Detroit’s Headache: Car Buyers Don’t Seem To Care About Fuel Efficiency – Forbes

By | June 11, 2019

Consumer Myopia in Vehicle Purchases: Evidence from a Natural Experiment."

In other words, for saving one dollar in the future, the car buyers would only fork over an additional $ 0.38 now. In practical terms, $ 1,000 in savings is only worth paying an additional $ 380 in car price to the average car buyer, the report shows.

The study was conducted by researchers from Yale University, the Wharton School at the University of Pennsylvania and the Centre for Energy Policy and Economics ETH Zurich.

To draw this conclusion, they used data from "all new vehicle transactions in the United States," from August 2011 through June 2014.

Big problems for Detroit

That consumer behavior is a problem for any automaker trying to sell cars in the U.S.

If car customers don’t place a high enough dollar value on the improved fuel efficiency of the vehicle, then carmakers lack the market-based incentives to increase vehicle miles-per-gallon gasoline consumption. If the car buyer would pay what the additional efficiency was worth, then carmakers would have a more significant incentive to reduce car fuel consumption. But they don’t.

Instead, carmakers have an incentive in precisely the opposite direction.

Already we know that the cost to build smaller (usually more efficient vehicles) is roughly the same as the cost to build larger cars and trucks. But while larger cars might often be less fuel efficient but they are much more lucrative for automakers. In other words, car company executives know they’ll get more profit if they sell bigger cars.

In a decade or two, this problem may not be relevant because battery-powered electric vehicles will likely dominate the roads. But until then they’ll be a headwind for improved fuel efficiency.