Saturday, September 8, 2012

The More You Pay, the More You Save

    Recently, the president touted new fuel efficiency standards for cars and light-duty trucks (to be achieved by 2025) with the following tweet:
    Let's set aside for now the increased cost of the vehicles resulting from the technological advances needed to achieve the increased fuel efficieny (up to $3,000 from some estimates I've seen) and accept the $8,000 savings at face value.  Average fuel efficiency of 2012 vehicles is 33.8 MPG.  The new standard beginning in 2025 is 54.5 MPG.  The consensus on the average life of a vehicle these days seems to be 200,000 miles.  Using these figures, a 2012 vehicle will use 5,917 gallons of gas in its lifetime.  If the new standards are met, a 2025 vehicle will use 3,670 gallons of gas in its lifetime, a reduction of 2,247 gallons.  A total savings of $8,000 means an average gas price of $3.56 per gallon which is actually a little low, but let's give it to the Obama administration because prices have certainly fluctuated recently.
    However, the price of gasoline when President Obama was inaugurated is no mystery.  It was $1.84/gallon.  At that price, the Obama administration would have been touting savings of $4,134 at the pump per car, not $8,000.  So it appears there was some benefit to the increased gas prices that President Obama's Energy Secretary Steven Chu was yearning for - an increase in "savings" of $3,866!
    And let's not forget what the President said in 2008 when gas prices were also close to $4 per gallon:
ARWOOD: So could these high prices help us? 
Sen. OBAMA: I think that I would have preferred a gradual adjustment. The fact that this is such a shock to American pocketbooks is not a good thing. But if we take some steps right now to help people make the adjustment, first of all by putting more money into their pockets, but also by encouraging the market to adapt to these new circumstances more quickly, particularly US automakers, then I think ultimately, we can come out of this stronger and have a more efficient energy policy than we do right now.
Since gas prices plunged later in 2008, the president got a chance for a do-over and throughout his presidency there has indeed been a more "gradual adjustment."  And no doubt this gradual adjustment back up to near $4/gallon was part of the reason US automakers were persuaded to go along with the new standards.  So regardless of what the Fact Checkers say Obama's true intentions were, things seem to have worked out according to plan.

See update to this post here.

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