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GM, Toyota And Fiat Chrysler Oppose Restrictions On Consumer Vehicle Choice

Jun. 03, 2020 3:53 PM ETSTLA, GM, TM8 Comments
Anton Wahlman profile picture
Anton Wahlman


  • At the forefront of automaker economics is the battle of what, if any, U.S. federal fuel economy fleet-average standards should be.
  • Ford, General Motors and Toyota are lobbying in Washington to keep the annual increase in the MPG average to 1.5%, compared to 5.0%, which is the prevailing number.
  • The problem is that increasing MPG averages means more expensive cars. Estimates range from $2,000 per car to almost $4,000, depending on the objects of comparison.
  • If automakers see such forced price increases, we could see a reduction in U.S. sales volumes by 10% or more.  That would be catastrophic to them, consumers and suppliers.
  • Shareholders had better not get hit by the higher requirements, such as a 5% annual increase in fleet average. Industry valuations would be bound to go down.
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NOTE: A version of this article was first published on or about June 3, 2020, on my Seeking Alpha Marketplace site.

Seeking Alpha pointed to an update in the battle of U.S. federal laws pertaining to average fuel economy numbers for light vehicles: Auto group backs Trump in effort to weaken fuel efficiency rules.

Here's the background to what happened: In December 2016, after the November 2016 election but before the change in administration that was to take place in January 2017, the EPA decided to compel automakers to sell a mix of vehicles that would have to average 5% higher MPG (miles per gallon) every year until 2026: Here.

By forcing an MPG-average standard, the government puts the burden on the automakers to sell a certain mix of vehicles. If that prescribed average MPG for the overall fleet is different than what the consumers would have purchased in a free market, then automakers have a problem: They would have to lower the prices of the high-MPG vehicles, and pay for that lower (or nonexistent) profit on those high-MPG vehicles by raising the prices of the low-MPG vehicles. The net result would be a dead-weight loss, in Economics 101 terms: A loss for the seller, and a loss for the consumers as a whole.

Consumers are capable of deciding how to spend their money on a vehicle. As with all sorts of other capital investments, you have a choice of spending more up front (an investment) in exchange for lower operational expense. It's a familiar choice in your home as well: You can spend more for a more efficient furnace or wall/door/window isolation, and reap the benefits in the form of lower energy bills in the years that follow. You then calculate whether the investment is worth it, based on the annual savings and other factors.

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This article was written by

Anton Wahlman profile picture
I am a former sell-side analyst -- UBS 1996-2002, Needham 2002-2006 and ThinkEquity 2006-2008. These days I review automobiles and other technology products, as well as analyze the automotive and technology industries, and coming up with long/short ideas. I also continue to write (less frequently) on macroeconomics and politics.

Analyst’s Disclosure: I am/we are short TSLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

At the time of submitting this article for publication, the author was short TSLA. However, positions can change at any time. The author regularly attends press conferences, new vehicle launches and equivalent, hosted by most major automakers.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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