Takeaway From This Week’s EPA Hearing: Fuel Efficiency is a Money-Maker

A
major step towards more fuel-efficient U.S. vehicles is being taken
today in Detroit, where the Environmental Protection Agency (EPA) and
the U.S. DOT are holding their first in a series of public hearings on
the new emissions standards the Obama administration released in May.

New_CEO_Fritz_Henderson_Addresses_GM_Challenges_Hu1CQuvWBA4l.jpgThese
GM executives long resisted higher fuel-efficiency standards. Now a new
report from one of their own says higher standards mean more profits.
(Photo: Getty Images)

Domestic
automakers testifying today emphasized their willingness to comply with
the new rules, though not necessarily with a smile on their faces. The
fine print of the EPA and DOT’s final efficiency rule contains several
potent loopholes long sought by car companies, and the Detroit News found
General Motors vice president Michael Robinson stressing the downside
of cleaner cars: "The proposal will not be easy nor will it be
inexpensive, but we are up to the challenge." 

But the most compelling aspect of today’s hearing has yet to
show up in the mainstream media: testimony from Walter McManus, a
veteran GM economist who now leads the automotive analysis division at the University of Michigan’s Transportation Research Institute.

Since
leaving Detroit’s inner sanctum, McManus has candidly admitted that his
former colleagues failed to comprehend consumers’ desire to burn less
fuel; in a November column for the Daily Beast, he described GM as filled with "individually brilliant people who are collectively stupid."

Today in Detroit, McManus put his data where his mouth is by testifying on a report he released last week [PDF]
that shows the new fuel-efficiency rules will lead to an annual profit
increase of $3 billion at the three U.S. automakers (GM, Ford, and
Chrysler), compared with an $800 million annual profit gain for the
so-called "Japan 3" (Toyota, Nissan, and Honda).

McManus’
report found that consumers’ prioritization of fuel costs over total
vehicle prices, as well as the likelihood of gas price increases in
future years, would turn the costs of complying with the
administration’s new efficiency standard by 2016 into a net upside.
"Most importantly," the report states, "complying with the [35.5 mpg
fuel standard by 2016] renders the vehicles in the majority of segments
more cost effective for consumers; the present value of the fuel saved
will be greater than the increase in purchase price associated with the
new fuel saving technology."

Interestingly, McManus’
research, conducted with Citigroup’s investment research department,
Ceres, and the Investor Network on Climate Risk, does not take into
account two factors that could further boost the economic benefit of
less fuel consumption:

the economic savings of
reduced foreign energy dependence or the direct savings of reduced
military expenditures necessary to protect that dependence.

So why have U.S. automakers fought higher fuel-efficiency standards for decades?

McManus’ theory about collective stupidity comes to mind.

Other
witnesses at today’s hearing spoke to the value and popularity of more
fuel-efficient cars. Another former GM official, Dr. Rob Kleinbaum,
made his opinion plain: "Based on my
experience in the auto industry," he testified, "I not only support the
rulemaking
under consideration today but view it as critical to that long term
viability.”  

Maine auto dealer Adam Lee, owner of Lee Auto Malls, echoed that sentiment, calling the higher standard "desperately" needed.

“It now appears that Detroit has given up telling us that consumers
won’t buy cars that get better fuel economy," Lee said. "They are no longing
saying that Americans don’t care about cleaner air.”

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