Nearly 7M consumers couldn’t afford new cars under standards — study

Source: Jason Plautz, E&E reporter • Posted: Friday, April 13, 2012

Despite current rising sales of fuel-efficient vehicles with higher gas prices, the nation’s auto dealers are warning that federal fuel economy standards could raise vehicle prices so much that millions of potential drivers would be forced out of the new-car market.

In a report released today, the National Automobile Dealers Association found that 6.8 million drivers would not qualify for a new car loan if vehicle prices rose $3,000 by 2025. That number would rise to more than 10 million drivers if the price went up by $5,000, as estimated by the auto dealers in a previous study.

The predicted $3,000 increase is pulled from estimates by U.S. EPA and the National Highway Traffic Safety Administration and reflects the cost impact of implementing new technology to meet a mandated 54.5 mpg fleetwide standard by 2025.

“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,” said Don Chalmers, a New Mexico auto dealer and chairman of NADA’s Government Relations Committee.

“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. If car and truck buyers do not purchase these new products, we all lose.”

Environmental groups have argued the higher vehicle cost can be offset by gasoline savings due to better fuel economy, especially if gas prices continue to rise. The Obama administration has estimated that drivers could see $8,000 in fuel savings over the lifespan of the vehicle, while other studies have reported paybacks in as short as three to five years.

But, the auto dealers said, those savings are moot if drivers can’t get into a car in the first place. Currently, banks and other lending agencies consider vehicle cost when administering loans, along with income, debt and other financial factors. Savings through fuel economy are not considered in the loan.

In the study, NADA researchers compared increased vehicle costs using a Chevrolet Aveo — the most affordable car researched — as a benchmark. Researchers found that increasing the vehicle price by $3,000 meant the number of people eligible for a loan under current requirements would drop by 4.3 percent. That percentage rose along with increasing vehicle prices.

NADA has said it would like the administration to slow down its work on the standards to review the potential impacts on auto sales and jobs.

The findings run counter to a report released last week by green investment firm Ceres and Citi Investment Research and Analysis, which found that automakers would see profits and sales rise under fuel economy standards. According to that report, automakers would see a 5.3 percent bump in sales by 2020 as consumers went for the more efficient vehicles, especially if gas prices continued to be volatile (E&ENews PM, April 4).

John Cross, a transportation advocate with Environment America, said the NADA study did not line up with recent auto sales figures, which say rising demand for fuel-efficient cars is buoying an overall boost for the auto market.”All of the big Detroit companies have seen sales increases, and they’re saying that fuel efficiency is driving those sales,” Cross said. “There’s no way these standards are not an all-around win for the industry and the country.”

Click here to read the study.