Marketplace - Fuel inefficiency

Episode Date: January 14, 2025

Vehicle fuel efficiency requirements, also known as Corporate Average Fuel Economy standards, were enacted in response to the 1970s oil embargo. But CAFE regulations have been buffeted by energy politics since that time. Once in office, President-elect Donald Trump is expected to carry on that tradition. Also in this episode: Homeowners affected by natural disasters have mortgage relief options, employers in expensive areas invest in manufactured housing and tech giants (still) dominate the stock market.

On the program today, the magnificent seven, the stocks, not the movie, housing too, and the fires. From American public media, this is Marketplace. In Los Angeles, I'm Kyle Rizdal. Monday, today the 13th of January. Good as always to have you along, everybody. We are still on fire watch here in Los Angeles. Red flag warning is the technical term as the two biggest fires, Palisades and Eaton, sit at various degrees of containment with more wind on the way. More than two dozen dead so far, 12,000 structures destroyed,

tens of thousands of people displaced. There has, as you have been seeing, monumental effort for some 14,000 firefighters using all the tools at their disposal. Technology is and will be in the future among those tools. Kate Dargan-Marquis is Senior Wildfire Advisor at the Gordon and Betty Moore Foundation. Kate, thanks for joining us.

Thank you, Kai. You know, so we were chatting just before we turned on the microphones and you said you do a lot of work now on the future of fire. And before we get there, I wanna talk about the right now of fire and what technology is out there

that can help us figure out what's happening on fires sort of even before they start? Right. Even before they start. So you were thinking, how can we predict the when and where a fire? How can we predict it and see it? And I mean, there must be AI powered cameras

and all of that. Well, let's start off then with the moment that the fires do start. We have put to work these intelligent cameras that are mounted on mountaintops, repeater sites, and we see the smoke columns rising from those cameras. We do an image assessment, a remote sensing assessment. The computer system algorithms can define how bad the fire is by the image detections of the changes, and the fire agencies are alerted at the bad the fire is by the image detections of the changes

and the fire agencies are alerted at the moment the smoke is detected in the first place. We're also working really hard right now to put up a system called Firesat and that is a low-earth orbit satellite system that will ultimately launch 52 satellites that circle the globe. Every 15 minutes it will give us fire detections down to just a few meters in size. And this is something that firefighters don't have today. This is sort of a little sideways,

but roll with me here. This is kind of an infrastructure question, right? It's a firefighting infrastructure challenge of the future of fire. And when you start talking infrastructure, you have to talk scale. And a lot of that investment seems to me to have to come from government sources. These private companies, I imagine,

are counting on the government to sort of give them a little boost as they try to scale. Yes, but that is a tough sell. How you build a market and how you invest in R&D is always a chicken or the egg question. You have to have a market to make the investment pay off. Government is not necessarily the most innovative of purchasers. So figuring out how to mix the innovative individuals in government, how to do what we call co-development, where you sit down with a group of firefighters who may not know what technology could offer and paint the vision for them and at the moment we're leveraging philanthropy to be able to show the way so for that's that's why a

number of large philanthropic folks especially in the California area have been investing in technology related projects underwritten by philanthropic investments for the first several years. That's the scale challenge. It seems to me there is also a speed challenge. And with the acknowledgement that you're a firefighter, not a climate scientist, it's clear that climate change means these fires are going to be coming more often and they're

going to be bigger. The speed challenge here is a very real one, no? Well, by speed, you mean how long can we afford to get our? Hands around this yeah, how how we got a state right? How fast can we leverage technology and all the things you and and others are working on? In an atmosphere where where the rate of change is is speeding up Well, we're a good 20 years behind the curve So the answer is we should be moving rapidly,

as rapidly as we can. And I don't want to say that technology is the answer, because at the end of the day, there is a very difficult and complex problem to solve relative to keeping communities from burning down the way we just witnessed. And a lot of that has to do with getting communities and individuals to engage at the level of the house. You know, we have to engage communities and citizens and the local politicians and the homeowners themselves to take the actions necessary. Some of that involves technology, but in high wind conditions, in overwhelming fire starts, you know, multiple fires in a small geography, under those kinds of weather and fuel and temperature dryness conditions, really at the end of the day, we have to have passive protections built

in at the house scale of themselves. And that's an important piece of the equation. Kate Thorgan Marquis has been firefighting her whole life. Right now she's at the Gordon and Betty Moore Foundation doing the same thing. Kate, thanks very much for your time. I really do appreciate it. Good luck to you, Kai. You too. Thanks. Bye bye. Wall Street on this Monday technology took the hit. Oil was up. Bond yields too. We will have the details when we do the numbers. The costs of any natural disaster, wildfire, hurricane, flood, what have you. Those costs are borne at least in part by homeowners themselves, especially if their insurance premiums spike afterward.

Last week, the ratings agency Morningstar DBRS said the fire situation in LA, quote, reinforces the need for adequate rate increases on home insurance in California. That's going to be a challenge for residential mortgage holders and for business borrowers too. So Marketplace's Justin Ho called up a few lenders

to get a sense of what's what for those would-be borrowers too. So Marketplace's Justin Ho called up a few lenders to get a sense of what's what for those would-be borrowers. Over the last year, Dominic Miarten, the CEO of American Pride Bank in Macon, Georgia, says many of his clients have faced steep spikes in their insurance premiums after major hurricanes in the Southeast. In those cases? The borrower simply may not have the ability to pay for those insurance premiums or in some cases may not have easy access to insurance at all.

Miarten says when borrowers have to pay way more for insurance, it's in the bank's interest to make sure that a borrower can still afford their monthly payments. Because the last thing that a lender, particularly a community lender, wants to do is have to take the property or foreclose on the property. That hurts everyone. It hurts the community, it hurts the borrower, and it hurts the bank. Adam Bickman-Meyerton says the bank has a few tools it can use to help a borrower. For one, it can make changes to an existing mortgage to help offset the higher cost of insurance. Janiece Height, with the government-backed mortgage corporation Fannie Mae, says lenders

can modify loans to extend payoff periods or lower interest rates. It actually restructures the mortgage to take into consideration what the borrower's payment situation is to make the payment more affordable. Borrowers can also take their time to just focus on recovering and figure out their payments later, says Nathan Rogge, CEO of First Pacific Bank in San Diego, California. He says when wildfires have affected his clients in the past, those borrowers typically defer their payments.

Nathan Rogge, CEO of First Pacific Bank in San Diego, California. Normally, it's like a 90-day deferral where you'll just hold off on payments. Those will be tacked onto the back of the loan. If a borrower's insurance premiums rise too high or if a borrower loses their insurance, their lender might force them to sell the property, says Dominic Myarten, an American Pride Bank. The lender just about doesn't have a choice. The lender has to ask the borrower to pay the loan off. That's because the lender doesn't want to be on the hook if an uninsured home floods

or burns down. I'm Justin Ho from Arciteplace. Those of you who've flipped on CNBC sometime in the past couple of years, either on purpose or by accident, you're going to know the phrase the Magnificent 7, Mag 7 in Wall Street speak, Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla, huge American tech companies of one specialty or another, all of which are invested heavily in artificial intelligence. But the reason they are so magnificent is because over the past two years, their stock prices have soared to the point where those seven companies now account for more than one-third of the value of the entire S&P 500, which,

I will remind you here, has 500 companies in it. So as earnings season kicks off this week, Marketplace's Matt Levin explains what it means to have so much money concentrated in so few companies, both for Wall Street and for the real economy. This level of stock market concentration is basically unprecedented. I don't think if you go back in history, you can see a period of time where the top five, the top seven, the top ten U.S. companies are so dominant. Michael Hartnett is the chief investment strategist at Bank of America and the guy who actually coined the term Magnificent Seven. and the guy who actually coined the term Magnificent 7. So if maybe some of these multi-billion dollar AI bets

don't pan out the way these companies think, it won't just tank tech stocks. If suddenly they trip up, yeah, that can quickly cause a big decline in the stock market and in turn that will have an instant impact on whether individuals get up in the morning or companies get up in the morning and say we're going to spend more money or less money.

If that scenario sounds eerily reminiscent of the early 2000s dot com bust, there are definite similarities. But unlike say pets.com, the Mag-7 are actually making money right now, like ungodly amounts of money. Nelson Yu heads equities at Alliance Bernstein. These are companies that have very, very healthy balance sheets. Investors have plowed money into the Mag-7 because they think AI is going to be the next big thing.

But Rob Arnott at the investment firm Research Affiliate says, even if those investors are right about the tech, they could be wrong on the timing. Technological revolutions generally happen slower than anticipated. Humans by their very nature embrace change gradually. They don't like it crammed down their throats. The internet did not take over the world overnight. Maybe the robots won't either.

I'm Matt Levin for Marketplace. We will not cram anything down your throats. We will, however, offer you a podcast if you miss something on the air. Marketplace.org is where you can get it, or of course, the platform of your choice. Just follow us. Coming up… Temperature-controlled environment and guys running around in shorts in the wintertime building stuff.

I guess construction just ain't what it used to be, huh? First though, let's do the numbers. Dow Industrial has gained 358 points today. That is 9 tenths percent, 42,297. The NASDAQ went the other way, down 73 points, about 4 tenth 10s percent 19,000 to 88 yes and be 500 ticked up nine points two 10s percent 58 and 36 there oil prices hit a four-month high at the dam predictions for broader sanctions on Russian oil that could squeeze supply internationally Brent crude jumped one point three percent eighty dollars and 80 cents a barrel US West Texas

intermediate the American benchmark increased two.3 quarters of 1 percent. 2.3 quarters of 1 percent? What is that? How about 2.75 percent today, guy? $78.66 a barrel. Tech stocks, as I mentioned, took a tumble. NVIDIA sank 2 percent. Meta dipped 1.2 tenths percent today.

The dollar rose yet again following Friday's Strong Jobs report. The index, which measures the dollar against a basket of different currencies, added about a quarter percent today at its peak. Bond prices down, the yield on the 10-year T-note increase of 4.790%. You are listening to Marketplace. Hi, this is Julie from Centennial, Colorado. I listen to Marketplace on my drive home from on my three to midnight ER shifts. Kai and the gang keep me awake and interested for my 30-minute drive. For someone not in the financial field, it's a fantastic synopsis of all things business and economics. I love the commitment to showcasing a steady stream

of brilliant and articulate women who are experts in their field. Join me in supporting Marketplace with a gift today. Go to marketplace.org slash donate. This is Marketplace. I'm Kai Rizdal. The Marketplace acronym of the day today is CAFE. That stands for Corporate Average Fuel Economy, C-A-F-E of course, and yes, CAFE is how you say it.

Those are federal fuel efficiency requirements for cars and trucks. By model year 2026, CAFE, of course, and yes, CAFE is how you say it. Those are federal fuel efficiency requirements for cars and trucks. By model year 2026, for instance, current CAFE standards say the industry is supposed to reach an average of 49 miles per gallon. Between now and model year 2026, though, there is going to be a change in who's in charge of federal regulations, and CAFE standards are in the sights of the president-elect. It's important to point out here that presidents have tinkered with federal fuel standards for years, but before it happens again, Marketplace's Henry Epp looks at why we have them in the first place and how they have changed the kinds of vehicles we drive.

The story of the CAFE standards starts in the early 70s with the first oil crisis. In 1973, OPEC countries cut off oil exports to the United States. That caused huge lines at gas stations and a spike in oil prices. And so the idea was to improve the fuel economy of our cars so that we'd be less susceptible to availability shocks from these markets. Rebecca Ches is an assistant professor at Purdue University. Back then, vehicles on average only got about 13 miles to the gallon.

So Congress passed what became the CAFE standards to require car companies to improve that metric. They took effect in 1978 and quickly became a political football. More than a decade later, they came up in one of the 1992 presidential debates. Here's then president George H.W. Bush.

I wondered when governor Clinton was talking to the auto workers, whether he talked about his and Senator Gore's favoring cafe standards as a fuel efficiency standards of 40 miles per gallon. Uh, that would break the auto industry and throw a lot of people out of work. Beyond their role as a political talking point, the standards have had an effect. According to the Environmental Protection Agency, in 2023, average fuel economy across all vehicles was 27 miles per gallon,

more than double what it was in 1975. Again, Rebecca Ches at Purdue. We've seen this incredible improvement in the fuel economy of our vehicles. They've gotten safer over time. We've saved a lot of energy and greenhouse gas emissions over the course of that period. But the standards have had some unintended consequences, partly because of that A for average in the CAFE acronym. The standards average the fuel efficiency of all the new vehicles each company sells,

says Kenneth Gillingham, a professor at the Yale School of the Environment. Some of them might be above the standard, some of them might be below the standard. But they're supposed to average out. A somewhat recent example, Gillingham says, is the plug-in hybrid Chevy Volt from GM. Each Chevy Volt that was sold permitted them to sell some number of other gas guzzling larger vehicles. And carmakers have been able to sell even more gas guzzlers due to a change to the standards made in the early 80s, says David Zipper, a senior fellow at the MIT Mobility Initiative. There was an element of skewed incentives because of what I would call the light truck loophole.

That loophole, as he calls it, created one standard for passenger cars, think sedans, and another less strict standard for light trucks, which include SUVs. And companies started making and selling more of them. Zipper argues those changes helped push drivers into bigger and bigger vehicles over time. Now we have larger vehicles on American roads than we otherwise would have and that creates some serious problems around safety and around infrastructure. Meanwhile the standards have shifted under different presidents. Car companies saw them rise under President Barack Obama here

announcing the change in 2011. By 2025 the average fuel economy of their vehicles will nearly double to almost 55 miles per gallon. Then in 2017, former and future President Donald Trump said he'd roll them back. We're going to work on the CAFE standards so you can make cars in America again. And campaigning in 2019, President Joe Biden vowed to bring them back up. I think we should raise the CAFE standards, bring them back to where they were, which would have saved 12 billion gallons of oil to begin with and move beyond.

That's a lot of back and forth, says Chris Douglas at the University of Michigan, Flint. That makes it difficult for automakers to plan for the long term because every four years the administration changes and that changes the mileage standards. Douglas thinks that uncertainty is likely to continue as Trump is coming back to office but is term limited. So the standards could change once again four years from now. I'm Henry App for Marketplace. So In some parts of the country, housing has become so expensive that employers are stepping in to help their workers. In Jackson, Wyoming, a state agency has found a way to stretch its limited dollars.

They're turning to modular homes built in factories and often bigger and more customizable than mobile homes. And once they're built, kind of like Legos assembled section by section, they're permanent. Hannah Merzbach from the Mountain West News Bureau has our story. Clark and Danielle Johnson are trying to pack up boxes in the messy living room of their Jackson, Wyoming duplex. Their two kids, two and four years old, run around and get in the messy living room of their Jackson Wyoming duplex. Their two kids, two and four years old, run around and get in the way. They're packing up kitchen stuff like silverware and spices. Clark is a biologist for Wyoming Game and Fish and his family

is moving into the agency's new modular employee housing. Their rent will be the same about $2,500 a month. The new place could rent for double that in the Jackson Market and is three times as big as this one. Kind of see everything from where you're standing, but two bedrooms, bathroom, we've got kind of just two little closets and then a little living room and kitchen. The Johnsons might have left Jackson had subsidized housing not been an option. This 10,000 person mountain town has made headlines for rents that are just as high as New York City's. So some employers are trying to increase affordable housing stock.

They pay for construction and then rent to employees at below market rates. They're building modular homes. I mean, it's the same style of construction as stick-building. It just happens to be in a shop. Lauren Wooden is the chief engineer at Wyoming Game and Fish. He says it's hard to build in Jackson in winter weather, but factory construction speeds up the schedule. Temperature-controlled environment

and guys running around in shorts in the wintertime building stuff instead of being all covered up in car hearts and dealing with snow all the time. Pre-built homes bypass the challenge of trying to find local construction workers, and modulars can cost less. Wyoming Game and Fish saved more than $5 million

on seven buildings, according to the architect, Greg Mason. Because of bulk construction, the raw materials of lumber and all that stuff, they tend to get a much better deal for all products. Modular construction makes up less than 7% of new commercial and residential buildings in North America, according to the Modular Building Institute. But that number has steadily been growing. The tiny home revolution increased interest,

and the quality has come a long way from your classic 70s double-wide manufactured home. And everything comes out now with some really nice marble or stone countertops. The town of Kemmer, Wyoming is trucking in about 90 units to house workers for a new nuclear plant. And in Colorado and Michigan, state governments are incentivizing new projects with loans and grants for modular home companies. Still, the cost-benefit doesn't always pan out for, say, just one single-family home. And there are still some stigmas to overcome. When Danielle and Clark Johnson first learned that their new place would be modular, they weren't completely sold. I was like, what's it gonna be like?

It's gonna look like a trailer house of some sort, which they definitely don't. But on move-in day, Clark Johnson says their new place looks like a typical house. If I hadn't seen them come in on pieces, I wouldn't really think that they were modulars. The kids are exploring all the open floor space. There are three bedrooms, a fenced-in backyard, a walk-in pantry, even a laundry room. Way, way, way more space than we have been used to being in for the last eight years, I think. Now that all the furniture and boxes are moved in, next up, getting the kids to settle into bed and digging out the silverware.

In Jackson, Wyoming, I'm Hannah be a good boy This final note on the way out today, it has been, as you know, a rough week or so here in Los Angeles. And if the wind forecasts are right, it could be another rough couple of days. And I want to be clear, my family and I are among the very lucky ones. Friends of ours, my kids' teachers, colleagues of mine here at Marketplace have lost nearly everything. But I had a thought as I was waiting for coffee in the breakfast line at the Hampton Inn on Thursday morning.

We try on this program to make people smarter about this economy, to help them understand why it matters. Thing is, there's no straight-ahead marketplace angle to a story like this. No moment where a listener is going to say, ah, now I understand why the trade gap or corporate earnings or the intermusings of Jay Powell mattered to me.

We will, of course, talk about the economics of wildfires and the recovery to come. But as I waited last Thursday for the hotel staff to refill the coffee machine, and without losing sight of the dead or the destruction, it occurred to me that no small part of this story is about the people doing the work to take care of the rest of us.

The first responders who've come from all over, all of the staff at all of the evacuation hotels, the small businesses and the restaurants nearby. When we got back into our house this weekend, there was new mail waiting for us in a wildfire evacuation zone. I mean, it was mostly bills, but there was mail. People had been working, taking care of us. Our daily production team, who was working last week while I was out,

includes Andy Corbin, Nicholas Guillaume, Maria Hollenhorst, Iru Eknobie, Sarah Leeson, Sean McHenry, and Sophia Terenzi. I'm Kyle Rizdal. We'll be back tomorrow. This is APM. a strong background in economics or business. Join me by making a gift to Marketplace today at marketplace.org slash donate.