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February 10, 2006

Futility Revisited

Apparently I didn't do such a good job in this post explaining why I found this New York Times article on higher-mileage, gas-electric hybrid SUVs so troubling.  So I'll try again.

To recap -- the Times article claims that, under the system governing vehicle fuel economy in the U.S., selling a hybrid Escape lets Ford sell an additional Lincoln Navigator without running afoul of federal standards.  In other words, while buying an Escape may mean that you're driving a more efficient vehicle, it doesn't mean that the average fuel economy of all the Fords on the road will change one whit. 

A couple commentors said this is bunk.  But I think the article is onto something.  Take a look at the fleetwide fuel economy for Ford's light truck fleet over the last few years for which I could get data:

2000:  21.0 mpg

2001:  20.5 mpg

2002:  20.7 mpg

2003:  21.3 mpg

Now, remember, the CAFE standard for light trucks over this period was 20.7 mpg -- that is, the average mpg for all the light trucks that Ford sold had to be 20.7 or more, or the federal government would levy a fee on each vehicle.  From the numbers, it's pretty clear that Ford has been doing its level best to keep its light truck fleet at or near 20.7 each year -- maybe a little above or below, but not enough to incur any penalties (under CAFE rules, exceeding the standards in one year lets you dip below them in subsequent years).

So how does the company fine-tune its vehicle sales to fall right at the CAFE standard?  By tweaking its pricing, offering deeper discounts to ramp up sales of higher-mileage pickups and SUVs, while still selling as many hulking SUVs--vehicles with terrible gas mileage but huge profit margins--as it can without running afoul of the standards.

My point here is that the introduction of the 35 mpg Escape, by itself, probably doesn't change this dynamic.  Ford is legally required to maximize its profit -- otherwise it faces the threat of a shareholder lawsuit.  So it's got an incentive to use whatever means it can to keep the high-profit SUVs moving off the car lots.  And that means that selling more Escapes won't necessarily boost the overall efficiency of the vehicles Ford sells.  Higher gas prices might boost fuel economy; stricter standards might as well.  But as nifty as the high-tech hybrid Escape may be, buying one won't guarantee that Ford's overall mileage is moving in the right direction.

Obviously, the existence of the Escape has spinoff benefits.  Among them, it undercuts the car-makers arguments that major improvements in vehicle efficiency are technically impossible.  Hybrid SUVs show that the feds could probably lift CAFE standards for light trucks above 30 mpg without forcing automakers to do much, if any, R&D.  True, the big auto manufacturers could always say that they can't afford to make trucks more efficient.  But they can't say that they don't know how.

But there's yet another perverse market effect hidden in the Escape.  CAFE has two tiers, with a higher mileage standard for cars than light trucks.  To the extent that the Escape (a light truck) attracts buyers who'd otherwise go for a Taurus (classified as a car), it could tilt Ford's overall mix away from cars and towards trucks -- which, paradoxically, could lower the average fuel economy for Ford's entire vehicle fleet.  (Sheesh, this stuff is weird.)

So, all this goes to say that a system can have unpredictable results that undermine the best intentions of any one individual.  That's not a reason to throw up one's hands in despair -- but it is a reason to think that changing the system is even more important than making the right kinds of purchases.

Posted by ClarkWD | Permalink


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Clark, I think you're missing the point here. SUV sales are down (http://www.washingtonpost.com/wp-dyn/content/article/2006/02/10/AR2006021001484.html) and the big three are getting their butts kicked by Toyota. They are selling as many big units as they can, but it's not enough.

Ford is offering the Escape to compete with Toyota, not to boost big SUV sales or just do the world favor. I really doubt they're trying to hit a triple bank shot of selling hybrids to manipulate CAFE standards, though that may help them justify the research it took to do it.

There's nothing wrong with buying a hybrid-- it's superior technology and I'd do it if I could afford it. Who knows when the next oil shock will come?

Also, why not minimize your emissions if you can? The biggest environmental problem in the Puget Sound besides global warming is passenger car emissions.

I think as an environmentalist you are doing more harm than good repeating this sort of nattering at the fringes of the hybrid vehicle debate and titling posts "Futility Vehicles". Instead of making veiled attacks on people who choose the most fuel-efficient vehicles in their class, why not probe into the way anti-environmentalists use mainstream media to make environmentalism look stupid? Now that would be interesting.

Posted by: Jason | Feb 12, 2006 9:19:29 AM

Good points, Jason. I particularly agree with the idea that everyone must do their best to minimize car emissions.

Clark, you also make a good point about the system needing to be overhauled in order to require the entire fleet of cars to be more fuel-efficient.

But I wouldn't say that the system is more important than the individual who "makes the right kind of purchase," as you have said. Rather, I would say that the individual is just as important, if not more so, than the system. After all, the market is made up of individuals, en masse. When enough individuals "vote with their dollars" by choosing hybrids and other fuel-efficient vehicles, then the system becomes less relevant, right?

To quote from the article that Jason linked to:

"[A] manufacturer that is in touch with the market, that understands its demands and whims, is the kind of manufacturer that ultimately produces the kinds of cars and trucks people want."

Posted by: Michelle Parker | Feb 12, 2006 7:39:31 PM

I respect the comments here and I agree that a way around CAFE standards is not what is wanted. However, I cannot help but be supportive of hybrid SUV's because every one sold in place of a standard gas fueled SUV is good. It would be wonderful if we all drove zero emission vehicles but that is not reality. Small change may lead to big change. For example, if hybrid SUV's can lead to fleet trucks switching over to this technology then there is a real reduction in emissions in the world.

Posted by: ethan meginnes | Feb 17, 2006 10:21:08 PM

I think that Clark's points are well taken, because they illustrate a key argument of Ross Gelbspan -- that individual behavior changes will not stop global warming by themselves. Only major policy changes will.

Federal regulations such as the CAFE standards tilt the playing field in favor of gas-guzzling SUVs and trucks. This is as Detroit wants it, which is why the regulations have not changed for so many years. Ford, GM and Chrysler HAVE strived to sell as many big SUVs and trucks as possible without going over their CAFE limits. They weren't oblivious to the potential of spikes in gas prices -- they simply wagered that it would happen later rather than sooner, and continued to funnel the bulk of their development dollars into big SUVs and trucks.

This is not only because they are so profitable, but also because this market segment has historically had the weakest competition from foreign automakers.

Detroit has always been slow to adapt to changes in the marketplace -- which goes a long way toward explaining why the Big Three has suffered through a number of serious boom-and-bust cycles over the last four decades.

However, what worries me more than the Big Three's slowness in developing high-mileage vehicles is that the largest foreign automakers -- Toyota, Nissan, Honda and VW -- have now made significant investments in full-sized SUV and/or truck platforms. They will do their darndest to get a return on their investments. You can bet that that means joining Detroit in opposing badly needed revisions to federal fuel-economy policies.

By all means buy a hybrid, but don't assume that:
1) Toyota or Honda is all that more "green" than GM or Ford when it comes to their overall product development strategy, and
2) that your purchase of a high-mileage hybrid will have much impact until we see major federal policy changes.

No, this isn't happy news, but it is the simple truth.

Posted by: Steven Salmi | Feb 18, 2006 1:58:12 PM

Good points, all. It's definitely true that many prominent car manufacturers resist change -- even when it's constructive change.

Yet, I wholly support those individuals who purchase the best fuel-efficient vehicle that they can afford RIGHT NOW, rather than waiting around for the entire CAFE system to change before they feel their individual purchase "makes a difference."

In this case, every fuel-efficient vehicle creates positive change.

Posted by: Michelle Parker | Feb 18, 2006 4:05:01 PM

It's worth noting that both Honda and Toyota exceed the CAFE guidelines by noteworthy margins. If one is willing to wash their hands of an American automotive industry that is every bit as negligent as they were in the 70's (indeed, doubly so for having such recent experience to fall back upon), then buying a hybrid isn't a zero-sum game.

There's also the aspect of early adoption to take into consideration. The more people buy these new technologies, the faster the prices come down for mass production and consumption. And as hybrids build on many technologies that are also prerequisites for electric and fuel cell vehicles, they also help achieve affordability of the next generations of responsible vehicles as well.

Posted by: Jason | Feb 19, 2006 8:41:28 PM

The reason Toyota and Honda's CAFE numbers for trucks are much better is that they haven't fully ramped up their product assault on Detroit. For example, have you seen Toyota's new full-sized pickup? If it is any "greener," that's purely around the edges.

Toyota didn't just spend billions on the new design; it also has built an expensive new assembly plant in Texas. Toyota will have to sell an awful lot of big trucks to get a return on its investment.

Also notice: Toyota was a pioneer of the small pickup, but it no longer makes one. In fact, nobody does. Here the imports have been totally coopted by Detroit.

So yes, buy your Toyota hyrid, but do say something to the salesman about those vulgar big SUVs in the showroom.

Posted by: Steven Salmi | Feb 20, 2006 8:36:52 AM

I'm generally of Steven's mindset -- that bad policy can undermine virtuous consumer choices, at least when it comes to energy; and Honda and Toyota, despite the relatively high fuel economy of their vehicles, aren't inherently "green" car companies by any stretch. If there were a profit to be made by going "brown" I don't have much doubt that they'd do it.

But I also agree with Jason & Michelle -- choosing a fuel-efficient vehicle can make sense for a variety of reasons -- demonstration value, priming the market, helping Toyota & its supplier optimize their manufacturing processes. Choosing a hybrid probably saves a bit of fuel, compared with the alternatives. And it can make financial sense if you take full advantage of the tax breaks, and if you otherwise would have bought a new car with a comparable price but lower efficiency. Of course, there may be other ways of making a bigger impact with your money -- but I certainly don't think for a second that rising hybrid sales are a *bad* thing.

Posted by: Clark Williams-Derry | Feb 22, 2006 12:07:43 PM