Consumers may be in for sticker shock in the coming decade as automakers turn to increasingly costly technology to meet tighter U.S. fuel-economy mandates, according the National Research Council. Cars and light trucks in the U.S. are supposed to average 54.5 miles per gallon (0.425 km per liter) by 2025, double the current targets.
“New vehicles will be more fuel-efficient, lighter, less polluting, safer, and more expensive to purchase,” according to the report released Thursday.
The National Research Council, an arm of the independent, nonprofit National Academy of Sciences, was asked by the National Highway Traffic Safety Administration to look at how automakers are coping with the fuel economy targets.
“The increasingly stringent fuel economy and greenhouse- gas emission standards will drive the development of new powertrain designs, alternative fuels, advanced materials, and significant changes to the vehicle body,” according to the report.
How much consumers are willing to pay for fuel-saving technology is a critical question, and studies conducted so far are inconclusive, the report found. Automakers aren’t sure their customers will buy more expensive cars if they can’t save enough in fuel to offset the added costs within a few years.
Paying more
Consumers have shown they’re willing to pay more for cars with the safety features and infotainment systems they value, said Michelle Krebs, an analyst with Autotrader.com. Millennials, who will become the largest segment of car buyers over the next decade, will play a huge part in determining whether the fuel economy improvements gain acceptance, she said.
“We have a long way to go until 2025,” Krebs said. “We have another 10 years for developing these technologies and seeing what the costs are, and how these costs get passed down to consumers.”
One question is how many gas-electric hybrids or fully electric battery-powered cars will need to be sold to meet the goals. Those cars are generally more expensive to build. California and nine other states are requiring a portion of car sales to include “zero-emission vehicles.”
Costs decline
Roland Hwang, one of the NRC panel members, said that technology costs have actually dropped since the council’s previous review of fuel economy four years ago. A midsize car could meet the 2025 standards with $1,181 to $1,689 in added costs, Hwang said.
The 2011 study estimated $3,200 to meet the standards, said Hwang, director of the transportation program at the Natural Resources Defense Council, an environmental advocacy group. That’s consistent with the history of auto regulation, which shows the industry tends to innovate, coming in on time and under budget, Hwang said.
Automakers have been laying the groundwork for a challenge as the U.S. Environmental Protection Agency and NHTSA have promised to review the regulations next year. In recent months the lowest average gasoline prices in more than four years have led to fewer small-car and hybrid sales, making it harder to meet fuel-economy targets.
Still, fuel economy is becoming an item consumers are willing to pay for, like safety and connectivity, according to Bloomberg Intelligence analyst Kevin Tynan. More attractive terms are leading more car buyers to consider leasing to offset costs, Tynan said.
“Leasing has become the new initiative for affordability,” Tynan said. “People will go in with a monthly budget and get all of these features for that number.”
The NRC study shows regulators should stay the course, said Daniel Becker, director of the Safe Climate Campaign, a Washington watchdog group.
“The study shows the EPA and the Transportation Department largely got their projections right,” said Becker. “There is no justification for weakening the standards, as some automakers want.”
