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.           

About the Author
Greg Horn

Greg Horn

Greg Horn is vice president of industry relations for Mitchell International. Previously, he served as vice president of material damage claims at GMAC Insurance, where he was responsible for all aspects of the physical damage claims process and the implementation of a unique vehicle replacement program. Prior to GMAC, he served as director of material damage processes for National Grange Mutual. He can be reached at greg.horn@mitchell.com, www.mitchell.com.

Comments

Resource Center

View All »

Complimentary Case Study: Helping achieve your financial goals By:...

Find out how a Special Investigation Unit used TLOxp to save the company money and...

Do Your Clients Hold The Right CDL License?

Learn about the various classes of CDL Licenses and the industries that are impacted by...

Integrated Content & Communications: A Key Business Issue For Insurers

Insurers are renewing their focus on top line growth, and many are learning that growth...

High Risk Insurance Coverage in the E&S Market

Experts discuss market conditions, trends and projected growth in a rapidly changing niche.

Top E-Signature Security Requirements

This white paper covers the most important security features to look for when evaluating e-signatures...

EPLI Programs Crafted Just For Your Clients

Bring us your restaurant clients, associations and other groups and we’ll help you win more...

Is It Time To Step Up And Own An Agency?

Download this eBook for insight on how to determine if owning an agency is right...

Claims - The Good The Bad And The Ugly

Fraudulent claims cost the industry and the public thousands of dollars in losses. This article...

Leveraging BI for Improved Claims Performance and Results

If claims organizations do not avail themselves of the latest business intelligence (BI) tools, they...

Top 10 Legal Requirements for E-Signatures in Insurance

Want to make sure you’ve covered all your bases when adopting e-signatures? Learn how to...

Personal Lines Pro eNewsletter

Critical insights into the personal auto, homeowners, and other consumer insurance markets to help P&C professionals stay informed – FREE! Sign Up Now!

Advertisement. Closing in 15 seconds.