More Doom & Gloom On Higher MPG Standards From Car Dealers

By John Voelcker

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It's not news that new, higher fuel-economy standards will raise the cost of future cars in real dollars.

Now a new study, funded by the National Automobile Dealers Association (NADA), suggests that those increases will prevent up to 7 million buyers from affording new cars in 2025.

That's out of a pool of perhaps 80 or 100 million potential buyers, mind you--not 7 million out of the 13 to 15 million people a year who actually buy vehicles.

The study is based on debt-to-income ratios from a large consumer sample provided by U.S. Bureau of Labor statistics.

Increases up to $3,000 by 2025?

The Obama Administration estimated that new-car costs will rise by almost $1,000 to accommodate stiffer fuel-economy standards already in place for 2016.

Proposed 2017-2025 regulations raise corporate average fuel economy further, to 54.5 mpg (or around 42 mpg in the real world).

The NHTSA and EPA estimate cost increases from those rules at another $2,000.

NADA says those increases will make it impossible for marginal car buyers to afford new cars. They include working families and students who are now borderline based on their income, existing debt, and today's vehicle price.

Stop! Delay! Halt!

Its solution: Stop the new regulations!

Doug Greenhaus, NADA's chief regulatory counsel for environment, health and safety, proposes halting the regulations until there is a "more accurate picture of how prospective buyers likely will react."

NADA is nothing if not consistent. This is simply the latest salvo--lately focusing on affordability--in the long battle against more stringent gas-mileage requirements it has waged since last year.

IHS Automotive analyst Rebecca Lindland pegs the average U.S. vehicle sale at about $30,000, so a $3,000 increase--more than a decade out--will indeed have some impact.

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It's not all doom and gloom, though. By 2025, the agencies project the new regulations end up saving car owners up to $6,600--much more than those increases--in reduced fuel costs over the life of the car.

(There are also benefits to energy security, reduced air pollution, and so forth.)

Focusing on the short term

But as car dealers know, most retail car buyers are less than rational about ownership costs.

Buyers place more importance on initial price ("How much per month?") than on total cost of ownership, including fuel, maintenance, and how long they actually keep the car (compared to how long they think they'll keep it).

As a result, buying a cheaper car with worse gas mileage may end up costing that buyer much more over time than the lower payments save.

A respectful suggestion

It appears that the 2017-2025 fuel-economy regulations--which have been supported by 13 major automakers, including GM, Ford, and Chrysler--are likely to be finalized later this year, though much political theatre may occur beforehand.

If so, we have a respectful suggestion for NADA: consider dialing down the doom and gloom, and help dealers educate their customers on the cost savings (and other benefits) they'll reap from more efficient cars.

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