Business

Fuel efficient or market efficient?

By Megan McArdle

One thing is clear about the bailout:  congress intends to use it to push GM et. al. into manufacturing more fuel efficient cars.  This means cars that are either a) smaller, b) more expensive, or both.

When gas prices were high, a lot of people blamed Detroit's troubles on the fact that they hadn't learned to make awesome small cars.  But Toyota isn't so successful in the US because of the Yaris and the Corolla; its core business, like Honda's, is American-sized sedans, station wagons, luxury cars, and so on.  The Japanese and Germans have not, it's true, been as successful as Detroit in the SUV and Minivan markets, though Toyota has a sizeable truck business, and Honda makes some fairly successful minivans.  But they're not making their money on gas-sipping hybrids and compacts, either.  They, like Detroit, are making their money by selling cars that will need a pretty big refit to pass the new CAFE standards.  The top selling cars in the US last January (midway through the price spike in oil, before the financial crisis):

1. Toyota Camry: 31,601
2. Honda Accord: 23,957
3. Nissan Altima: 21,635
4. Honda Civic: 20,993
5. Toyota Corolla: 20,736
6. Chevrolet Impala: 17,544
7. Chevrolet Cobalt: 17,310
8. Chevrolet Malibu: 14,105
9. Pontiac G6: 13,942
10. Ford Focus: 11,600

The Impala gets about the same MPG as the Camry, the Accord, and the Altima--actually, slightly better (32 rather than 31 highway).

It is true that when gas prices rose, there was a temporary surge in the prices companies could charge for hybrids and small cars, but though I think that the memory of recent price spikes will offer some support to the smaller car market, I also think we'll see that market head back down along with oil prices.  In short, the small, fuel efficient car market is still not some sort of gold mine that the Big Three have stupidly overlooked.

The question is, when the desire to make the companies refocus on fuel efficiency conflicts with the desire to make them profitable, which way does the Car Czar go?  Because those goals are only reconcileable if oil prices shoot back up and stay there.