Can Alternative Energy Vehicles Withstand Turbulent U.S. Finances?

As markets around the world react to the downgrade of the United States' credit rating, fuel-efficient vehicle sales face the prospect of another decline similar to the one they experienced in 2008, when gas prices plummeted and overall vehicle demand fell in response to low consumer confidence and high unemployment. The world's leading crude oil futures all fell by at least five percent on August 8 to settle at their lowest levels of the year, and though petroleum still trades well above twelve-month lows, gasoline prices at the pump are likely to decline further from the all-important $4 per gallon mark they had eclipsed earlier this year. Gas currently averages $3.67 per gallon in the United States—still more than enough to put a major dent in the wallets of those driving gas-guzzlers.

But as recent history has shown, consumers prioritize fuel efficiency much more when it pays immediate and noticeable returns to their transportation budgets. The lower gas prices fall, the less drivers will look to high-MPG stars like the Toyota Prius or Honda Civic Hybrid to help them stem the tide at the pump. Small, cheap, fuel efficient gas cars like Chevy Cruze or Ford Focus could continue to see relatively strong sales, but the real-world efficiency of these cars still lags well below that of hybrid and electric vehicles, and a failure of consumers to embrace models with superior gas mileage could threaten automakers' ability to meet rising Corporate Average Fuel Economy (CAFE) standards.

By 2016, the fleet average for each car maker is set to hit 35.5 mpg, and the Obama administration recently announced plans to raise that number to 54.5 mpg by 2025. But built into the most recent CAFE proposal is a clause that will allow for a review of the mandate before the 2022 model year, and Republicans have recently ratcheted up their rhetoric against CAFE, saying that the program's ambitious new standards threaten to slow economic growth by adding cost to vehicles reducing consumer choice.

Those arguments could build steam if the economy enters a much-talked-about "double-dip recession," which would likely cause recently recovering vehicle sales to again sag, and car makers to pare back expansion plans. Many of those expansion plans are built around "sustainable" cars, as the Department of Energy continues to dole out federal loan money to help manufacturers develop and produce tomorrow's fuel-efficient vehicle technologies.

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