What Were Automakers Thinking?

Tuesday, June 28, 2011

In a public statement a couple weeks ago, automakers asserted their strong opposition to the Open Fuel Standard which you can read about here. The critical sentence in their opposition was: "The tri-fuel vehicle mandate proposed in H.R. 1687 will cost consumers more than a billion dollars per year to buy vehicles for which a limited supply of fuel would be available." It's a clever sentence, sounding like a lot of money on first reading.

It's a strange thing for them to say for a couple of reasons. First, right now consumers pay no sale price difference between flex fuel cars and gasoline only cars.

And even if it costs the industry (not the federal government) a billion dollars, the industry is so large that the difference is only $100 per car in a year with ten million cars sold (a rough average of American car sales).

$100 per car is 0.4% of $25,000, a common car price. The US imports 9 million barrels of oil per day, and the one billion dollar expense asserted by automakers is about one day's worth of US oil imports.

At recent methanol prices ($1.28 per gallon), adjusting for the lower energy density (2.01) of methanol (and assuming gasoline is selling at $3.05 per gallon), fueling the new ten million cars with methanol and driving them the national average of 15,000 miles per year, and assuming the 2011 CAFE standard of 27.3 mpg, the average consumer would save $257 per year, and the US fleet of cars would save ten million times that, or two and a half billion dollars in the first year.

That benefit, paying for the expense in less than six months, would continue for the life of the cars — about eighteen years.

And these numbers are all very conservative. Think of the long term impact and you'll see that this is additive: While the first year of change will add ten million cars with open fuel capability (resulting in two and a half billion dollars in savings), there will be another ten million cars the second year for a total of twenty million cars (resulting in a five billion dollar savings), and so on.

Assuming total fleet replacement (and say the entire US fleet is only 200 million cars) in 20 years, this would equal a fifty billion dollar a year savings to US consumers. On top of the above hard cost savings, there is immeasurable value in developing options for energy sources by removing monopolistic power from petroleum asset owners.

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