Filed Under:Markets, Personal Lines

The True Cost of Raising CAFE Standards

Last July, The Obama administration revealed a proposal to raise the Corporate Average Fuel Economy (CAFE) standard to 54.5 mpg by 2025. Initial government-study figures claimed the move would increase the sticker price of the average new vehicle by around $2,000.

However, Don Chalmers, chairman of National Auto Dealers Association (NADA) government-relations committee, announced in a Detroit hearing for the proposal that the move to increase the fuel-economy standards would force manufacturers to use expensive “fuel-saving technologies,” thereby increasing the price by a whopping $5,000 for 2025 models.

The NADA position is that an extra $5,000 would put many potential buyers out of the new-car market because it could add another $60 to $70 to a monthly car payment and hurt a customer's chance to obtain financing.

U.S. government agencies and environmental groups have claimed the fuel savings will offset much of the purchase price increase over the life of the vehicle—but no one seems to have calculated what the increase in insurance premium would be. To obtain these mileage figures, advanced construction methods utilizing super-light materials would have to become the norm. What impact would that have on repair costs? Just compare the cost of repairing, say, a German-made luxury sedan with an aluminum front structure to that of a comparable Japanese luxury sedan constructed of traditional materials. This could mean as much as a one-third increase in repair costs due to the increased cost of replacement parts and advanced repair and replacement methodologies.

But mechanical components will need to be lighter and potentially more complex as well, also adding to collision-repair costs. Twelve-speed automatic transmissions with aluminum cases would be common and, with that light case, be more susceptible to damage in a collision.

The increase in the CAFE standard has always been about reducing our dependency on foreign oil, which I support. But I believe the government should look at the entire cost the consumer would bear for such an increase—including the cost of insurance and collision repair.           

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