NCPA - National Center for Policy Analysis

Fuel Efficiency Proposal Will Price out Millions of Buyers

February 22, 2012

The Obama administration has been creating higher fuel standards for domestic car manufacturers that will extend well into the next decade, in hopes of reducing aggregate emissions.  Thus far, the auto manufacturers have been supportive of the proposed regulations, but more stringent standards reaching as far as 2025 have caused a backlash among car companies, says Fox News.

  • The government has already mandated an average fuel economy of 35.5 miles per gallon by 2016.
  • The latest proposal would raise this requirement to 54.5 miles per gallon by 2025.
  • The Obama administration, in support of the new proposal, has stated that the average consumer by purchasing a more fuel-efficient vehicle would save between $5,200 and $6,600 on gas over the life of the vehicle.

However, the National Automobile Dealers Association (NADA) has responded that the administration's projections as to the impact of its new policies underestimate its impacts on buyers.  They argue that the new policies will create a substantial burden on car companies in terms of compliance costs, and will in turn raise the prices faced by consumers.

  • While the Obama administration has pegged the additional cost faced by the average consumer at $3,000, the NADA has stated that this estimate ignores certain fixed costs, and that the real figure is closer to $5,000.
  • Nevertheless, using the conservative $3,000 estimate, the NADA has projected that by 2025, 6.8 million car buyers will be priced out of the market, unable to get a loan to make the purchase.
  • Furthermore, the Alliance of Automobile Manufacturers has stated that compliance costs for the first phase of regulations will total $52 billion, while the second phase will cost between $133 billion and $157 billion.

The ultimate question, then, seems to be what the aggregate benefits of the policy will be.  While the Obama administration emphasizes the lower fuel costs that consumers will realize by more efficient fleets of vehicles, the question remains whether or not consumers will be able to afford the new makes.  Auto dealers' estimates suggest that many will not.

Source: Judson Berger, "Auto Dealers Warn Fuel Efficiency Proposal Will Price out Millions of Buyers," Fox News, February 15, 2012.

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