If you're like me, the bluster and grandstanding associated with big congressional actions make you want to roll up the windows, crank up the radio, and tune out the whole circus. But the mammoth energy bill finally passed by Congress and signed by President Bush is something consumers should pay attention to. Among other things, the new law will directly affect the kinds of cars on the market in a few years—and what buyers pay for them. Some of the big changes that automakers and consumers will both have to contend with:
Surprisingly tough gas mileage standards. The requirement to raise corporate average fuel economy (the quaint-sounding "CAFE," in Beltway-speak) is an aggressive target that will force adjustments by automakers and consumers alike. Getting to a fleetwide average of 35 miles per gallon by 2020, from the current standard of 27.5 mpg, will require annual fuel-efficiency increases of about 3.3 percent. New technology and market competition always drive some gains in efficiency, but over the past couple of decades in the United States, it's amounted to less than 1.5 percent per year. Even in Europe and Japan, where gas costs more and cars get better mileage, annual gains have been 2 percent or less. Environmentalists are disheartened by other aspects of the energy law, such as its lack of support for renewable energy, but on gas mileage it has teeth. Our overall fuel economy numbers will still be lower than elsewhere, but the improvements will be dramatic.
More technology, sooner. One way to get better mileage is to build smaller engines—but in a market where buyers are used to performance, that's not going to win any new customers. So automakers will accelerate development of under-the-hood technologies that make engines more efficient and help improve mileage without a trade-off in performance. "This will unleash torrents of engineers all over the world," predicts one auto executive. Expect to see more hybrids, diesels, turbochargers, and other advanced gizmos that squeeze 1 or 2 additional horsepower from a gallon of gas. And get used to new automotive initials like CVT (continuously variable transmission), VVT (variable valve timing), and DOD (displacement on demand). One feature likely to become commonplace: The automatic start-stop technology—or "golf cart" effect—that's standard on hybrids. Shutting down the engine during stops and running accessories off a battery instead of the gas engine can boost mileage by 10 to 30 percent.
Bigger window stickers. Expect to pay more for that technology, too. People on all sides agree that meeting the new standards will make cars more expensive. But by how much? Estimates range from less than $1,000 per car (diehard environmentalists) to a catastrophic $6,000 or more (General Motors). Internally, many automakers anticipate price increases in the range of $2,000 to $2,500 per car by 2020, in today's dollars. Costs will be phased in gradually, beginning with model year 2011 cars (mostly introduced in 2010), so that will mitigate the sticker shock somewhat. And better gas mileage will offset the costs further. But the typical new-car buyer who purchases a fresh model every three to five years will still feel a pinch. If prices rise too much, one perverse outcome could be fewer new-car sales, with drivers holding on to older, less efficient cars longer.
More potential problems. Automakers prefer to roll out new technology gradually, by introducing it on one or two models, gauging consumer acceptance, making sure it works, and marketing it more broadly if it succeeds. But with greater pressure to improve gas mileage, manufacturers are likely to hurry technology onto the market with less real-world testing. That could cause unforeseen problems. Air bags were a genuine safety breakthrough in the '80s and '90s, for instance, but it took several years of real-world crash data for researchers to figure out that they could also be harmful to kids and small adults, and make modifications. Lab testing and computer simulations can help pinpoint many problems, but the broader and faster the rollout of unproven technology, the bigger the risk of unintended consequences.
An end to horsepower wars. A Hemi V-8 won't seem quite as appealing to mainstream buyers if it comes with a hefty price premium, which is probably what will happen. Automakers will effectively be penalized for building cars that get poor mileage (Jeep Grand Cherokee with 5.7-liter V-8 Hemi: 13 mpg/city), so they'll either have to charge a lot more to offset the added cost or they'll make fewer gas guzzlers. So expect fewer mass-market cars with a standard or optional V-8 and more four-cylinder engines in place of a V-6. Muscle cars won't go away, however, as long as there are enthusiasts willing to pay extra for them. And assuredly there will be, given that orders for the 425-horsepower Dodge Charger SRT8, which doesn't even arrive till next spring, have already driven the asking price from an MSRP of just under $40,000 up to nearly $60,000.
Fewer big SUVs, plenty of everything else. One scare tactic in the CAFE battle has been the automaker claim that Americans would all end up driving flimsy little econoboxes. Unlikely. One change that will probably happen is that GM, Ford, and Chrysler will build fewer big SUVs based on pickup truck frames, which are good for towing but heavy and inefficient. That's been happening anyway, as carlike crossovers such as the Toyota Highlander and GMC Acadia have become far more popular. But no other types of cars seem to be endangered, partly because automakers will each be assigned their own overall mileage target based on the mix of vehicles they already build: Manufacturers with a "heavy" mix, like the Detroit 3, will have to meet a lower standard, and those with a "lighter" mix, such as Honda, Volkswagen, and Nissan, will have to meet a higher standard. In other words, there will be incentives for automakers to keep building the kinds of cars they already produce—but to make them more efficient. Still, specific targets for each automaker and type of car won't be set until the spring of 2009, which means the circus isn't leaving town just yet. Turn up the volume.