Save Our Suburbans! How the Obama Administration is going to change what and how you drive

Visitors to Havana marvel at the American automobiles of the 1950’s that have survived five decades of revolutionary communist rule to continue to ply its streets.  Some are still running due to modified Russian auto parts, while other have had their lives extended by craftsmen who lovingly reproduce each fallen piece of chrome so that the autos appear as pristine as they did on Batista’s last day in the Presidential Palace.

Local Montreal drivers in 2030 may stretch their necks and gawk at the five meter, 3000Kg behemoth looming large in their view – the last of the full size, eight passenger, eight cylinder, four wheel drive family haulers that made even the largest minivans seem demure – the Suburban XL.  Along with its brothers from GMC and cousins from Ford (Expedition) and Chrysler (Aspen), these giant vehicles were the kings of the family long haul, capable of loading up the kids and grandparents, their luggage and hauling a 2000Kg boat in tow.  Full size GM SUVs sold as many as 700,000 units as recently as 2003, but now sales have collapsed to barely 200,000 as the recession and high gas prices moved drivers away from this class of vehicle.  Still, there is no replacing these vehicles, and the Obama administration does not want you to; new CAFE (Corporate Average Fuel Economy) rules handed down dictate different fuel economy ratings for all classes of vehicles, but the standards set for full size SUVs mean that we will never again see vehicles of this size produced for non-military applications.

In the short run, these vehicles will see their resale prices fall as high gas prices, the recession and their poor environmental image incite casual users to drop them in favour of alternate transportation.  The soccer mom who wanted one because it was “cool” in 2005 will trade down to a mid-size SUV hybrid or minivan for similar applications.  Indeed, many of these vehicles performed regular urban/suburban duty to deposit one or two (perhaps 3 or four with carpool) poppet-sized children at school or extra-curricular activities.  In the longer term, however, vehicle values will stabilize or even rise as hard-core users who require the durability and flexibility of these trucks search them out and preserve them for their extraordinary versatility.

Construction firms, oil-field service companies, security firms and similar users need these SUVs to transport personnel and their gear over long distances and often under off-road conditions.  Locally, Hydro Quebec uses them to transport personnel and equipment from regional offices like the one in Baie-Comeau up to dams like Manic 5, a two hour drive north over a mostly unpaved, gravel road.  The Suburban and its cousins have the long travel, heavy-duty suspensions to take this kind of punishment for hundred of thousands of kilometers and survive the experience.  The next generation of vehicle will have lots of steel removed from its design to conserve weight and the suspension is likely to suffer some lightening as well.  There is no obvious replacement for these workhorses as far as industrial users are concerned.

You and I will pay more for Obama’s vision

When Obama unveiled the new CAFE objectives last month, he ventured that these stricter regulations will increase the cost of a typical car or truck by $1,300 USD by 2016.  Engineering firm Ricardo disagrees and has estimated the cost to meet these new requirements will add between $5,000 and $12,000 USD per vehicle.

Faced with these incredible price increases, will consumers embrace change or will they keep their current vehicles, especially those vehicles whose existence is endangered by the quest for better fuel economy?  Imagine the American SUV driver who currently enjoys 15 MPG from his truck (combined city/highway driving) and travels 20,000 miles per year.  The driver consumes 1,333 US gallons of gas per year at 2009’s projected average price of $2.70 per gallon, for a total expenditure of $3,600 per year.  We arrive in the year 2016 and the closest replacement design for that truck offers the consumer 23 MPG, but that vehicle now costs $45,000, or about $10,000 more than it did in 2009.  Assume that the consumer can get $5,000 as a trade in allowance – so will this buyer accept to pay $40,000 for a truck that is likely smaller and more lightly built, for an 8 MPG improvement in economy, saving 463 gallons of gas per year?  Even at a 2016 price of $4.50 per gallon, this is only a $2100 savings per year on a $40,000 investment – and that new truck depreciates, while the old one is paid for (we assume) and the value has already hit rock bottom.  Faced with this math, consumers are likely to keep their beloved full-size rides.

Congress knows that it is going to be hard to get these older vehicles off the road, so they introduced the cash for clunkers legislation designed to give consumers up to $4500 in vouchers to get a vehicle that only gets 18 MPG off the road.  Consumers may decide that this is not enough of an enticement to change vehicles; John Wolkonowicz of HIS Global Insight suggests that the only way to get the program to work is to give consumers the voucher PLUS whatever the true trade in value is worth, otherwise the cash benefit is too small.  Thankfully, the program is going to be capped at a $4 billion USD payout and will be available until the cash is all spent.

Don’t bet on it.  The nanny state wants you out of your big ride and is likely to pursue both incentives and penalties to get you to move into something smaller.  Europeans used to tax vehicles based on engine displacement – for example, engines over 3 litres were heavily taxed in Europe, so manufacturers developed smaller engines using multiple valves per cylinder and turbo-charging to achieve high power from small displacements.  This legislation is coming to America – in 2008, Washington State considered a bill to tax vehicles based on engine displacement and it is back on the legislative agenda for 2009.

Canada will likely follow suit with some kind of program to discourage large-car use, and Quebec is probably going to be first, since on a per-capita basis Quebec is already the best small-car market in North America.  Watch for this measure as part of a progressively-oriented environmental package from one of the major parties.  Who knows, it may even appear as a Montreal tax-grab as the city desperately seeks new sources of revenue and concurrently entices citizens to drive less, drive smaller vehicles or give it up entirely.  Those who resist will be chastised and cast as socially backward – someone better organize an “SOS” bumper sticker campaign straight away to resist this impending restriction on our 4-wheel mobility rights!