Americans Want Better Fuel Economy -- but Keep Buying SUVs

As the economy continues to improve, Americans are hitting dealer showrooms once again in search of new cars and trucks. With average gas prices hovering just shy of a lofty $3 a gallon, it would seem a safe bet that most new cars moving off dealer lots are fuel sippers. But recent data suggests that as the economy revs up, new-car buyers are less interested in fuel-efficient vehicles.

The average fuel economy for light vehicles -- those sold to the broad consumer market -- averaged 22.3 mpg in April, according to an index compiled by Ward's Auto (subscription required). That's just 0.5% above last year's 22.2 mpg, and it's also the lowest year-to-year improvement recorded by Ward's.

The provider of automotive data attributes the less-than-anticipated increase to sales of larger vehicles including crossovers, SUVs, vans and light trucks. That group of vehicles accounted for nearly 50% of all sales last month, compared to just 47.8% in April 2009.

Uncle Sam, Raise Our Fuel Economy Standards

Still, even as consumers are once again buying less fuel-efficient vehicles, fresh data suggest that a solid majority of them would like to see the federal government raise fuel economy standards, according to a recent poll conducted by the Consumer Federation of America, a nonprofit advocacy organization.

The survey found that Americans strongly support reduced oil consumption, with 65% of those polled agreeing that "the government should increase the fuel economy standard to an average of 50 mpg by 2025." It's worth noting that the poll was taken in March -- before the Gulf oil spill and subsequent congressional hearings.

Given the rising sales of larger vehicles, it would seem that even as Americans express desire for more fuel-efficient vehicles, they nonetheless turn around and buy not-so-efficient ones. Is it simply a case of Americans not putting their money where their mouths are?

In Cahoots With the Oil Companies?

In some ways, yes, says John Wolkonowicz, an auto analyst with IHS Global Insight. "Many Americans believe there's magic to fuel economy that the automotive industry is holding back on," he says. The average person believes it is possible to build vehicles that can achieve, say, 100 mpg, but automakers won't make them because they are in cahoots with oil companies. Therefore, the reasoning goes, the government must mandate greater fuel efficiency.

"That's the very ridiculous and naive point of view that most Americans have," Wolkonowicz says. They don't grasp that large SUVs, such as General Motors' Chevrolet Suburban, or full-sized pickup trucks, such as the F-Series made by Ford Motor (F), are simply incapable of achieving 50 mpg.

The federal government got into the fuel economy business back in 1975, after the Arab Oil Embargo of October 1973 to March 1974. Congress established efficiency standards to increase gas mileage and lessen the nation's dependence on foreign oil. Known as Corporate Average Fuel Economy -- CAFE -- ratings, the current rules require carmakers to achieve a corporate-wide 27.5 mpg. Updated rules, which go into effect in 2012, require manufacturers achieve 34.7 mpg by 2016.

The Onus Is on Manufacturers

In either case, if the standard isn't met, manufacturers are required to pay a penalty. And that's a big part of the problem, Wolkonowicz says. The onus is on manufacturers -- not consumers, the very people who are clamoring for better gas mileage.

CAFE is a "backward way" to achieve greater fuel efficiency, he says. It puts the financial burden of higher fuel economy on the back of the automobile companies. Instead, if consumers truly want greater efficiency, they need to absorb at least some of that cost, Wolkonowicz says. "But I don't think they want it if there's anything to be paid for it."

There is a solution, but one that most Americans won't like: Higher fuel taxes. Tax receipts would help car companies offset the cost of developing more fuel-efficient cars or give a rebate to lower-income taxpayers, who can't really afford the tax. But, Wolkonowicz says, "a gas tax is political suicide, so it'll never happen."