Car Buyers May Face Sticker Shock From Fuel Efficiency Rules

(Bloomberg) — 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.”

To contact the reporter on this story:

Jeff Plungis in Washington at

jplungis@bloomberg.net

To contact the editors responsible for this story:

Jon Morgan at

jmorgan97@bloomberg.net

Steve Geimann, Ros Krasny

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