New MPG rules: Gas savings, but car prices to rise

Chevrolet Volt
General Motors
(MoneyWatch) Tough new government fuel-efficiency standards mean consumers will pay more for their cars but realize big savings on gas.

The new rules, issued yesterday by the Department of Transportation and the Environmental Protection Agency require automakers' average fuel economy to nearly double to 54.5 MPG by the 2025 model year. In the complicated math of Corporate Average Fuel Economy (CAFE), however, the actual MPG number shoppers will see on the window sticker will be considerably less.

The government estimates that the average car will cost about $2,000 more by 2025 because of expensive new technology, but that big gas savings will more than offset that price hike. Consumers Union, the organization that publishes Consumer Reports, praised the new mileage requirements. "These standards mean that consumers will be able to save thousands of dollars on gasoline over the life of their vehicle," said Shannon Baker-Branstetter, policy counsel for the organization.

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The standards also will produce major reductions in oil use and greenhouse gases, said the American Council for an Energy Efficient Economy. The advocacy group estimates that U.S. oil consumption in 2030 will be 3.1 million barrels a day lower because of the cumulative tightening in fuel economy rules between 2012 and 2025.

However, skeptics question whether higher purchase prices for cars will scare off car buyers. "CAFE risks requiring automakers to build vehicles and adopt technologies that consumers may not want to buy," said Jeremy Anwyl, vice chairman of auto auto research site Some Republican lawmakers criticize the rules as too costly for consumers and say they will repeal them if Republican nominee Mitt Romney becomes president.

The pricing problem already is evident with electric cars that cost around $40,000 before tax credits. For instance, the Nissan Leaf sold only about 3,150 cars in the first half of this year. The Chevrolet Volt (pictured above), which has a backup gasoline engine as well as battery power, did somewhat better.

But to meet the standards automakers will have to convince consumers to buy hybrid and electric vehicles. To that end, the new rules contain some specific encouragement:

  • Incentives for electric and plug-in hybrid vehicles as well as for fuel-cell vehicles, which are not yet commercially available
  • Incentives for hybrid and other mileage-boosting technologies on large pickups
  • Credits for other technologies that can achieve reductions in greenhouse gases.
In addition, automakers will continue to rely on improvements in conventional gasoline engines. Already in response to the first phase of the mileage standards, many manufacturers offer cars rated at 40 MPG in highway driving, a level of fuel efficiency that was unheard of even a few years ago.
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    Jerry Edgerton, author of Car Shopping Made Easy, has been covering the car beat since Detroit companies dominated the U.S. market. The former car columnist for Money magazine and Washington correspondent for Business Week, Edgerton specializes in finding the best deals on wheels and offering advice on making your car last.