WASHINGTON — The National Automobile Dealers Association (NADA) released a study today 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., at a press briefing today. “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.”
“If my customers can’t buy what I’ve got to sell, there are no savings at the gas pump and there is no environmental benefit,” added Chalmers, chairman of NADA’s Government Affairs Committee. “If car and truck buyers do not purchase these new products, we all lose.”
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.
The NADA study, “The Effect of Proposed MY 2017-2025 Corporate Average Fuel Economy (CAFE) Standards on the New Vehicle Market Population,” points out 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.”
