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Sticker shock today has nothing to do with prices. If you have bought a car in the last several years then chances are you have been disappointed with its fuel economy. In fact, you might even be a little angry. That is especially true if you purchased a Hyundai or Kia in the last two years, which used inflated fuel economy figures on its newest vehicles. Varying driving conditions can explain a few lost (or gained) mpgs here and there, but these are not always small discrepancies: the Kia Soul Eco's fuel economy was slashed to 26 mpg city and 31 mpg highway from its marketed 29/36.
The issue is a big deal. According to executives from Ford (NYSE: F ) and Hyundai, fuel economy tops the list for what consumers look for in a new car. So what's the deal with fuel economy ratings? Are consumers at fault for driving like maniacs (check "yes" for New Jersey residents) or does the blame fall on automakers and the EPA? Maybe it's the testing procedure in general? Are other automakers at risk of facing lawsuits and payouts? As you can see, there is no shortage of variables to this complex issue.
Are CAFE standards to blame?
Facing pressure from the EPA and a class action lawsuit, Hyundai and Kia set aside $412 million to compensate vehicle owners for lost mileage for the life of their vehicles. Ouch. According to The Wall Street Journal, only two other cars have been forced to modify their sticker claims since 2000. Unfortunately, modifications could become the norm.
Automakers are well aware that the Federal CAFE mandate calls for nearly a doubling of fuel economy from 2012 to 2025 and may be feeling the pressure to keep up. Why not mark up the fuel economy figures when so much is at stake? Lawsuits may be a good reason.
Are lawsuits on the horizon?
Here's a fun experiment: Perform a Google search on any car company's name followed by the phrase "fuel economy lawsuit." I'll bet you can find juicy results for most in the last five years. Of course, you could simply head on over to MPGfraud.com for the most up to date information. Here are the big ones:
General Motors (NYSE: GM ) is facing a lawsuit (link opens PDF) over claims that it's GMC Terrain can achieve up to 32 mpg highway in "real-world driving conditions." A court in California recently denied the company's attempt to dismiss the matter. Luckily for investors, it is a small claim and not a class action lawsuit. Not yet, anyway.
Ford may not be so fortunate. A growing number of C-MAX Hybrid owners are beginning to grumble over the efficiency of their cars, which is starting to look a lot like the Hyundai and Kia fiasco. Consumer Reports found that the C-MAX Hybrid and Fusion Hybrid achieve just 37 mpg – a far cry from their marketed 47 mpg. Tests performed by Car and Driver achieved only 32 mpg with each. This is not the kind of attention that the company needs as it aims higher with its new line of hybrids.
Last year Honda (NYSE: HMC ) settled a class action lawsuit with owners of its Civic Hybrid models released in 2006-2008 in which owners can be awarded up to (brace yourself) $200. Honda may claim the settlement as a win, but it has quietly reduced sticker fuel economy for the car from 50 mpg in 2006 to just 44 mpg in 2012.
The industry cheered a reversal of a decision of a smaller lawsuit in which a woman was granted nearly $10,000 in damages for her underperforming Civic Hybrid. An appeals court threw out the earlier case by claiming that automakers are not at fault for tests performed by the EPA and third-party testers. So let's turn our attention there.
How vehicles are tested
Courts may place the blame on the EPA, but you still may ask yourself: "Why can't I achieve those awesome numbers shown on the sticker slapped onto the driver-side window?"
According to the EPA, automakers "test their own vehicles—usually pre-production prototypes—and report the results." I'm sure anyone can see a few problems with that procedure. More worrisome perhaps is the fact that the EPA can only confirm about 10%-15% of the claims due to funding and time constraints. If I'm an automaker trying to gain billions in market share and I know I have a 90% chance of getting away with fudging some fuel economy numbers, then I'm probably searching for a pencil with a good eraser by now.
New cars are tested at the National Vehicle and Fuel Emissions Laboratory by the EPA and/or third-party sites by automakers. It is also worth noting that the fuel economy shown on new car stickers is only achievable under optimal driving conditions, which include things like weather, road surface, engine break-in, fuel variations, your driving habits, and a laundry list of other factors.
Electric cars steer clear
Ironically, electric car makers Tesla (NASDAQ: TSLA ) and Daimler (NASDAQOTH: DDAIF ) have escaped criticism of fuel economy gouging. Despite new and unfamiliar ratings (what the heck is a kWh of gasoline?!?) Tesla's Model S has received more good news than bad. The official EPA rating comes in at 95 mpge (208-mile range) for the low-end model, but reports have surfaced that the car can achieve up to 405 miles on a single charge. Ford and Hyundai only wish their cars could generate the same feel-good press.
That could change in the near future as more automakers shift to electric vehicles and beyond. Fellow Fool John Rosevear was quick to note that price will remain a factor, but also offered an optimistic note on the future. Ford, Daimler, and Nissan formed a partnership to develop a fuel-cell car for the everyday driver as soon as 2017. This follows suit of major automakers' willingness to explore next generation materials like carbon fiber.
Foolish bottom line
You can read the EPA's disclaimer for helpful tips on increasing fuel economy, but the concerns of consumers need to be addressed soon. The EPA and automakers might not like it, but perhaps new cars should be more upfront about the fuel economy consumers can expect to see. It certainly doesn't make much sense to report the optimal fuel economy ever achieved when most consumers will never enjoy such efficiency.
Perhaps it will take an industry outsider to understand that cars don't drive in laboratories, they drive on roads. Near-faultless execution has led Tesla Motors to the brink of success, but the road ahead remains a hard one. Despite progress, a looming question remains: Will Tesla be able to fend off its big-name competitors? The Motley Fool answers this question and more in our most in-depth Tesla research available for smart investors like you. Thousands have already claimed their own premium ticker coverage, and you can gain instant access to your own by clicking here now.