to buy [fuel-efficient vehicles]."

The current administration takes a very broad view of what the government can mandate. Such a mandate would stretch the authority granted Congress no further than the recent health care law, which is strongest embodiment yet of the proposition that Congress, if it jumps through sufficient pretextual hoops, can mandate anything.

MathsForFun_1

Why does anyone even think it's "acceptable" (never mind "sensible") to force manufacturers to meet a particular MPG average?

If someone buys a Rolls Royce, then presumably they value comfort and status - and to force this company to offer economical vehicles to this set of customers strikes me as being quite remarkably stupid. Likewise for companies that offer sporty models.

The law will simply prevent manufacturers from being able to specialise - and as Adam Smith worked out, business specialisation is to everyone's benefit.

c2d9iPUoWH

What I find amazing in this article is that when you buy a car you don't make an investment. You put money into a hole and it’s over. You'll never earn any money out of it, and you will consider it as a cost that you factor into your budget.
Selling your car is not recouping money on your investment it’s just you selling your good for cash or for a portion of something to replace it with (New car).
Companies make investment, ordinary people do not!
Having said that, buying more efficient cars, means that it reduces your running costs for as long as you own it, and thus there is better use of your budget.

Sense Seeker

Yes people are inconsistent in their preferences, and are often unwilling to pay for externalities if their neighbour doesn't also.

So governments have to make it easy to do the right thing and legislate or tax to make everyone do the right thing for the collective. (But of course the US, vested interests get the opportunity to corrupt the legislation beyond recognition.)

No doubt this is difficult to see with TE's ideological blinkers on, so those are best taken off.

jm110

Note the lack of any mention regarding air quality, international security, consistent failure of consumers to consider the full benefits of fuel savings, and the notion that fuel economy standards are technology-neutral: smaller gasoline engines are a completely viable option.

Plen

Thank you (to the Economist) for pointing out the flaws in the new CAFE standards and the new farce. I personally believe the farce is a good thing.

It is clear that we cannot leave it up to the big three US motor manufacturers to take the environment seriously. It is very clear that new entrants into the market will decide the future of the motor industry. In the same way Apple Computers radically reshaped the cell phone industry, so to will companies like Tesla reshape the motor industry.

Is it not ironic that an electric motor is cheaper to build and lasts a lot long than a gasoline/ petrol engine, yet the big motor manufacturers (who have their large factory base and economies of scale at hand) still make electric cars way more expensive than gasoline/petrol cars?.... then pretend that we don't want to buy the electric car when they price it out of our affordability range.

As a side note the Economist discusses how plug in electrics will still be using “dirty coal or (if people are lucky) cleaner natural gas or uranium oxide.” Right!! But the amount of dirty coal used to convert crude oil in gasoline/petrol is still far greater than providing direct power to the electric car battery.

John225 in reply to Plen

Electric motors may be cheaper to build than engines but batteries are vastly more enpensive than gas tanks. The extreame longevity of electric vehicle mechanicals can only be seen as a liability by vehicle manufacturers. Even if the origional purchasers persist in trading up every three to four years, this would still result in the used market ultimately becoming saturated with cheap reliable used electrics.

AxelGillian

Sadly USA centric this article. And also sad for the US car manufacturers. While they feel they've struck an easy deal, it simply means that they will hit the wall in 10 years time (again) when all other manufacturers have built superior drive train technology.
Oh well, Asian or European cars will be there to supply the world

Anjin-San

Well, the solution to the US conundrum seems obvious enough:
Slap on Petrol Taxes until the payback time of hybrids BECOMES 12 months...

Ausonious M.

The 50mpg you gain with an electric or mainly electric car isn't economical if the true costs are factored in. Aside from tax subsidies, what is the cost of the negative externalities created by increasing demand for electrical generation in a utility system with coal-driven plants and a crappy grid system with large transfer losses? Maybe we need a tax surchage on them to put towards clean fusion research? Also, if enough of them are bought, the extra demand generated could encourage merchant plant generators that drive the market price of electricity higher for the rest of us. Sounds like a Pandor's box indeed. Its probably better to just buy a standard model that gets 80% of the hybrid's efficiency, but that would be without the "bragging rights" that green yuppies want.

Plen in reply to Ausonious M.

@ Moralphage - You may be interested to know that the amount of energy required from coal-driven plants just to convert crude oil into gasoline is far greater than sending power direct to the recharging of car batteries ie: the externalities are positive - not negative.

TibsV in reply to Ausonious M.

Well, EVs are mostly charged overnight utilising off-peak power, which is welcomed by utilities. Cost of electricity generation is usually less than 25% of the final cost the rest is transmission, distribution and retail (mostly fixed costs and the function of peak load).
The increasing penetration of EVs will mean that the electricity network will be more utilised at night time and the difference between peak and off-peak will shrink. It will lead actually lower electricity prices than without EVs.

They can be also used to stablise the grid by soaking up unwanted electricity at a very low cost especially wind which is usually turned off at night.
The price of batteries has been dropping by 5-10% a year while the energy density and safety continuously improved. If the trend continues, EVs will be cheaper and have better range than a conventional car in the foreseeable future.

CA-Oxonian

There's no question that I'd like my neighbor to drive an electric car so we can save the planet. But... as an engineer, not only might I not be thrilled about incurring a high sticker price that I'll never recoup through the fuel efficiency claimed by the manufacturer but I'm also concerned about the pollution caused from the industrial processes necessary to extract and utilize all those ingredients for the battery. We're talking about some extremely toxic by-products plus a ton of energy consumed in the process. If you add all this up, it may well be that electric cars actually contribute more to our problems than regular vehicles. So it seems like a bit of a step backwards, painted over to look like progress.

2bits in reply to CA-Oxonian

There is no need to recycle the battery for decades at best. The Nissan Leaf will soon (this March) offer a 'Leaf to Home' converter so that fully charged Leaf's can power the home (for up to 2 days). Thus, those with solar power panels on their roof, like my own, can charge their car daily free from ANY pollution, and then power their homes at night using that same sun power.
In addition, the Leaf batteries are expected to still hold 80% of their charge after TEN years. That then is a good time to mothball the batteries and use them STRICTLY as home chargers to store sun power during the day for use at night--thereby powering the grid itself for decades longer--possibly 30 to 40 years using the same batteries.
Too many are short charged with vision like you.
The earth deserves better.
PS The Leaf when used like this does not pay attention to the EPA's fraudulent mpg estimates since the mpg is essentially infinity--as NO gasoline, coal, or natural gas is used in powering the vehicle-ever.

Plen in reply to CA-Oxonian

You have a very good point only with reference to the toxic by-products used in batteries. BUT given how the electric drive system is so much cleaner than a gasoline/petrol drive system, put the toxic oils used in the cooling a car and lubricating the gearbox up against the substances used in a battery. The battery may still be worse, but hey it probably won't be leaking into the environment as often as the present day cars leak oil and other toxic fluids.

Ausonious M. in reply to Plen

Good points all, Plen. The one thing I would still have concern about is the impact of an enmasse move to all electric vehicles on an electrical grid. Its state in some parts of the country are truly rotten. ISO regional policies could also complicate updating it. Somehow the increased burden of many electric cars would have to be factored into that market.

TibsV in reply to CA-Oxonian

I think you confuse lead-acid, Ni-Cad batteries with Li-ion.
Li-ion batteries are much less toxic than your conventional car battery. Lithium is a fairly common element, there is plenty of lithium in sea water and actually in your table salt.
Lead is very toxic element and your car has more lead than any electric car lithium.

Artemio Cruz

Considering fuel economy in the US in isolation is a bit ridiculous and while the article does initially make a sop by including the general metric for efficiency - litres per 100 km - it only does this once. Comparative figures for Europe, Japan and elsewhere would have given the article considerably more form and purpose.

r3loaded

It's quite simple really - electric cars are freaking expensive. Upgrading to a newer car in any case is always an expensive proposition. Take for example my case, where I drive a 2001 1.4 litre Toyota Corolla that gets around 37-40mpg with careful driving. Even if I were to trade up to something like the Ford Fiesta Econetic, which gets 60+ mpg, no road tax and lower insurance, it would take many, many years to recoup the investment of buying the car (if ever). Not only that, but I'd end up with a smaller car and get rid of a perfectly reliable one that still drives well with no hassles.

Customers do want more efficient cars, but they'll buy them when they need one for other reasons. Fuel economy in itself is not the trigger factor for buying a new car.

About Babbage

In this blog, our correspondents report on the intersections between science, technology, culture and policy. The blog takes its name from Charles Babbage, a Victorian mathematician and engineer who designed a mechanical computer.

RSS feed

Advertisement

Babbage audio

Trending topics

Read comments on the site's most popular topics

Advertisement

Products & events