More Doom & Gloom On Higher MPG Standards From Car Dealers

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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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Comments (12)
  1. One more point. In a price constrained world, people may buy a car that is $3000 more due to mpg improvements, and be forced to forgo other options (e.g. leather seats) to save $3000. So the car price may end up in exactly the same place due to market forces.

    So is it worth giving up the fancy body trim kit to save yourself money, lower pollution, and improve the balance of trade?

    NADA is on the wrong side of history here.

  2. Why shouldn't the NADA report be considered not only short-sighted but also misguided? Why wouldn't these 7M potential buyers simply buy a good 2-3 year old used car at a much bigger savings? Cars are far more durable and of higher quality than in the past and there is little to sacrifice in buying a near new vehicle... as a matter of fact the financial analysis shows that this saves a lot of money for a driver. In addition, we keep hearing that new car dealers don't really make their money on new cars given the invoice pricing and shopping via the internet. They supposedly make most of their profits from used car sales and service.

  3. Education? You suggest education? You must be a left wing intellectual snob... /end sarcasm

  4. Yes making people smart is horrible, how dare they suggest education! .....Lol

    News flash, the 1950s have ended. Oh and so has the cold war.

  5. And I love the idea that education makes someone an intellectual snob, what are you content with being uninformed and stupid?

  6. I hope you realize he was joking.

  7. Hmm I think I may have boched that. Though I did talk to someone recently who said the same thing and meant it. And I do tend to misread things on the net when I comment from my phone. Yes my bad.....sorry.

  8. If you really look at car prices they do go up with each new generation. So the increase will probably go unnoticed by the time the changes actually arrive on the market.

  9. I don't think it's a matter of a price increase as much as it's a matter of qualifying for the loan. Forecasting Debt to Income ratios out 10 years is folly at best. Simply look back 10 years to 2002. Who would have imagined today's economic climate?
    Inflation, unemployment, interest rates, and consumer confidence are much bigger variables then the price of an entry level car give or take a couple thousand dollars.

    NADA referenced fewer people "Affording" new cars, not "buying" new cars. Frankly, If you can barely afford a new car today and a couple thousand dollars puts you over the edge, you probably should't buy one.
    As others have said, buy used.

  10. I think the argument the NADA is trying to make is weak and they know it. They're probably only doing this to affect the upcoming presidential election.

  11. I'm really impressed by nearly all the comments below...and I voted accordingly. I have one other kick to the wobbly legs that NADA is standing on w/ this ignorant, bs study of theirs. Who the f*** cares if students and working families can afford brand new cars in a dozen years??? Freaking ridiculous! Those folks should and will buy used cars that a few years old big deal. And remember, we are talking about 2020 - 2023 used model vehicles. The safety, efficiency, etc. of those vehicles will likely be vastly improved than what we are driving now. Our current decade might see more improvement in vehicles than the decade that had safety belts, air bags, reliability, and fuel economy arrive as important features: '75 - '85.

  12. Car manufacturers should be pushing a bill to exempt natural gas cars from the mpg requirements. Then they can build CNG cars that are cleaner and cheaper to run.

    Natural gas is the future of energy. It is replacing dirty, dangerous, expensive coal and nuclear plants. It is producing the electricity for electric cars. It will directly fuel cars,pickup trucks, vans, buses, long haul trucks, dump trucks, locomotives, aircraft, ships etc. It will help keep us out of more useless wars, where we shed our blood and money. It lowers CO2 emissions. Over 2,100 natural gas story links on my blog. An annotated bibliography. The big picture of natural gas.

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