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Massive Fines Proposed by EPA to Force 35.5 MPG Fuel Economy by 2016

Natural U.S. small car demand is too little without market intervention. EPA can impose a $37,500 per car fine.

by on Dec.08, 2009

Howdy pardner, want to share my ride?

That's a mighty small ride kid...

There’s a huge disconnect between natural small car demand in the U.S. and the number of small cars that makers will actually have to sell by 2016  to meet the proposed 35.5 mpg standard, according to Charles Chesbrough of CSM Worldwide consultancy.

The senior economist, in a data packed presentation today to the Automotive Press Association in Detroit, explained that to meet the standard by 2016, American new car sales of tiny A, B, and C-segment cars would have to be the same as they are in Europe today. This to me is an almost inconceivable shift, given previous behaviors from politicians and consumers. C-cars are Ford Focus, Toyota Corolla or Honda Civic in size.

In Europe, these small cars account for more than 40% of the 2009 market. While in the U.S., they represent about 5%.

How a eightfold increase in tiny car sales will be forthcoming, when U.S. gasoline prices are currently averaging $2.50 a gallon, down from a record $4 in the summer of 2008, is a huge political issue.

In Europe, of course, heavily taxed gasoline is in the $6.50-$7.50 a per gallon range. Would the Obama Administration dare to impose a $4 a gallon tax? This is only one of the nettlesome policy issues facing politicians.

U.S. energy policy – rather, the lack of the political will to impose one, we observe, going back to the first fuel crisis in 1973 — has left us as dependent today on a disruption in oil supplies as then. This remains a clear national security threat, as well as an economic one given the current fragile state of the economy.

The startling CSM sales analysis comes as a U.N. Climate Change conference in Copenhagen opened, which begins a year-long process that will likely result in rules eventually calling for an 80% reduction in CO2 gases by 2050.  G8 countries have already endorsed this.

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