Expert Commentary

Automobiles on steroids: Trade-offs and technological progress in the automobile sector

2012 study by MIT on the technological progress in automobiles since 1980 and the trade-offs between fuel economy, weight and power.

Recent history has been extraordinarily difficult for U.S. and foreign car makers, as they’ve been hit by everything from the deepest economic downturn since the Great Depression to a tsunami in Japan. In response to consumer concerns about operating costs, the 2012 Detroit Auto show featured many models with higher gas mileage, but there was also plenty of choice for those still in the market for bigger and more powerful vehicles.

A 2012 study from the Massachusetts Institute of Technology published in the American Economic Review, “Automobiles on Steroids: Product Attribute Trade-Offs and Technological Progress in the Automobile Sector,” examined changes in automotive technology since 1980 and the balance between fuel economy, weight and power. The research was based on data from the National Highway Transportation Safety Administration, car manufacturers and industry journals.

The study’s findings include:

  • Between 1980 and 2006, the average gas mileage of vehicles sold in the United States increased by just over 15%. During the same period, curb weight increased 26% and horsepower more than doubled.
  • Had weight and horsepower been kept constant, the fuel economy average would have increased from 23 miles per gallon in 1980 to roughly 37 mpg in 2006, a gain of more than 61%. Instead, the current average is approximately 27 mpg. “Most of that technological progress has gone into [compensating for] weight and horsepower.”
  • The most fuel-efficient car identified during the study period was the 2000 Honda Insight, which averaged 70 mpg on the highway and 61 in the city. The fuel efficiency of subsequent models dropped as the car grew significantly larger and more powerful.
  • Gains in fleet-wide mileage were limited by Americans choosing larger, less efficient vehicles. In 1980 light trucks and SUVs represented approximately 20% of U.S. passenger vehicles sales. By 2004, the market share increased to 51%. This was in part a direct consequence of gas prices, which dropped 30% in real terms between 1980 and 2004.
  • Automakers could meet the new Corporate Average Fuel Economy (CAFE) standards — a fleet-wide average of 35.5 mpg by 2016 and 54.5 mpg by 2025 — simply by maintaining the rate of technological innovation experienced since 1980 while reducing the weight and horsepower of the average vehicle sold by 25%.
  • If cars were returned to the average weight and power in 1980 and current trends toward greater fuel efficiency continued, by 2020 the fleet-wide average would be 52 mpg.

The researcher suggests that the best approach to improving automotive efficiency is through gas taxes. “Firms are going to give consumers what they want, and if gas prices are low, consumers are going to want big, fast cars,” the researcher says. While CAFE standards can help, they can also have unintended consequences: “If you force people to buy more fuel-efficient cars through CAFE standards, you actually get what’s called ‘rebound,’ and they drive more than they would have,” something that would be less pronounced with a gas tax.

Tags: cars, technology, fossil fuels, consumer affairs

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