Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Toyota Motor Corporation (ADR) (TM): The EPA Catches Ford Motor Company (F) Red-Handed


Photo credit: Ford.

When Congress first enacted Corporate Average Fuel Economy, or CAFE, standards, the initial purpose was to reduce energy consumption by increasing the fuel economy of our nation’s vehicles. While the policy has been in place since 1975, the standards are set to rapidly increase over the next decade. Its purpose is now twofold: to improve national security, and to save Americans money from the seemingly ever-increasing price of gasoline. And you can’t overlook the environmental benefits from the reduced emissions.

However, the rapid increase in standards that’s now looming over the auto industry is putting pressure on them like never before. In 2025 the fuel economy of passenger cars and light-duty trucks built in that model year is set for an average of 54.5 MPG, which is nearly double what the comparable standards are today. Automakers are being forced to get ahead of the curve and invest in reducing fuel consumption now. And that’s proving to be tougher than some automakers had anticipated.

In fact, Ford Motor Company (NYSE:F) is now being forced to lower the gas mileage estimates for its C-Max hybrid crossover after it was found to not live up to previous estimates. The 2013 C-Max was touted as delivering 47 MPG of performance on both the highway and in the city. However, real-world performance hasn’t lived up to those lofty estimates. Instead, after additional testing, the C-Max delivered 45 MPG in the city and just 40 MPG on the highway, for a combined rating of 43 MPG.

Those 4 miles per gallon are now going to cost Ford Motor Company (NYSE:F) some money, too, as it will reimburse buyers with a one-time payment of $550, while lessees will receive $325. To date, Ford has sold about 32,000 of the vehicles, meaning that at most it’s on the hook for $17.6 million. Given that Ford Motor Company (NYSE:F) recently reported net income of $1.2 billion, that payment isn’t likely to hurt the automaker.

What might hurt it are the additional investments it will need to make to boost the fuel economy of its vehicles in the future. The company has already said it’s working on making improvements to boost the gas mileage of the model year 2014 C-Max hybrids. However, Ford Motor Company (NYSE:F) might be required to redouble its efforts to improve fuel economy across its platform to meet the aggressive changes coming up in the CAFE standards.

This is clearly a setback for Ford Motor Company (NYSE:F), and it could harm the company’s quest to catch up with top hybrid seller Toyota Motor Corporation (ADR) (NYSE:TM). Its Prius has really resonated with consumers, making it a top-selling hybrid. Ford currently claims the No. 2 spot in the segment thanks to the rising popularity of its C-Max and Fusion hybrids. However, with the C-Max not achieving the fuel economy once thought, Ford could feel a big impact on future sales.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.