Fuel Economy Rules May Affect Future New Car Sales

As if rising gas prices weren’t bad enough, now consumers have something else to worry about when it comes to buying a new car in the future. Current proposed fuel economy rules and the Obama administration’s previous fuel economy mandates may raise the average price of new passenger cars and light trucks by nearly $3,000! NADA released a study on April 12th about the effects these proposed standards will have on the consumers and the new vehicle market, and their Magic Eight ball shows: Outlook Not So Good.

So, how did we get to this place, where most Americans will not be able to afford a new car, much less the gas they need to fuel that car? To understand what’s at the core of this issue, we need a little history lesson. Get ready for some acronyms:

In 1975, Congress enacted the CAFE program (Corporate Average Fuel Economy) to reduce energy consumption by increasing the fuel economy of cars and light trucks. There are two major players involved with CAFE: The NHTSA (Nation Highway Traffic Safety Administration), which administers the CAFE program and is responsible for setting fuel economy standards; and the EPA, which provides fuel economy data and calculates the average fuel economy for each manufacturer.

With direction from President Obama, the NHTSA and EPA issued a Notice of Proposed Rulemaking (NPRM) for Fuel Economy and Greenhouse Gas emission regulations for MY 2025 light-duty vehicles. These new regulations will effectively raise the price of the average car/light truck by $3,000. While the goal of this legislature is good – it addresses our dependence on imported oil in the US, looks to save consumers money at the pump, and attempts to reduce emissions of greenhouse gases – it seems that in our haste to pass legislation for the greater good, these new regulations may create a very bad situation for new car buyers and manufacturers.

In fact, NADA estimates that nearly 7 million lower income consumers, such as college students and working families, will not qualify for auto financing for these higher priced new cars. Higher new car prices, a poor economy and tougher Bank restrictions for loans will make it more difficult for the average consumer to buy a new car. (NADA’s study is based on a report from the US Bureau of Labor Statistics on consumer expenditures, which analyzes consumer debt-to-income ratios.)

So what do we do? Hope for better public transportation? Dream of new technologies that will make cars more fuel efficient? Move closer to the office and walk to work? Buy a used car and guzzle gas the old fashioned way? I will refer to the Magic 8 Ball for the solution:

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