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Proposed changes to new vehicle window stickers: perception vs. reality

01 September 2010 Tom Libby

The August 31 Edition of "The Wall Street Journal" (page B1) includes an article describing a proposed new labeling for passenger vehicles sold in the United States. On the proposed new window stickers, every new vehicle would include a prominently-displayed letter grade reflecting its fuel economy, emissions and estimated annual fuel costs.

There is a general consensus across the industry and among consumers that the current window sticker is not as reader-friendly as it could be; a new sticker that is simpler and easier to understand would therefore seem to face little opposition. However, an argument can be made that the proposed letter-grade change is going too far. Even though the letter grade would apply only to fuel economy and emissions, in my opinion there is no question that the consumer would perceive the letter grade as an overall assessment of the vehicle. The contractor who needs a fullsize pickup, and cannot adequately do his job with anything else, will be forced to buy a vehicle graded "C" or below. Similarly, buyers of large SUVs or midsize vehicles will be purchasing vehicles with a B or C grade. In contrast, a Volt, Leaf or Prius customer would be buying a "superior" vehicle because his car got an "A." To me it's clear this is saying to all that want to listen (and the Volt buyer hopes everyone is listening) that the Volt is "better" than the F-Series. Should the government be in this business? For that matter, should anyone be saying, even though indirectly, that one vehicle is superior to another? Again, even though an EPA spokesman may respond that the grade applies only to fuel economy and emissions, over time it is virtually inevitable that the grade will come to reflect a broader assessment of the car or light truck.

It's fair to say that the proposed letter grades are intended at least partially to move the consumer towards fuel-efficient hybrid, diesel or all-electric vehicles. However, these vehicles - in total - account for just 5% (3% hybrid, 2% diesel) of all retail new vehicle sales June 2010 CYTD. Therefore consumers are being urged to buy vehicles they currently are not buying. A simpler way to move the buying public towards more fuel-efficient vehicles, requiring no legislation restricting production or sales of any vehicle category whatsoever, would be to let gas prices rise.

However, if higher gas prices are not politically realistic, there is another solution, mentioned in the same Wall Street Journal article. It makes sense to compare vehicles within the same category, since by definition these vehicles are similar to one another on several factors including size. This type of assessment would accomplish the goals of moving the consumer towards higher-rated, more fuel-efficient vehicles while still allowing him to purchase a vehicle in his desired category with the specifications and features he wants.

Lastly, politically the proposed letter-grade change to new vehicle stickers plays right into the hands of the Tea Party and the conservative wing of the Republican Party. These two groups could not have asked for a better example of government intrusion in the individual's life and decision-making. Given this political situation, it is hard to see how the proposed changes (with the letter grade) will see the light of day.

Posted by Tom Libby, PolkInsight Advisor, Polk (09.01.2010)

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