Maybe it didn’t happen in your town, but the week that the CAFE regulations for 2025—54.5 mpg—were announced, around here the prices for regular unleaded bumped up to $4.00 per gallon. Since then, they’ve gone higher. Weren’t they supposed to fall after Labor Day?
That same week, I spotted a story on Bloomberg about gasoline prices in Italy. A comparative $9.50 per gallon. Think about that for a moment. It can’t happen here, right? According to the U.S. Energy Information Administration, a gallon of gas, on average in the U.S., cost $1.12 during the week of September 7, 1992. Twenty years ago. And the price has nearly quadrupled since. How are you feeling about that $9.50 now?
To be sure, the 54.5 mpg standard is a political thing. Some forcefully argue that rather than the government mandating what sorts of fuel efficiency ought to be realized, the market ought to dictate that factor. Meaning, if gas is $4.00 per gallon and people don’t like buying cars or trucks that provide, say, 20 mpg, they’ll go buy something that provides better fuel efficiency. But there are policies involved in this, as well, such as the ideas that it would probably be a better thing for the U.S. if there was an even reduced dependence on oil imports from parts of the world where it is a widely held conviction that America Doesn’t Got Talent, and that by burning less gas we can all breathe better, so it is sort of a public health effort, too. While some people might say that the latter is not too much of a concern—after all, there is a lot of air in the atmosphere, isn’t there?—there is a very good reason why you don’t operate equipment like generators in your family room, and no one generally comments on the lack of air in one’s house. As for the argument that there are all manner of oil reserves in the U.S. and all we have to do is tap them and then tell those suppliers elsewhere that they can go pound sand, that doesn’t take into account the simple fact that the oil goes out to the world market, it isn’t reserved for the gas station down the street, and as a result of it being on the world market, there are places like China that want it, and if they have the money—and evidently they do—then they’re going to get it. How’s that going to work out for us?
Then there is another factor. Say there is no CAFE requirement. Say that gasoline prices stabilize at some somewhat reasonable number. Say that U.S. OEMs decide that there are better margins to be made in bigger vehicles, be they sedans or sport utes. So they build them.
And then Something Happens. Gasoline prices make an undignified rise.
Meanwhile, vehicle manufacturers in other parts of the world, where there are things like $9.50 per gallon signs, have decided that if they’re going to move sheet metal, they’re going to have to reconsider not only what powers that sheet metal, but the very type of metal that is being used. In other words, they produce more efficient cars and sport utes. Vehicles that get the most out of a gallon of gas or which don’t even use gas.
What happens to the market in the U.S.?
If we go back and look at the rise of the Japan-based OEMs in the U.S. market, it is clear that there wasn’t a clamoring or pent-up demand for Civics, Corollas and Datsun 210s. No, once the Oil Embargo (a Something Happens) happened, and people were wide-eyed and slack-jawed at the price of gasoline (which we would go back to in an instant if we could), they started looking for alternatives to Detroit.
We recently saw what happened to Detroit (or at least a good part of it) when there was a financial crisis, a credit crisis, a housing crisis, and a gasoline crisis. So, do we want to go through that again, or next time would we just say to hell with it, and opt for non-domestically-produced alternatives?
For people who are interested in technology—product and process—the 54.5 mpg standard is a stretch goal that ought to be embraced, even if a few muscles are pulled by making that stretch.