Within the last week two new studies have been released, one pointing to the average price of a new car being sold being at the highest point ever, the other that the average fuel economy of new cars being sold is higher than ever. It is no coincidence that they are occurring simultaneously.
Making cars more fuel efficient is expensive. It requires expensive research and development, as well as expensive materials and because of that the National Automobile Dealers Association is predicting that in the year 2025, there will be 7 million fewer new cars will be sold as a result of the added cost being mandated by CAFE (Corporate Average Fuel Economy) standards.
Why 2025? Because 2025 marks the year when the final and most stringent set of fuel economy standards will be imposed on automakers in the U.S. by the Environmental Protection Agency via new CAFE rules. The new rules will mandate a fleet-wide average fuel economy rating of 56.2 miles per gallon. The intention is to protect the environment by forcing consumers to buy more fuel efficient cars, but the unintended consequence is that owners are holding onto their vehicles longer than ever, which means the oldest and most harmful (to the environment) vehicles are being driven longer.
NADA points out that CAFE rules will increase the cost of new cars by about $3,000 per car, after adjusting for inflation in 2025. Because of that extra $3,000 in fixed cost in new vehicles, NADA's study predicts that lower income buyers (students, first-time buyers, recent college graduates, single parents, etc) will be denied financing to purchase what would have amounted to 7 million new vehicles in 2025.
"Loan qualification is based mainly on the customer's income, existing debt and the vehicle's price,"ť said Don Chalmers, NADA chairman of the government affairs committee. "The resulting calculation is simple: fewer car shoppers will qualify for auto financing with higher vehicle costs."ť
The figures used to determine the 7 million vehicle figure were both government-sourced, NADA pointed out, with the nearly $3,000 vehicle price hike coming from a federal estimate, and the purchasing behavior information coming from a report by the U.S. Bureau of Labor Statistics.