According to the National Automobile Dealers’ Association, proposed Corporate Average Fuel Economy standards could price some 7 million potential car buyers out of the new vehicle market by 2025.
The proposed rules aim to achieve a fleet wide average fuel economy standard of 54.5 miles per gallon for cars and light trucks, which according to projections from the Obama administration; will add around $2,000 to the cost of each individual vehicle.
Adding in the projected $1,000 average cost from fuel standards mandated for 2012-2016 light vehicles and the total amount is around $3,000 greater per car than in 2011 (taking into account adjustments in inflation).
NADA has said that this additional cost needed to cover technologies necessary for achieving these fuel economy targets will be too much for many lower income consumers, including working families and college students.
According to Rebecca Lindland, an automotive analyst with IHS, given that the average price of a car today is approximately $30,000, an additional $3,000 will simply push financing beyond the realms of those on lower incomes, making a huge dent in potential new vehicle sales.
Don Chambers, a Ford dealer from New Mexico, who also chairs the NADA’s Committee on Government Affairs, agrees. “Loan qualification is based mainly on the customer’s income, existing debt and the vehicle price. The resulting calculation is simple. Fewer car shoppers will qualify for auto financing with higher vehicle costs.”
On the flipside, environmental groups believe that in the long term, average savings for consumers over the life of their vehicle will offset the higher purchase price and monthly payments, particularly in terms of fuel consumption and visits to the pumps, with some sources citing as much as $8,000 worth in savings during the period of ownership.
Yet, NADA, which has been involved in a number of CAFE hearings, believes the federal government still needs to better comprehend the economic impact a 54.5-mpg standard will have on consumers and auto financing before finalizing the rules.
“Disregarding vehicle affordability will undermine the environmental and national security benefits the [Obama] administration is seeking,” remarked Doug Greenhaus NADA’s chief regulatory counsel for the environment.
So far, in previous CAFE hearings, several automakers, including General Motors Hyundai and Toyota have said they’re in favor of stricter fuel economy standards, though in GM’s case it would hinge on significant technological advancements, something Mike Robinson, the General’s Vice President, Sustainability and Global Regulatory told Ward’s Auto during an interview.
Others, such as Mercedes-Benz and Volkswagen, which already sell some of the most fuel-efficient cars in the US are opposed to the regulations, since at present, the new CAFE requirements offer no incentives for diesel powered cars.