Auto Officials Worry About Profits Under New Rules Auto executives say they aren't sure whether consumers will actually want to buy the fuel-efficient cars President Obama wants manufacturers to build. They say whether they can succeed under the new fuel-efficiency standards hinges on the future price of gas.
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Auto Officials Worry About Profits Under New Rules

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Auto Officials Worry About Profits Under New Rules

Auto Officials Worry About Profits Under New Rules

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MELISSA BLOCK, host.

From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.

MICHELE NORRIS, host:

And I'm Michele Norris. Today, President Obama unveiled tougher fuel economy standards for cars and trucks. In the White House Rose Garden, he was upbeat about what this means for auto companies.

President BARACK OBAMA: This rule provides the clear certainty that will allow these companies to plan for a future in which they are building the cars of the 21st century.

NORRIS: And standing behind the president, auto executives. They've welcomed the new standards. But as NPR's Frank Langfitt reports, they worry whether fuel-efficient cars will sell.

FRANK LANGFITT: The image today at the White House Rose Garden was one of unity. The president stood with Republicans, fellow Democrats, and representatives from the car business.

Pres. OBAMA: We have 10 of the world's largest auto manufacturers.

LANGFITT: And publicly those car executives had nothing but nice things to say about the president's proposal. But privately, auto officials say the new standard, an average of about 35 miles to the gallon, creates big challenges to their businesses. And it hinges on the price of gas.

Mr. MARC CANNON (Executive, AutoNation): It's a very tricky situation.

LANGFITT: That's Marc Cannon. He's a top executive at AutoNation, the country's biggest car retailer. Cannon says consumers care about the environment, but they care even more about money. Unless the price of gas is consistently high, Cannon says there just isn't enough demand for the fuel-efficient cars President Obama wants manufacturers to build.

Mr. CANNON: This summer, gasoline was $4, and every single automaker was trying to put out fuel-efficient vehicles as fast as they could. And that's all anybody was talking about or buy. All of a sudden, come December, gasoline drops to $2, and nobody wants the fuel-efficient vehicles.

LANGFITT: Instead, they began to return to trucks and SUVs, which earned manufacturers a lot more money. Cannon says if gas prices keep bouncing around, companies will struggle to find a mix of vehicles that can turn a profit.

Mr. CANNON: I think it's going to whipsaw everybody back and forth.

LANGFITT: Auto analysts say the new fuel standard could put pressure on manufacturers in other ways. The White House says car companies will have to employ new technology that will add $1,300 to the cost of each vehicle. But American car companies have never done that well with small cars. Sean McAlinden is one of the nation's top auto economists. He says a company like GM has never been able to sell enough small cars at a high enough price to make much money.

Mr. SEAN MCALINDEN (Auto Economist): On average, they've lost about $1,000 a unit — fully accounted — for the last 25 years on every small car they tried to sell in the U.S. market.

LANGFITT: Auto executives say the solution to all this is a gas tax, but many analysts think that's a hard sell to the public. Eric Fedewa works for CSM Worldwide, a global auto forecasting company.

Mr. ERIC FEDEWA (CSM Worldwide): Any discussion of higher taxes is politically not viable.

LANGFITT: When the new fuel standards go into full effect in 2016, the government expects gas to be selling for about $3.50 a gallon. One reason why some auto executives aren't criticizing the new standard is because they want to stay on good terms with the White House.

Chrysler and General Motors are surviving on billions of dollars in taxpayer loans. In today's Detroit Free Press, columnist Tom Walsh put it bluntly. He said GM and Chrysler are, quote, under almost total federal control now, and must do whatever Uncle Sam says. At the end of today's address, President Obama made a personal pitch for fuel-efficient cars that underscored the new relationship between Washington and Detroit.

Pres. OBAMA: By the way, I just wanted to mention, I think I still have my Ford parked in Chicago.

(Soundbite of laughter)

Pres. OBAMA: Ford hybrid, runs great. You guys should take a look.

(Soundbite of laughter)

LANGFITT: Despite their concerns, auto executives say they will abide by the new standards and that over time, they expect gas prices will rise and they'll be able to make some money. One GM official said after months of working with the car companies, the White House now has an intimate understanding of the challenges automakers face - and having already sunk billions of dollars into Chrysler and GM, a vested interest in their survival.

Frank Langfitt, NPR News, Washington.

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