The Obama administration says that proposed higher fuel economy standards can be expected to increase vehicle prices about $2000 but that owners will save an average of $6,600 in fuel costs over the life of the vehicle.

In order to be as realistic as possible (see figure above), we made a slightly less rosy analysis:

• current purchase price of $25,000 for a vehicle with 19 MPG vs.
• future cost of $27,500 (adding $2500 rather than $2000) for comparable vehicle with 36 MPG
• fuel cost of $3.38 per gallon & 15,000 miles driven annually (we used the same assumptions as fueleconomy.gov)

Total 5 year fuel cost for the 19 MPG vehicle is: $13,342.10
Total 5 year fuel cost for the 36 MPG vehicle is: $ 7,041.65

So, our fuel cost savings result was $6,300.45 — very close to the government projections. After deducting the additional purchase cost for the more fuel efficient vehicle, you would save $3.800.45 over 5 years in the example above.

Some vehicle dealers are concerned that increases in vehicle costs put them out of reach for many consumers, and wonder whether there will be sufficient demand for highly fuel-efficient vehicles. (Unsurprisingly, truck dealers have expressed more concern on this issue than dealers whose current lineup primarily features more fuel efficient models.) Obviously, that depends heavily on the cost of fuel – it’s no secret that when fuels costs skyrocket, people are incentivized to replace a “gas guzzler” with a “fuel sipper”.

Automakers seem much more enthusiastic about fuel economy as they show off new fuel-efficient models at Detroit’s International Auto Show. See our previous posts for auto show highlights.

FirmGreen, fuel prices, Legislation, Vehicles