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Why Would Anyone Buy A Flex-Fuel Vehicle Now?

January 9, 2009

The Absurd Economic Reality Of The Flex-Fuel Vehicle

It is clear that the federal RFS mandate, EISA 2007 is a corporate welfare program for Flex-Fuel vehicle production and E85, 85% ethanol / 15% gasoline, production.  There is even a push to include the requirement for even more Flex-Fuel vehicles in the federal economic stimulus package that will be coming up in congress soon.

However there is now a huge economic Catch-22 with the Flex-Fuel vehicle that nobody is addressing.  It is going to cost any consumer dumb enough to buy one a pile of money to run it, and in this economic cataclysm why would anyone want to buy a Flex-Fuel vehicle, which costs more to buy to begin with, that is then going to cost them much more to operate than the equivalent non Flex-Fuel car.

Here is the double edged problem.  A Flex-Fuel vehicle running on E-85 will see a mileage decline of 25 – 30% over running on regular gasoline without ethanol.  Ethanol now costs about $0.50 / gallon more than gasoline.  Under the present federal blending credit as of January 1, 2009, the blending terminal gets a $0.3825 / gallon of E85 credit which if passed along to the consumer only means that E85 should only cost $0.1175 per gallon more than gasoline.  According to the E85 pricing web site,  the average spread between E85 and gasoline is about 9%, i.e. E85 is about 9% cheaper than gasoline, usually caused by additional state tax credits.   Of course there are a number of states where the spread is negative already and they might surprise you which ones.   However if the mileage hit from E85 is 25% and you are only saving 9% on gasoline you are in a huge losing situation.  So, why would anyone buy one?

Ironically, according to this blog, nobody will because Detroit is walking away from the Flex-Fuel vehicle.

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