{"id":483,"date":"2010-09-01T10:21:00","date_gmt":"2010-09-01T14:21:00","guid":{"rendered":"http:\/\/www.intuitiveinvestor.com\/web\/?p=483"},"modified":"2018-08-17T14:22:49","modified_gmt":"2018-08-17T18:22:49","slug":"finally-new-mpg-rules","status":"publish","type":"post","link":"https:\/\/jasonapollovoss.com\/web\/2010\/09\/01\/finally-new-mpg-rules\/","title":{"rendered":"Finally (!): new MPG rules"},"content":{"rendered":"

There for awhile I was starting to wonder if Barack Obama was going to live up to much of the promise of his Administration.\u00a0 Yes, I love the financial industry overhaul and feel that it was critical for the future economic health of the nation.\u00a0 But his healthcare obsession and Iraqi\/Afghan war efforts have been woeful in my opinion.\u00a0 Then came the news that…<\/span><\/p>\n

The Environmental Protection Agency and the Transportation Department have made the most far-reaching changes to how “miles per gallon” is calculated in almost 30 years.\u00a0 Specifically car sales companies must now afix a letter grade to the MPG of a vehcile.\u00a0 Under the new system this is how most cars will rate:<\/span><\/p>\n

A+ to A- : will only be awarded to electric cars and hybrid electric cars;<\/span><\/p>\n

Bs : will be awarded to compacts and mid-size cars;<\/span><\/p>\n

Cs : will be given out to SUVs and trucks.<\/span><\/p>\n

Analysis:<\/strong> Why is this important?\u00a0 The reason that it is important is that the current system of reporting MPG in absolute terms, such as “19 MPG highway” does not give the buyer of a car any sense of fuel efficiency relative to all other car models.\u00a0 Reporting MPG in absolute terms assumes that the consumer knows whether the number is good or bad relative to every other car.<\/span><\/p>\n

Predictably the car industry is upset by the new rules.\u00a0 C’mon!\u00a0 The new rules help consumers make a more informed choice when purchasing a vehicle.\u00a0 Not only are they more aware of the environmental impact of a new car purchase, but more selfishly, they now know more of the true operating costs of a car purchase.\u00a0 That is<\/em> important folks!\u00a0 The reason that car manufacturers are upset is because they make the fattest margins on cars that have poor MPG ratings – that is, on trucks and SUVs.\u00a0 Their fear is that this will have a negative effect on their car sales.\u00a0 My prediction is that the new ratings system will only affect sales in\u00a0a very, very minor way.\u00a0 Why?<\/span><\/p>\n

Most people purchase cars for every reason except MPG.\u00a0 Function is tremendously important.\u00a0 As is the look of the car.\u00a0 Reputation for reliability is also important.\u00a0 Etc.\u00a0 Very few people exclusively buy a car because of the MPG rating.\u00a0 If the new ratings cause a shift of the entire “demand curve” of the U.S. consumer to more fuel efficient cars then manufacturers will just have to shift which cars receive manufacturing priority.\u00a0 Margins will fatten when consumer demand fattens because manufacturers will remove the purchase incentives on the cars that sell the best.\u00a0 So, at worst, car manufacturers would see a temporary dip in their profits.\u00a0 Meanwhile the long-term benefits are:<\/span><\/p>\n