Will higher mileage vehicles save consumers money or price them out of the new-car market? That's the debate that's being heard as the Obama Administration pushes its 54.5-mpg-by-2025 standard. Auto dealers and some manufacturers have been saying the standard will make cars so expensive consumers won't be able to afford them.
But now, the Consumer Federation of America (CFA) is fighting back, saying more efficient cars must be a top consumer protection priority and releasing what it calls the top ten reasons the new standard will save consumers money.
“What’s not to like?” said Mark Cooper, Director of Research for CFA, of the 54.5 mpg standard, which is expected to be adopted late this summer. “Better gas mileage means more money in Americans’ pockets. Last year household gasoline expenditures set a record, reaching an average of over $2,850. Consumers can’t stomach these prices and the new standards are the only way they’re going to get some relief.”
The National Automobile Dealers Association (NADA) says there's plenty not to like. It released a study in April indicating that higher vehicle prices resulting from proposed fuel economy rules will cut millions of potential new-car buyers out of the market in 2025.
“To work, fuel economy improvements must be affordable,” said Don Chalmers, president of Don Chalmers Ford in Rio Rancho, N.M. “While you can mandate what automakers must build, you can’t dictate what customers will buy, nor can you dictate if a bank will make a loan.”
Here are CFA’s ten reasons why steadily raising fuel economy standards to 54.5 mpg by 2025 for passenger cars and trucks will benefit consumers and the nation:
(1) The standards lower the total cost of driving from the minute you drive off the lot. For the typical consumer who takes out a five-year auto loan, the monthly gas savings are greater than the increase in the monthly payment needed to buy a more fuel-efficient vehicle. Over the life of a vehicle covered by the new standards, the average buyer will bank a net savings of $3,000.
(2) The standards improve gradually over time, allowing the auto industry to build up their new, more fuel-efficient vehicles at a reasonable, steady pace. Car companies redesign their vehicles on a three-to-five-year schedule, so introducing new technologies can take time. Increasing efficiency over time makes the introduction of new technology achievable.
(3) Consumers will choose the vehicles they want. If they want a truck or an SUV, they’ll be able to buy them, but the vehicles will just be more efficient. Under the standards, different classes of vehicles are required to meet different standards. Standards are higher for compact cars and lower for SUVs and pick-up trucks. Automakers do not have to switch to selling only compact cars and sedans to meet the standards.
(4) Consumers can choose the technologies they want—they won’t be forced to buy into any one technology. Automakers will be able to meet the standards by improving gasoline-powered vehicles, or they can decide to delve into hybrids, electric vehicles, and other more advanced technologies. The standards do not favor any particular technology. Automakers will compete to deliver the best mix of vehicles across types and technologies. Consumers will have the full range of choices, and automakers will be able to offer the vehicles they think will sell best.
(5) Consumers will enjoy better, more fuel-efficient vehicles from ALL automakers. Under the standards, no single company can shirk the rules. If an automaker does not meet the standards, it will pay a fine. The major automakers support the standards because they know they can meet it—and they know that it is in their best interests to compete under a national standard that applies to all automakers.
(6) The standards will make the U.S. auto industry stronger. The rules are set at a level that puts the U.S. on par with the global auto market. In order to compete, automakers must spread the costs of product development across products that rely on a platform that meets global demand. Edging closer to international mileage standards for efficiency also makes American vehicles more competitive.
(7) Consumers value fuel-economy -- it's a worthwhile improvement in quality. It’s expected that the new standards will increase auto prices by about $300 per year over the next 15 years. That is less than the increases the automakers have imposed on the public by voluntary increases in quality over the past 15 years and today. Better fuel economy is priority #1 for enhancing quality.
(8) Consumers will be able to finance fuel-efficient vehicles. With gasoline now being the highest cost of driving - higher than most Americans’ monthly car payment - some banks have begun to recognize that more fuel-efficient vehicles are more affordable, and are factoring that into their lending decisions.
(9) Lower income households will not be hurt by the new standards. Critics who want to keep consumers tethered to the expensive gasoline pump claim that the small increase in upfront cost could hypothetically render very low income-households ineligible for new car loans. This argument is a red herring. Consumer data shows that lower-income households are very unlikely to be in the new car market. These individuals are much more likely to buy used vehicles.
(10) In fact, lower income Americans are likely to benefit from the standards. Low-income families buy used cars. The standards will accelerate fleet turnover, increasing the supply of used cars.
“These ten reasons why the new fuel economy standards are good for consumers also show why they are good for the nation and enjoy the support of not only consumers, but automakers, labor unions, national security experts and environmentalists,” Cooper concluded.
NADA thinks not
The auto dealers say the proposed rules, combined with the Obama administration’s previous fuel economy mandates, will raise the average price of passenger cars and light trucks for the 2025 model year by nearly $3,000, according to estimates by the Environmental Protection Agency and National Highway Traffic Safety Administration. CFA, as noted above, estimates the increase at $300 per year over the next 15 years, for a total of $4,500.
The NADA study claims that nearly 7 million lower-income consumers, such as college students and working families, will not qualify for auto financing to cover the additional cost.
“Loan qualification is based mainly on the customer’s income, existing debt and the vehicle’s price,” Chalmers said. “The resulting calculation is simple: fewer car shoppers will qualify for auto financing with higher vehicle costs.”
The study is based on an evaluation of a consumer expenditures report from the U.S. Bureau of Labor Statistics. NADA analyzed the financial profiles and purchasing behavior of a large sample of U. S. consumers to calculate debt-to-income ratio for households.
“The unintended consequences of the proposed fuel economy increases are clear,” said David Wagner, the primary author of the study and an analyst with the NADA Used Car Guide. “If the price of a vehicle goes up by the government estimate of almost $3,000, millions of people will no longer be able to finance a new vehicle.”
Doug Greenhaus, NADA’s chief regulatory counsel for environment, health and safety, says the government needs to better understand the impact of the proposed fuel economy rules on consumers and auto lending before doubling down on new mandates.
“Disregarding vehicle affordability will undermine the environmental and national security benefits the administration is seeking,” Greenhaus said. “The proposed MY 2017-2025 fuel economy rules should be delayed until there is a more accurate picture of how prospective buyers likely will react.”
Will higher mileage vehicles save consumers money or price them out of the new-car market? That's the debate that's being heard as the Obama Administ...