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New Fuel Economy Standards (CAFE)
Old 12-16-2007, 12:11 PM   #1
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New Fuel Economy Standards (CAFE)

Looks like the new, higher fuel economy standards are working their way through Congress. I'm in favor of conservation, and I (used to) see the lack of progress in these standards as a sign of our lack of commitment to an energy policy.

But I no longer see it that way. I think CAFE standards are the wrong approach.

Like so many policies, CAFE just dances around the edges, rather than confronting the problem head-on. And it can be counter-productive, providing the illusion of progress, and distracting us from the real goal (use less fuel).

My issues:

A) If people are not buying high mileage cars now, maybe we should think about why that is, rather than limiting their choice.

B) MPG is too indirect. It does NOTHING to promote car-pooling, reducing your commute, combining trips, public transportation, tele-commuting, etc. Nothing improves your effective mpg more than car-pooling, or leaving the car in the garage.

C) If there was demand for higher mpg cars, the manufacturers would fill the demand - why should the government be a 'marketing arm' of our auto manufacturers?

I've mentioned the real solution before (assuming we actually want the govt to promote fuel conservation) - place a floor on gasoline prices (say $3/gallon today), and raise that floor gradually over time through taxation*, on a published schedule. This would provide incentives for people to conserve and think long term. And the 'invisible hand' will find the most cost-effective, least painful ways for people to conserve - based on their specifics - not some 'one-size-fits-all' govt policy. Maybe car-pooling, public trans, tele-commuting will be bigger factors to consider in that next job offer? Over time, that could make a bigger difference than the mpg sticker on a car. For some people, the solution will be to buy a higher mpg car - but let people make that decision for themselves.

Too many 'unintended consequences' of CAFE to even list....

-ERD50

* keep the taxation 'revenue neutral' - return it to the taxpayers (higher standard deduction) so the 'little guy' is not hurt by the rising gas prices, but has an opportunity to best determine how to spend that money - on expensive gas, or other goods. Except for the administrative loses, this should actually put money in people's pockets, as we will be conserving and spending less on gas overall.
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Old 12-16-2007, 12:58 PM   #2
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Actually conservation dances around the edges, rather than confronting the problem head-on. Conserving oil only changes the date we run out of it slightly. Increases in use by developing countries, and increase in use by individuals will far surpass any MPG improvements we make.

The real problem is we are going to run out of oil eventually, some think around 2030.

http://en.wikipedia.org/wiki/Peak_oil

Take a look at the depletion curve. Even doubling our mileage will have little effect on the outcome. We run out. If we run out in 2035 instead it hardly matters.

Unfortunately good alternatives are few and far between. Canít run all the cars on ethanol or we will have no land to grow food on if we grow fuel instead. Electric? Where is the electricity going to come from. Hydrogen? Takes electricity to split it from water.

We should be focusing on what we are going to do in the near future when the oil is gone rather than trying to wring another few years more out of a finite resource. Possibly nothing short of redesigning our cities and entire transportation infrastructure will be enough.

There will be other fuels of some sort used for transportation when the oil runs out. They will quite likely be far more expensive. After all oil is mined.
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Old 12-16-2007, 01:01 PM   #3
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You are absolutely right. It's obvious. Unfortunately the uneducated masses won't understand your approach. The CAFE standards make the problem worse but it makes the politicians seem to be doing something as opposed to raising unpopular taxes.
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Old 12-16-2007, 04:53 PM   #4
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Of course we will never "run out of oil." It will get more and more expensive as the available oil becomes harder to extract. Conversely, the higher prices will make more oil available (but only at that higher price). Other alternatives will become cheaper than oil, so oil will be conserved (and used for those purposes it is uniquely suited. Powering cars--probably not at $300 per barrel. Powering airplanes? Probably still makes sense, but fewer people will be able to afford to fly).

ERD, I agree with you on the CAFE standards, but this is a political thing, not a rational one. Putting an extra tax on gasoline (probably better to say "motor fuels" so that diesel fuel doesn't get an artificial advantage) makes more sense. Also, I would like to keep competition in the market, which would be negated by a mandatory "floor price," but not by an additive tax. Publishing the increasing rate in advance would be a powerful push to get people into smaller cars. We should be aware, however, that this tax will also drive up the cost of nearly everything manufactured in the US, so our goods will be less competitive overseas and retail prices will go up.

The free markets are a wonderful thing, but they aren't perfect. Use of petroleum fuels imposes an unpaid cost on all of us (air pollution, national dependence on unstable despotic regimes with resulting costs, possibility that CO2 greenhouse gas emissions might be adversely impacting the environment, etc). So, artificially imposing a tax helps to simulate the impact of some of these costs so that users pay something closer to the costs of their behavior. The slippery slope is that the same case could be made for lots of other things, and I'd prefer to keep the gummint away from picking winners and losers. (Does anybody want a tax on fatty foods, salt, or sugar?) All-in-all, a higher excise tax on motor fuels makes sense, particularly as part of an international agreement (so that no nation gets a competitive advantage by not imposing it). Good luck, though, with getting a dollar-for-dollar reduction in other taxes.
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Old 12-16-2007, 04:59 PM   #5
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Hmm, well it seems that regardless of the cost of gas, people will buy the biggest honking gas guzzler they can find and drive it around town.

Before the original CAFE standards were put in place, all the US companies made were big iron gas guzzlers. The CAFE standards went in and gas mileage improved. When the mileage wasnt raised for many years, neither did the average gas mileage of the vehicles made.

So its obvious: people are uninterested in reducing oil consumption and dont care how much gas costs, at least up to a point...and the car makers will make exactly what their consumers want: big gas guzzlers.

I'm hardly a fan of government programs or intervention, but when long term mass hysteria sets in and wont resolve itself, somebody's gotta do somethin...
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Old 12-16-2007, 05:28 PM   #6
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some interesting stuff here:

Reducing Gasoline Consumption: Three Policy Options

They say a well designed CAFE system is more predictable, but less flexible and less efficient than a tax:

Quote:
...an increase in the gasoline tax could be modified over time to achieve a desired reduction target. Furthermore, any given decrease in consumption could be made at a lower cost through the gasoline tax than through CAFE standards (as discussed in the previous section).
I always try to put in a caveat like, '*if* we want the govt to regulate consumption', when I talk about this. As samclem points out, even something as simple as a tax on fuel has unintended consequences. So, while the mass hysteria that CFB mentions may come about - sometimes I wonder if it's not best to just let that play out.

Gas Guzzler taxes and high mpg cars do tend to reinforce the idea that 'I paid my dues, now I can drive as I wish'. Getting hit at the gas pump every time you fill up changes that. I think higher fuel prices would impact buying decisions much more if people knew they were 'permanent'.

I read Freakonomics recently. He gave the example of a Day Care that wanted to motivate parents to pick their kids up on time, the center had to keep paying staff overtime, and it was just disruptive. So they set a fine for late pickups - and late pickups *increased*! Parents figured it was a decent tradeoff of their time sometimes, and it also removed the 'guilt' of being late.

-ERD50
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Old 12-16-2007, 07:44 PM   #7
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People dont care about the price of gas. They adjust.

A year and a half ago a survey showed that local drivers felt they would significantly curtail their driving if gas went and stayed over $3 a gallon.

A recent survey showed that people dont really care about the >$3.00/gallon gas. They'll just pay up.

I'll bet its the same at $4 and $5.

The manufacturers have sung the same mantra "We're going to make what people want to buy...big cars and SUV's!"
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Old 12-16-2007, 09:03 PM   #8
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If that is true (I think it is only very selectively true), then CAFE standards will have no effect either.

The car companies are not going to stop producing low mpg cars, because there is a need for some of those. If the fleet average is too low, they either adjust prices so that people buy more higher mpg cars and bring up the average, or they pay fines. It's just money - no one can 'force' a customer to buy a specific car.

If fuel is no longer subject to the laws of supply/demand, I fail to see why cars would be either?

I think one reason that they adjust as much as they do, is that when adjusted for inflation, fuel isn't all that expensive (not intending to start a CPI war again).

-ERD50
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Old 12-16-2007, 09:29 PM   #9
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Just found the info on the fines - this is definetly something that could just be buried in the 'cost of doing business':

CAFE | National Highway Traffic Safety Administration(NHTSA) | U.S. Department of Transportation
Quote:
6. What is the penalty for noncompliance for a given MY and how is it calculated? The current penalty for failing to meet CAFE standards is $5.50 per tenth of a MPG under the target value times the total volume of those vehicles in the affected fleet,
So even 5mpg average below the standard adds $275 to the cost of their cars - if they distribute that to the cost of the low mpg cars, people just pay $550 more for a 'guzzler'. A couple months of gas at $3. Less than the cost of the upgraded stereo, or heated rear seats.

Looking at those conformance rules on that page is reminding me of the crazy tax code. Why do something so complex, with 'loopholes' and only an indirect benefit, when a simple sales tax gets to the heart of the matter?

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Old 12-16-2007, 10:00 PM   #10
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Originally Posted by ERD50 View Post
Why do something so complex, with 'loopholes' and only an indirect benefit, when a simple sales tax gets to the heart of the matter?
-ERD50
Because this way they can be seen to be "punishing" the "evil automakers" while a gas tax is seen as punishing consumers. Yes, as you point out the consumers pay either way, and it doesn't get to the heart of the problem, but it is what will gain votes in this election year.

The selfish advantage for me: I might save a few hundred on the next econobox I buy. Remember that there's no dollar-weighting to the formula, so a $10K stripped-down econobox getting 15 MPG over the designated CAFE standard offsets three $50K Bloatmaster DeLuxes getting 5 MPG under the standard. Hopefully they'll set a low price on the high mileage cars.
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Old 12-16-2007, 11:07 PM   #11
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Yeah...the last two posts are right on. CAFE is just a consumption tax at the mfr level rather than the pump. CAFE is a good thing overall, its just not what it is portrayed to be. Consumers will buy whatever thay can afford and pay the guzzler tax if necessary. It is helpful to competition, but most consumers probably don't know what thier fuel economy is anyway and won't slow down or use other simple conservation measures.
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Old 12-16-2007, 11:41 PM   #12
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Originally Posted by ERD50 View Post
C) If there was demand for higher mpg cars, the manufacturers would fill the demand - why should the government be a 'marketing arm' of our auto manufacturers?
I disagree with the above statement. Haven't you noticed how many people are buying the hybrid automobiles? The problem with those however is that they're overpriced for what you get and it doesn't make good economic sense to pay thousands more than a non-hybrid car and the payback takes years. But if the car manufacturers actually came out with an affordable vehicle that was comparably priced to non-hybrid vehicles that got 50+ mpg's, the manufacturers couldn't keep them in stock. How would they produce non-hybrid vehicles that got that kind of mileage? By putting smaller engines in cars. People in the US in the past have always tried to get the most horsepower for the buck, but they're are now starting to look at the most gas mileage for the buck. Unfortunately the manufacturers aren't providing that yet. And the main reason in my opinion is that their profit margin isn't as high on those higher mileage vehicles...afterall, how can they charge MORE for a smaller engine? They can't. So how do you get them to offer these vehicles with smaller engines....well, you force them to with higher CAFE standards. I for one would gladly buy a car with a smaller engine since I don't need to drive away from a stoplight in a zero to 60 time of 7 seconds....11 or 12 seconds is just fine with me. Since I'm almost retired, I'm not in THAT much of a hurry anymore.
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Old 12-17-2007, 07:50 AM   #13
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C) If there was demand for higher mpg cars, the manufacturers would fill the demand - why should the government be a 'marketing arm' of our auto manufacturers?

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I disagree with the above statement. Haven't you noticed how many people are buying the hybrid automobiles?
How many? 1 or 2% maybe? Some of those are doing it for the reduced pollution (a good thing), or for the 'badge' - mpg is secondary.

Quote:
But if the car manufacturers actually came out with an affordable vehicle that was comparably priced to non-hybrid vehicles that got 50+ mpg's, the manufacturers couldn't keep them in stock.
How are sales on Chevy Metros doing? Just glancing at the 2000 list, the big three took half of the 'best in class' fuel economy awards. That Metro was 'best in class' for subcompacts in 2000. Did people want them?

http://www.fueleconomy.gov/feg/FEG2000_Part2.pdf


Quote:
Unfortunately the manufacturers aren't providing that yet. And the main reason in my opinion is that their profit margin isn't as high on those higher mileage vehicles...afterall, how can they charge MORE for a smaller engine?
I thought you said people wanted these small cars? If so, the companies could get a decent profit margin. People would be willing to pay. Are we suspending supply/demand again?

Quote:
They can't. So how do you get them to offer these vehicles with smaller engines....well, you force them to with higher CAFE standards. I for one would gladly buy a car with a smaller engine
Then buy a car with a small engine. We don't need a law - you are willing to do that on your own.

My original point was that *if* we want the govt to encourage conservation, do it with a sales tax on gas - then people will demand higher mpg cars (along with all the other conservation measures) - CAFE standards are too indirect, too many loopholes, and do not really encourage the right behaviors.

-ERD50
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Old 12-17-2007, 08:53 AM   #14
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Originally Posted by ERD50 View Post
C) If there was demand for higher mpg cars, the manufacturers would fill the demand - why should the government be a 'marketing arm' of our auto manufacturers?


The auto manufacturer's CREATE the demand for their poroduct, NOT the other way around........


Quote:
How are sales on Chevy Metros doing? Just glancing at the 2000 list, the big three took half of the 'best in class' fuel economy awards. That Metro was 'best in class' for subcompacts in 2000. Did people want them?
Well, for one, the car is a POS. I'd take a Corolla anyday.............

Quote:
I thought you said people wanted these small cars? If so, the companies could get a decent profit margin. People would be willing to pay. Are we suspending supply/demand again?
Whether gas is $2,$3, $4, or more is immaterial to some extent. UPS, FedEx, and all the trucking companies aren't going to reduce their consumption of gas, they can't. The consumer can lower overall demand but not make a HUGE difference, IMHO.......

Quote:
My original point was that *if* we want the govt to encourage conservation, do it with a sales tax on gas - then people will demand higher mpg cars (along with all the other conservation measures) - CAFE standards are too indirect, too many loopholes, and do not really encourage the right behaviors.-ERD50
I thought we had a gas guzzler or luxury car tax? I would buy a hybrid if I could offset the extra money they demand for the technology by a tax credit.........
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Old 12-17-2007, 09:11 AM   #15
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Originally Posted by FinanceDude View Post
[/i]

The auto manufacturer's CREATE the demand for their poroduct, NOT the other way around........


you will need to explain the winky before I comment on that - it can be taken a few different ways.

Quote:
Well, for one, the car is a POS. I'd take a Corolla anyday.............
Which proves my point - the Metro was higher mpg than the Corolla - and people reject the Metro for the Corolla. If the Corolla was so great, and it is just so 'easy' to make high mpg cars, then how come the Corolla didn't get the mpg of the Metro?

The Metro got better city mpg than the Corolla did highway mpg.

2000 metro - 39/46
200 Corolla 31/38



Quote:
Whether gas is $2,$3, $4, or more is immaterial to some extent. UPS, FedEx, and all the trucking companies aren't going to reduce their consumption of gas, they can't.
Yes they can. They invest tons of money in trip planning, and they all have hybrid pilot programs. Hybrids make the most sense for high annual mile, stop-go vehicles - they make a lot less sense for people that go from other high mpg vehicles and drive few miles per year.


Quote:
I thought we had a gas guzzler or luxury car tax? I would buy a hybrid if I could offset the extra money they demand for the technology by a tax credit.........
I covered this before, but I think a tax credit for consumer hybrids is stupid, stupid, stupid. So the govt 'buys' the motor, batteries and controller, and then that 'investment' sits idle 23 hours a day - there just is not enough payback.

If we want the govt to subsidize hybrids, let them subsidze them for taxis, busses, Fed Ex, UPS, USPS - all those high annual mile, stop-go vehicles. The dollars will at least be getting utilized, and ultimately saving more GALLONS of fuel.

Don't confuse a 50% increase in mpg with saving 50% more fuel.

-ERD50
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Old 12-17-2007, 09:16 AM   #16
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[/i]you will need to explain the winky before I comment on that - it can be taken a few different ways.
If I am Chevy, and I want to sell a bunch of gas guzzling pickup trucks, I spend $100 million in a nationwide ad blitz, and voila! I sell a bunch of trucks.

Bottom line, consumer demand does dictate SOME changes in how car makers respond. But, car makers for the most part TELL consumers what to buy with their ads. They appeal to people's greed, need for status,etc. Funny, I never felt that a car was status, but that's the way it is sold to the consumer.......

Remember "what's good for GM is good for the USA"



Quote:
Which proves my point - the Metro was higher mpg than the Corolla - and people reject the Metro for the Corolla. If the Corolla was so great, and it is just so 'easy' to make high mpg cars, then how come the Corolla didn't get the mpg of the Metro?

The Metro got better city mpg than the Corolla did highway mpg.

2000 metro - 39/46
200 Corolla 31/38
Have you ever been in a Metro? It's only 5% nicer than a Ford Festiva. A Corolla is a bigger car with MUCH better reliability. I'm sure if the Toyota engineers shaved 700 pound off the Prius, it would get better MPG, but then there's the safety factor..........
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Old 12-17-2007, 09:30 AM   #17
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Two things:

In addition to the cost of gas, the jump in the cost of gas is important. That is, a gradual increase isn't effective as a sudden jump (frog in pot, blah blah).

Do the car manufacturers really need 13 years to prepare for the new standards? I realize that retooling and design takes time, but 13 years is a long time. Think about what you were doing in 1994. Some of the change can be accomplished by simply eliminating a biggest guzzlers.
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Old 12-17-2007, 09:46 AM   #18
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If I am Chevy, and I want to sell a bunch of gas guzzling pickup trucks, I spend $100 million in a nationwide ad blitz, and voila! I sell a bunch of trucks.
You overestimate the power of advertising. If it were that easy, Ford and GM would be sitting pretty right now. Just run another ad!

Chevy doesn't 'want' to sell gas guzzlers - they want to sell what they can make a profit on. People need to be willing to buy those Metros at a good profit margin if Chevy is going to make them.

Now, if a company misjudges the market, and has excess inventory, then yes, they will run ads and promotions to try to move it. Happens in every business.

Hmmm, I wonder why I'm not driving a gas guzzler - I've seen the ads?


Quote:
Have you ever been in a Metro? It's only 5% nicer than a Ford Festiva. A Corolla is a bigger car with MUCH better reliability. I'm sure if the Toyota engineers shaved 700 pound off the Prius, it would get better MPG, but then there's the safety factor..........
You keep making my point for me. Producing a high mpg car is not as simple as 'build it and they will come'. There are trade-offs (esp in the US with a lot of highways and distance between towns), and not many people find the trade-offs attractive.

If fuels cost more, the balance on those trade-offs would shift.


Here is what I would LOVE to see: some greenies put their money where their mouth is. How about Greenpeace starts a car company? Hey, it is so freaking easy to just make a high mpg 'green' car that people would just love to buy, I think they should get in the business. Why wait for GM or Ford? Take action! Heck, they would have a great advantage, there are many people that would love to buy a car with the Greenpeace emblem on it. Actors would fall over each other to be seen driving aroundd in their new 'GP-mobile'. Let's see how they do after the first 'early adopters' get their cars. Oh, and would Greenpeace need to picket and destroy their own plant for the environmental damage that comes with manufacturing anything? That would be interesting.

-ERD50
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Old 12-17-2007, 10:16 AM   #19
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You overestimate the power of advertising. If it were that easy, Ford and GM would be sitting pretty right now. Just run another ad!
And you underestimate it. While I agree that it isn't 100% marketing, marketing certainly can drive sales.

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Here is what I would LOVE to see: some greenies put their money where their mouth is. How about Greenpeace starts a car company?
-ERD50
I agree with you completely. See Tesla Motors
You can also find more of them in Europe than the USA. Th!nk may be another but I am not familiar enough with the company to say one way or the other (www.think.no).
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Old 12-17-2007, 10:17 AM   #20
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You overestimate the power of advertising. If it were that easy, Ford and GM would be sitting pretty right now. Just run another ad!
It accounts for a lot of their sales, but Chevys, Fords, and others have put money in advertising rather than quality control for a lot of years, and it's coming to roost........ Is there really anyone left that thinks GM, Ford, or Chrysler has better quality than Toyota, Honda, or Nissan?

Quote:
Chevy doesn't 'want' to sell gas guzzlers - they want to sell what they can make a profit on. People need to be willing to buy those Metros at a good profit margin if Chevy is going to make them.
GM LOSES money on every small car they make, where as Honda and Toyota MAKE money on every small car they sell. So, GM is forced to sell Suburbans and pickups where they can MAKE money, it's a no-win cycle. The main reason is the HUGE unfunded pension liability and lifetime health insurance costs that GM has to swallow that Honds and Toyota do not. It seems GM has started to address those issues, but it might be too late.

I for one do NOT think people are going to be rushing to their local Chevy dealer to trade in their 3 year old Accord on a 2008 Malibu..........

Quote:
Hmmm, I wonder why I'm not driving a gas guzzler - I've seen the ads?
Because you and I "think differently" than the average American........

Quote:
You keep making my point for me. Producing a high mpg car is not as simple as 'build it and they will come'. There are trade-offs (esp in the US with a lot of highways and distance between towns), and not many people find the trade-offs attractive.
I'll rephrase my question: If a 2008 Suburban got 30 mpg on the highway and 30 mpg in the city, how many people would own one? They sell a TON of them without such high MPG, they could very well sell more with the higher MPG..........

A real difference could be made if we could find a way to DOUBLE the MPG of all those semis hauling freight. One of my clients runs a trucking business, and she told me they consider 7 mpg very good for a loaded semi on a long haul.............
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