$13 Per Gallon Will Get Their Attention

Gasoline prices must quadruple to motivate consumers enough to demand the types of expensive technologies auto makers require to comply with upcoming tougher fuel-economy standards, a Chrysler LLC economist warns.

Assuming Americans will want the same utility and performance they enjoy in today's vehicles, Chrysler ran a computer simulation of conditions required to generate market “pull” in 2020, when a federally mandated 35-mpg corporate average fuel economy standard takes effect, says Paul Traub, senior manager-economics and industry analysis.

Factored into the scenario was the anticipated cost of the advanced technologies considered necessary to achieve the mandate.

The simulation determined consumers won't demand the pricey powertrains until regular-grade gasoline reaches $13 per gallon — slightly more than four times today's national average of $3.06.

“That's how it was in Europe,” Traub tells Ward's after presenting his findings to the Society of Automotive Analysts in Detroit.

European consumers favor diesel engines, which cost more than gasoline-powered mills but afford a 30% boost in fuel economy. However, European consumers were not moved to buy the pricier diesels until gasoline costs skyrocketed.

Industry assumptions suggest the per-unit cost of building vehicles will increase, on average, up to $7,000 to enable auto makers to meet fleet-wide CAFE by 2020.

Chrysler's gas-price scenario was conducted as an exercise. The auto maker does not support increasing consumer costs, says Traub.