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He's learned his lesson about risky loans, but Obama wants to increase research grants

The auto industry isn't very happy with the federal government.  After two decades of inaction on the fuel economy, President George W. Bush (R) and his successor, current President Barack H. Obama (D) have pushed legislation through Congress to stiffen fuel economy rules.  Those rules have cost the industry billions.  But both Presidents tried to make up with automakers by pushing federal funding initiatives that help automakers with the cost of fuel economy research, on the taxpayer dollar.

I. After a Decade and a Half Stall, Bush Kick-Started MPG Progress

A debate of economics aside, the approach seems to be working.  In a report to be released today, the U.S. Environmental Protection Agency (EPA) is expected to announce that between 2007 and 2012 fuel economy rose 16 percent, while carbon dioxide emission decreased by 13 percent.

In a report last year called "One Decade of Innovation, Two Decades of Inaction", the Pew Institute points out that there was essentially no gain in fuel economy between 1985 and 2000, despite rising oil prices in the late 1990s.  The agency says that this was the result of so-called "Reagonomics", writing:

In the mid-1980s, however, Ford and General Motors lobbied the Reagan administration to lower the standard. NHTSA complied, setting a 26-mpg standard for 1986, prompting Chrysler Chairman Lee Iacocca to declare, “We are about to put up a tombstone: ‘Here lies America’s energy policy.’ ”

(Note: 26 mpg was actually a drop from the 1985 standard of 27.5 mpg for cars.)

Reagan v. Bush
This chart speaks for itself. [Image Source: Pew Institute; AP, White House]

But it was another Republican President -- George W. Bush -- who reversed that stall.  In his 2006 State of the Union speech he turned heads, commenting:
This Congress must act to encourage conservation, promote technology, build infrastructure.... so America is less dependent on foreign oil.

He would go on to sign into law the Energy Independence and Security Act of 2007 (EISA).  The EISA would bump fuel economy standards to 35 mpg by 2020.

EISA prompted automakers to invest in new fuel efficiency technology, such as direct injection/turbo-boosting engine technology.  At the same time, automakers were forced to discontinue some "gas guzzling" models to boost their average fuel economy.

II. Obama Follows up With Stricter Standards, but New Incentives

But for all the moaning and groaning among automakers with EISA, it was about to even stricter with President Obama.  President Obama struck down a Bush-era mandate that forbid states from enacting their own stricter standards, paving the way for some states like California to set much loftier targets.

The new President also rolled back the deadline for reaching 34.1 mpg to 2016 in a 2010 CAFE update.  Those updates are expected to cost the auto industry $52B USD to implement, while potentially raising vehicle prices slightly and limiting selection to an extent.

President Obama's "test drive" of a Chevrolet Volt back in 2010. [Image Source: AP]

President Obama has also proposed rules that would set a CAFE target of 54.5 mpg by 2025.  Automakers are upset about the proposal, which the National Highway Traffic Safety Administration (NHTSA) estimates will cost them $144-152B USD.

The EPA and NHTSA claim that the 2017-2025 push to 54.5 mpg will save $1.7T USD in fuel costs (although the price impact on vehicles is not mentioned; one report suggest vehicle prices may rise $10K USD by 2025).  They say that by 2025, America will have reduced its oil consumption by 2 million barrels per day.  They add that by cutting 2 billion metric tons of carbon dioxide emissions over the same period society will have "saved" $326-451B USD (operating on the controversial "carbon credits" model).

Some fear the new fuel economy standards may cost lives, as automakers often reduce frame integrity during weight cutting, and also tend to cut out features like extra airbags.  Automakers are at least relieved that the President backed of an earlier stricter target of 62 mpg, which they argued could "kill the auto industry".

III. Speech to Call for $2B USD in Research Grants

At a speech at Argonne National Laboratory, a top federally funded research institution in the President's home state, President Obama is today set to unveil a proposal to toss a carrot to the auto-industry, which has at times been less than happy with him.

The video below will go live at 2:30 p.m., along with a corresponding live chat on Facebook.

Located approximately 30 minutes west of Chicago, ANL conducts a great deal of battery, fuel cell, and biofuel research -- a seemingly appropriate setting for the President to unveil a new fuel efficiency proposal at.  Under the President's requested proposal for Congress "[$2B USD in] funds would be set aside from royalty revenues generated by oil and gas development in federal waters of the Outer Continental Shelf."

The proposed $2B USD trust may in reality see a far smaller funding total, particularly amid the rancorous federal budget debates.  In 2012 President Obama asked Congress for $650M USD for advanced vehicle research, but Congress only offfered up $330M USD.

Argonne National Lab
President Obama's call for vehicle research funding will be held at
Argonne National Lab. in Illinois. [Image Source: ANL]

While hybrids have sold well in recent years, EV sales have disappointed, even as automakers put their marketing might behind the green, yet expensive cars.  Critics say that it's good Congress isn't giving more funding, in that the technology appears to be failing.  Proponents, conversely argue that the lack of funding is slowing development, which in turns increases EV costs and reduces their performance.

But critics are at least relieved that the President has turned away from providing loans to individual automakers or alternative energy startups.  After the boondoggle of Solyndra LLC going under and taking $553M USD in federal loans with it, President Obama has carefully shifted funding requests towards research.  No loans have been granted in the last two years from a $25B USD fund Congress set aside for vehicle research.

The Obama Administration's energy policy is in the midst of an overhaul amid the departure of U.S. Department of Energy Secretary Steven Chu, a Nobel Prize winner.

IV. CNG Tax Credit Proposal Revived

Also on the President agenda Friday will be plugging natural gas for vehicles.  Compressed natural gas (CNG).  The U.S. produced 25.3 trillion cubic feet (25.3e12) of natural gas last year, according to the U.S. Energy Information Administration.  Low costs and domestic production make this fossil fuel an attractive alternative to petroleum; the President thinks it could play a small, yet important role in the automotive market.

The President wants a tax credit for CNG and EV truck buyers equal to half the incremental costs (50% of the premium over a similar model gas vehicle).

CNG Ford Truck
President Obama wants tax credits for CNG truck buyers. [Image Source: Truck Trend]

It appears the President has dropped a separate proposal dubbed "National Community Deployment Challenge", which called for $1B USD to fund 10-15 "green" EV-friendly communities (paying for public chargers, etc.).

To contrast these funding initiatives with past government transportation funding, recent reports estimated that the government has spent around $1T USD to date to develop the commercial airport system.

And not all EV firms have proven disappointments.  Tesla Motors Comp. (TSLA) recently announced a plan to repay its government loans early, amid strong sales.

Source: The Detroit News

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RE: Taxpayers money
By JediJeb on 3/16/2013 11:23:35 AM , Rating: 2
While these are all good ideas to reduce fuel consumption not everyone can afford them if introduced.

You list some very nice vehicles, but for someone like me who currently would be stretched financially to purchase a vehicle costing $25,000 it would be difficult to afford the more expensive fuel or to purchase a more expensive fuel efficient vehicle. I calculated with the amount of miles I drive per year that to replace my truck with a vehicle getting 40mpg and pay for it with fuel savings I need to find one that I can make monthly payments of about $100-$120. There are not many cars that get 40mpg that are so cheap.

The current problem especially here in the US is do you purchase an expensive vehicle with better economy, or purchase an inexpensive vehicle with lower economy. Europe deals with this problem by simply making the lower economy vehicle more expensive through taxes and fees, but how does that help people who are struggling financially? It only works to improve the fuel consumption of the country without regard to the financial well being of the citizens.

For me currently saving fuel will cost me more than using more fuel. A friend from work is offering to sell me a 1985 Jeep Cherokee for $500 that needs a few repairs and that will increase my fuel economy from 17mpg to about 23mpg, not much but it is an improvement and can be done with little expense. For me to save money with fuel savings by purchasing a new EV like a Nissan Leaf, gasoline will need to cost about $35-$40 per gallon. When high efficiency vehicles can become less expensive then more people will choose them. I would like to be more efficient, but I just can't afford it yet.

RE: Taxpayers money
By michael67 on 3/16/13, Rating: 0
RE: Taxpayers money
By Reclaimer77 on 3/16/2013 1:40:06 PM , Rating: 2
But as there is a hole market for small cars here in Europe and most of the world, there is none in the the US, as you dont even can get the Aygo in the US.

Because our Government hasn't taxed bigger cars out of reach of the common person here. Yet, they're working on it.

Lets be clear, in Europe you drive smaller cars because you're forced to. Not because you necessarily choose to.

I have brother in Texas, ware i come every 2~3 years, and still every time, i come there, i am amazed how big the cars are compared to Europe.

Jealous :P

RE: Taxpayers money
By michael67 on 3/16/2013 4:24:40 PM , Rating: 1
Jealous :P

Yes, because i would love to drive my 6L V12 XJS and just get a hard on, just from the sound of it.

But at the same time also angry.

Why, because i actually know that we are running out of cheap oil, and prizes are only gone rise.

Next to that, in the next 20 years, the amount of cars are gone double, as people in Asia are also demanding to have cars to go around.

And the US is the big fat boy, that is eating all the cookies now, and not save any for the others.
And ware we all later have to pay more for the left over crumbs.

And also afraid that my grand kids will not be able to drive a car.

Putting your fingers in your ears and go lala real loud, dose not make the problem go away.

RE: Taxpayers money
By Reclaimer77 on 3/16/13, Rating: 0
RE: Taxpayers money
By michael67 on 3/16/2013 9:40:47 PM , Rating: 1
The realty distortion field is strong with this one.

RE: Taxpayers money
By Paj on 3/18/2013 9:44:23 AM , Rating: 1
Why does the common person need a massive car?

What is a common person by your definition anyway? Someone on the average US salary?

Lol at your depiction of Europe. You make it sound like a fascist state. You can still buy a massive cock replacement car if you want to, and many people do. They just have to pay more for the privilege.

People drive smaller cars in Europe because when presented with the choice between big cars and smaller cars, some choose smaller cars. This makes more economic sense for them, as smaller cars consume less fuel and are therefore cheaper to run.

RE: Taxpayers money
By CeriseCogburn on 3/18/13, Rating: 0
RE: Taxpayers money
By Paj on 3/19/2013 8:59:10 AM , Rating: 2
Lol, nice dig.

The modern internet is a consequence of parallel projects in many countries, and wouldn't exist today without the work of Louis Pouzin and CYCLADES (France) or Tim Berners Lee and the WWW (UK).

RE: Taxpayers money
By M'n'M on 3/19/2013 12:26:12 PM , Rating: 2
Why does the common person need a massive car?

Who defines massive ? I've always had 2 seat sports cars (until recently). To me all the other cars on the road are massive. But why is that, "who needs" even a consideration ? There's an implication (to me anyway) that somehow I'm supposed to live at some basic "need" level. That anything above a basic "need" somehow has to be justified.
People drive smaller cars in Europe because when presented with the choice between big cars and smaller cars, some choose smaller cars. This makes more economic sense for them, as smaller cars consume less fuel and are therefore cheaper to run.
The question is if gas (and in some countries engine size) were taxed there like it is here in the US, what would people there choose to drive ? If the answer to that question is larger cars (perhaps even the size of a BMW 3 series, gasp) then the Govt is arm-twisting people's choices.

RE: Taxpayers money
By JediJeb on 3/16/2013 2:46:18 PM , Rating: 1
And when you up the prices 10% a year, at the time you need one, you can get one secondhand.

But in that time I am paying more and more for my fuel. Paying more for my fuel in that time means it will take longer for me to afford the new vehicle.

I also wonder if an Aygo or Think City EV can get me 20 miles to work when there is 8 inches of snow on the road. Where I live it can be the next day before the road is cleared, sometimes even more. Also here I must drive 20 miles or more just to rent a car, and at those places they do not rent trucks. I can save money by renting a small fuel efficient car when I need to take a long trip, so what works for me is the opposite of what works for you in our respective situations. Current(somewhat affordable) EVs do not have the range needed for me to drive to visit my parents who live 120 miles away. Develop a EV that has 200 mile range and costs $25,000 and I would purchase it even without gasoline prices rising drastically. But will that EV last me as my current one has, which is 16 years with 235,000 miles? I hope to get at least 300,000 miles before I have to replace it, 500,000 would be even better. I want to drive a vehicle at least 5-10 years after the loan has been paid off, otherwise I consider the vehicle purchase as a bad investment.

I saw an interesting tidbit earlier today that stated that the CO2 emissions generated to produce the batteries needed for EVs is equal to driving a gasoline powered car for nearly 80,000 miles. This was from an environmentalist who wants such technologies but is disappointed by how little they are actually saving currently.

Also while I like the Tesla vehicles, I can not see paying more for a vehicle than I paid for my house :)

RE: Taxpayers money
By michael67 on 3/16/2013 6:53:24 PM , Rating: 1
I also wonder if an Aygo or Think City EV can get me 20 miles to work when there is 8 inches of snow on the road.

I worked in the town of Hammerfest, close to the border of the arctic circle.

And yeah properly a EV is not your first pick, but there are plenty of Aygo's and Yaris's driving there, and if you live a bit out, a 4x4 Suzuki Vitara would be a better pick.

But that is still a car everyone can afford.

At last a hell of a lot more affordable then a RAM what witch you ever look at it.

And yeah EV's are not a all round solution, but smaller and more efficient cars are, and if you cant get them in the US, you can always import them from Europe, friend of mine got a big classic Cadillac from the US transported in a container for $800, think you can do the same the other way around with any smaller car.

RE: Taxpayers money
By JediJeb on 3/17/2013 10:09:04 AM , Rating: 2
Those prices on the Ram are another reason I am not purchasing a new truck anytime soon.

It doesn't look very easy to import a car into the US that isn't already a model sold here.

That Suzuki was sold here as the GEO Tracker and I have been looking at those also, but seems here many value them as something to purchase cheap and modify heavily for offroad use and the prices have been going up. Reported fuel mileage for that model is between 23 and 30mpg. I have a friend wanting to sell me his 85 Jeep Cherokee for $500 and it only needs a new fuel line and his records show it was getting 25mpg and that will probably be my next vehicle purchase.

It goes back to the same problem here though, until the high fuel efficient vehicles are available very cheap on the used market, and cheap is in the less than $10,000 range, then the masses will not be moving to them. 50% of people in the US make less than $45,000 per year and 28% make less than $25,000 per year. These numbers are for households and it covers about 54 million households so that is about 100 million people. Paying more for a vehicle than a person makes per year in income is not easily done with all the other expenses that need to be paid. Now those are wages before taxes. For an example this year I made $43,000 and paid $10,151 in taxes(Federal, State, Social Security ect) so I had about $33,000 to live on this year. It returns us to the fact, that for 50% of people in the US, taxing fuel and less fuel efficient vehicles to make them purchase the higher fuel efficient vehicles is not something that is financially viable for most people.

As much as anyone I would like to see us reduce our fuel consumption, but until cheap fuel efficient vehicles are common I doubt it is going to happen. Another question nobody is addressing is how well are the current efficient vehicles going to hold up over the long haul(250K+ miles and 12+ years). Will the tiny turbo engines hold up as long as the larger non turbo ones? Will the electronics necessary for them hold up as long? Will EV and Hybrid batteries hold up that long, and if not what will be the cost to replace them? People who can afford to move to more fuel efficient technology can, but for the masses it isn't yet feasible.

RE: Taxpayers money
By michael67 on 3/17/2013 12:09:49 PM , Rating: 2
The reason i say 10% increase a year is because, if a buyer of a new car buys now a car, he knows that when he sells it, a efficient car will be worth more then a guzzler.

So over time, lets say 10 you can buy eider really cheap guzzler, or pay a little more for a efficient model.

If people know that, they can plan there purchase better, and more will opt to buy the smaller but more efficient car.

I personally also think its a good plan to let people that use up more resources, pay more tax, higher tax on oil products is a good way to do that.

as for how long the car will work, small cars here in the EU lest about as long as a big one, maybe a little less but depending how cheap the model is.

But a Audi A3 will lest about as long as a A6, 0% to max 10% less, but the TCO over its life time will be a lot lower then the A6.

"Nowadays, security guys break the Mac every single day. Every single day, they come out with a total exploit, your machine can be taken over totally. I dare anybody to do that once a month on the Windows machine." -- Bill Gates

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