January 05, 2008
US Average Car Fuel Efficiency Rises

Rising gasoline prices boosted average fuel efficiency for new cars by 3.5% in 2007.

Amid record high oil prices and concerns about climate change, cars and light trucks sold in the United States hit a new mileage record for the 2007 model year, with average fuel economy improving almost 1 mile per gallon.

According to a report by the National Highway Traffic Safety Administration released late last month, fleet-wide fuel economy in the United States averaged 26.6 mpg, up 3.5 percent from the 25.7 mpg averaged in the 2006 model year. Passenger cars averaged a new high of 31.2 mpg, while light trucks averaged a separate record of 23.1 mpg.

So which companies paid fines for going over US government mandates for Corporate Average Fuel Economy (CAFE) standards? Not American ones. Of course not Japanese ones. Germans: Daimler, VW, BMW, Porsche. They don't have the high European fuel taxes to incentivize their American customers to buy more of their smaller cars. Yes, even VW sells less fuel efficient cars in the US than the American big three. Also, Maserati and Ferrari paid fines too.

That average fuel economy on new cars was based on buying patterns over the whole year. I'm expecting a bigger shift in buyer preferences for the 2008 model year because where gasoline prices are at the start of 2008 and where they are likely to go by summer. Normally gasoline prices hit their bottom in winter and their top in summer. See this chart of weekly US gasoline prices from mid 2005 thru 2007. Note how starting in March each year gasoline prices surge into the summer driving season.

An LA Times article shows why we should expect higher prices this spring and summer:

Kloza said that nationally for the last 25 years, the difference in the price of gas from the winter low to the spring high has been about 59%.

"I don't think we will see a typical surge, and we don't have to," Kloza said. With an increase of just 30%, he said, "you're talking about 75 cents a gallon more from where they are now."

A 59% surge would take California over $5 and Alaska over $6. I'm expecting demand destruction to start becoming a lot more visible though. So prices will probably stay under $5 per gallon in the lower 48 American states. But however high they go they'll serve as a wake-up call to the American car buying public. Expect to see a lot more hybrids, diesels, and subcompacts sold.

While fuel efficiency increases will help what we need as a more permanent solution is to stop using oil entirely. The first real step in that direction (and, no, corn ethanol doesn't count) will come in the form of pluggable hybrid electric vehicles (PHEVs). General Motors will probably be the first car company to release a mass market PHEV in the American market with their Chevrolet Volt. But GM chairman Richard Wagoner isn't sure that GM can get the Volt design done and into production by the end of 2010.

"We continue to put massive resources into production as soon as possible," said Wagoner, responding in writing during an online chat session to kick off the automaker's 100th anniversary. "2010 would be great, but (we) can't guarantee that at this time. We'll keep you posted regularly on our progress."

GM vice chairman Bob Lutz told Jerry Flint of Forbes a similar story on the timing of the Volt introduction. GM is not sure they will get the Volt out by the end of 2010.

GM's current schedule calls for production in late 2010 or early 2011.

"It probably won't be a flawless launch," Lutz warns. Interpretation: Expect delays and possible teething problems.

On a scale of 1 to 10, he says his confidence level is a 9.5 that GM can build the Chevy Volt, the name of this hybrid electric car. The production date is another matter; Lutz's confidence drops to a 5.5. "We're holding people's feet to the fire for the very end of 2010 into 2011. But that can slip, depending on how the development goes."

I think it extremely likely GM will produce this car. It normally takes 3 to 4 years to develop a new car design. They are trying to develop one that includes radical innovations. So a schedule slip is to be expected under the circumstances. They sound pretty committed.

DETROIT General Motors is down to the details on the production version of the Chevrolet Volt, says Edward T. Welburn Jr., the automaker's vice president of global design. Welburn told Inside Line on Thursday that the "Volt is our absolute highest priority."

My worry: world oil production might start declining before PHEV vehicles become available in the millions. We live in a world where the development of problems and the development of solutions are in a race. How big will the problems get before the solutions reach maturity? When it comes to Peak Oil the answer is still not clear to me. But I expect things will get worse for at least several years before getting better.

Share |      Randall Parker, 2008 January 05 02:47 PM  Energy Transportation


Comments
odograph said at January 5, 2008 3:49 PM:

The world-proven answer to higher gasoline prices (relative to income) is the scooter. The Bajaj Chetak scooter (Indian, 4 stroke, manual transmission) claimed 110 mpg by epa testing at one point. They don't sell many here, and the Indians move increasingly to cars, because income has risen.

We can put 5 Priuses, or 10 Chetaks, on the road for every 10 mpg SUV taken off though.

(That's all worst-case. I think right now it looks like a production plateau could allow slower transition.)

bee said at January 5, 2008 4:33 PM:

No need to worry ... we will have production ... I am confident that the market will function ... the great minds have failed humanity each step of the way to date ... don't count on them now ...

We will likely have no shortage ... the chance that prices will fall is higher than shortage at this point in time

Engineer-Poet said at January 6, 2008 6:23 AM:

The only thing which can make prices fall is a collapse of demand.  Small reductions do nothing (Africa's dropping out of the market hasn't moderated the price increases); it would take a big reduction from a big consumer like the USA to do much.  That's what the Asian financial crisis did.

Guess what the coming recession is likely to do?  In other words, prices will go down but affordability will go down even more.

David Govett said at January 6, 2008 11:27 PM:

I look forward to put-putting on my scooter along California freeways, in the rain, at night, and in front of a screaming road-rager. Good fun.

odograph said at January 7, 2008 2:29 AM:

As I said, I see the scooter as the one of the worst case fall-backs. Don't worry, if we were to suffer that combination of higher oil prices and and falling wealth, you wouldn't be alone. You wouldn't need to worry about a bunch of Tahoes climbing up your butt. It would be you and a thousand other scooters.

Though for that rainy freeway trip you still might choose a bus.

... but to concentrate on the milder cases for a moment, it might just be that a gentle squeeze in oil prices would lead us to a small car fleet, and slowly, to choose jobs and homes for shorter commutes. Markets and societies evolve, and they find their own efficiencies and alternatives - something we'd be crazy to try to predict with precision.

Randall Parker said at January 7, 2008 7:02 PM:

odograph,

If gasoline goes up to $10 a gallon I expect people to shift to hybrids, diesels, subcompacts, and electric cars.

We can afford to fuel electric cars - provided we can afford the batteries. The cost of the electricity per mile will be 5 cents or less. The batteries are the more expensive part of it. So I would like to know much more about past, present, and future lithium battery prices.

odograph said at January 8, 2008 5:42 AM:

You didn't mention timeframe ;-).

I'd consider $10 in 10 years one of the milder scenarios.

Randall Parker said at January 8, 2008 6:44 PM:

odograph,

I am uncertain as to how high the price of gasoline will go. It depends heavily on the extent of demand destruction and substitution. With a lot of demand destruction and substitution the price won't ever hit $10.

Nick said at January 9, 2008 2:32 PM:

"I would like to know much more about past, present, and future lithium battery prices."

Good quality conventional (cobalt) li-ion for the Tesla currently cost $400/kwh. At 500 cycles and .25 kwh/mile, that's $.20/mile, equal to $4.40/gallon in an average, 22mpg vehicle. The cost of such batteries continues to drop quickly.

The A123systems will get roughly 10x the cycles. If the cost per kwh is 2x as high (which is perfectly reasonable - the A123systems batteries aren't that much more expensive currently in a much smaller format, at much lower production volumes), then the cost per mile is 4 cents, equal to $2.00 gasoline in a 50 mpg (carefully driven) Prius.

As I noted before, our only problem is capex lag: the time required to build enough EREV's (extended range EV's). Gas prices could rise temporarily above the $3-4/gallon level, but eventually demand will flee to electrics.

Randall Parker said at January 10, 2008 5:43 PM:

Nick,

GM is still not convinced that any of the batteries they are being presented with are sufficiently reliable. The last two GM attempts to develop electric cars foundered on battery reliability problems (as told to me by the guy who directed those two attempts). Also, Ford is saying the same thing about battery reliability being the pacing issue for PHEV and pure electric cars.

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