The fuel efficiency debate is raging in Washington, DC, again after the Obama administration proposed fleet averages for car and light trucks at 56.2 mpg by 2025. Environmental groups were happy with the proposal, but auto groups will likely argue that higher costs would hurt consumers.
The biggest question the industry has to answer is how much is fuel efficiency worth. The 56.2 mpg proposal is a 64.8% increase from the current agreement of 34.1 mpg efficiency by 2016, a big jump by any standard. The increased efficiency is estimated to cost anywhere from $2,100 to $2,600 per vehicle, putting a burden on the upfront cost for consumers. But, the administration argues that the additional cost will be recovered in 2.5 to 3.5 years through lower fuel costs. No matter what the perceived costs, there are companies that will benefit from the increased standard.
The big winners
Efficiency leaders Toyota (NYSE: TM ) and Honda (NYSE: HMC ) are the easy picks to benefit from an increased standard, but Ford (NYSE: F ) is improving efficiency the fastest among car manufacturers. The problem with drastic changes like those being proposed is the fact that it will probably take more than an eco-boosted engine and some lighter materials to reach 56.2 mpg. Manufacturers may have to lean on high-tech battery manufacturers to help build electric, hybrid electric, and plug-in hybrid electric vehicles, which help improve fleet efficiency.
A123 Systems (Nasdaq: AONE ) makes batteries for auto manufacturers in the electric car market, such as Fisker and BMW, and could be the biggest winner of a new standard. With competitor Ener1 (Nasdaq: HEV ) on the ropes A123 and LG Electronics should take an even more dominant position as suppliers of batteries.
Along the same lines, Tesla Motors (Nasdaq: TSLA ) should benefit from increased emphasis on fuel efficiency as it vies to become a supplier in the EV market. Toyota is already working on using its technology in the Rav4 and more vehicles could follow.
Are there really losers here?
Oil is obviously the biggest loser if an increase to anywhere near 56.2 mpg becomes the rule. But, I have a feeling growing demand in emerging markets would more than make up for any decline in U.S. demand because of efficiency.
As far as vehicle manufacturers go, General Motors (NYSE: GM ) and Nissan have the furthest to go to improve car and light truck efficiency. But, both are on the leading edge of electric vehicles in the way Honda (remember the first Insight?) and Toyota led the hybrid charge a decade ago.
The market can sort this out
While I value rules that will reduce oil consumption, I find it ironic that we wouldn’t just let current market conditions play out to get a similar result. Smaller more fuel-efficient vehicles are back in style again as anyone who has tried to buy a used compact car or sell a pickup truck will tell you.
Has it come to this?
Is this really as far as we’ve come? It’s pathetic how little we’ve improved fuel efficiency in the last 30 years -- now we are paying for that complacency. The first car I owned was a manual 1982 Honda Civic that regularly got 40 miles to the gallon. Even a 1.1% annual increase in efficiency over 30 years would have gotten that same Civic to 56.2 mpg by next year. Yes, vehicles are heavier, safer, bigger, and full of features my old Civic didn’t have, but that’s the context in which I see this debate. Why didn’t we do this before with smaller increases?
Foolish bottom line
Emerging companies like A123 Systems and Tesla Motors have the most to gain if efficiency standards are increased dramatically. While GM and Nissan may have more work to do than Ford, Toyota, and Honda the pain car manufacturers feel should be spread across the industry.
This Fool would love to see a 56.2 mpg standard, but how do you Fools feel about it? Take the poll below and leave your thoughts in our comments section below.